FA 2021 amendment disallowing employee’s contribution to ESI/PF has no retro-effect: ITAT

Case Details: Flying Fabrication v. DCIT - [2021] 133 taxmann.com 84 (Delhi - Trib.)

Judiciary and Counsel Details

• • Amit Shukla, Judicial Member and Prashant Maharishi, Accountant Member
  • Ms. Swati Talwar, Adv. for the Appellant.
  • Mrinal Kumar Das for the Respondent.

Facts of the Case

The assessee was engaged in providing security/labor/manpower services. For the Assessment Year 2018-19 & 2019-20, it had received notice for disallowance under section 36(1)(va) on account of delay in deposit of employee’s contribution towards PF/ESI.
On appeal, the National Faceless Appeal Centre held that the Finance Act, 2021 had brought amendments in sections 36 and 43 and these amendments are clarificatory. Thus, the addition made on account of delayed payment of employee’s contribution of PF/ESI was justified. Aggrieved-assessee filed the instant appeal before the Delhi Tribunal.
The Delhi Tribunal held that there was no occasion for making such a disallowance when assessee’s claim was based on employee’s contribution regarding PF and ESI have been paid before the due date of filing of return of income.

ITAT Held

The Co-ordinating bench has passed a series of the judgment holding that payment of employee’s contribution, if made before the due date of filing of the return, then same is an allowable deduction. The amendment brought by the Finance Act, 2021 in the provision of section 36(1)(va) and Section 43B by inserting Explanation 2 is perspective and cannot be held as retrospective in nature.

Accordingly, no disallowance can be made in the assessment year before the assessment year 2021-22.