GOLFGREEN INFRA PRIVATE LIMITED,DELHI vs. ASSTT. COMMISSIONER OF INCOME TAX, , DELHI

This appeal by the assessee is directed against the order of ld. CIT (Appeals)-26, New Delhi dated 06.12.2021 pertaining to the Assessment Year 2019-20.

The assessee has taken the following grounds of appeal :- “1) That CIT(A) is erred under the law while confirming the order as framed by CPC u/s 143(1) of the Act after making adjustment of impugned prima facie adjustments u/s 143(1) (a) of the Act in the returned income of the appellant. ./2022 2) That the CIT(A) is not justified in law and facts while confirming the adjustment of Rs.11,87,663 u/s 36(l)(va) of the Act as made by CPC without appreciating the fact that the appellant has duly deposited all employee contribution to PF/ ESI before due date of filing of ITR u/s 139(1)and the amendment as made in the section by finance bill 2020 is effective from A.Y 2020-21 .

At the outset, in this case, ld. Counsel of the assessee contended that the issues involved are squarely covered by the decision of ITAT in for AY 2019-20 in the case of Logix Heights Pvt. Ltd. vide order dated 02.02.2023.

Per contra, ld. DR of the Revenue did not dispute the above proposition.

Upon careful consideration and having gone through the orders of authorities below and case law cited, we find that ground relating to delayed payment of PF & ESI has been decided in the said case against the assessee. The operative portion of the ITAT order in this case read as under :-

When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received ./2022 from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.

The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked ./2022 distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.

In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s ./2022 contribution on or before the due date as a condition for deduction.

In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”

Respectfully following the aforesaid precedent, these issues are decided against the assessee.

One issue raised pertains to confirmation of adjustment of Rs.12,55,400/- under section 37 of the Income-tax Act, 1961 (for short 'the Act') as made by the CPC without appreciating the fact that interest as paid by the assessee on late deposit of TDS is allowable expenditure u/s 37 (1) of the Act.

We note that this issue is decided by the ITAT in the aforesaid case as under :-

Since the ITAT in similar situation has held that the issue is debatable and outside the purview of section 143 (1) of the Act, we set aside the orders of the authorities below on this issue and decide this issue in favour of the assessee.

In the result, assessee’s appeal stands partly allowed. Order pronounced in the open court on this 16th day of March, 2023.