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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee arises out of the order of ld. CIT (A)- 26, New Delhi dated 06.12.2021 and pertains to assessment year 2019-20.
The grounds of appeal taken by the assessee read as under :-
“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.12,82,072/- u/s 36(1)(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 .
3) That the CIT(A) is not justified in law and facts while confirming the adjustment of Rs.26,17,302/- u/s 37 of the Act as made by CPC without appreciating the fact that the interest as paid by the assessee on late deposit of TDS is allowable business expenditure u/s 37(1) of the Act.”
Brief facts of the case are that the assessee is engaged in the business of real estate development and construction in the eastern part of DELHI/NCR since the date of its incorporation. During the year under review, the assessee filed its e-ITR u/s 139 (1) declaring net taxable income of Rs.3,65,22,320/- as per downloaded copy of ITR V which has been processed u/s 143(1) at Rs.4,04,21,700/- after making following adjustments vide intimation dated 09.05.2020 :-
(i) Disallowance u/s 37 of the Act of Rs.26,17,302/-/-
(ii) Addition on account of late deposit of ESIC & employee & employer contribution u/s 36(1)(va) of Rs.12,82,072/-
As regards the addition made of Rs.12,82,072/- u/s 36(1)(va) of the Act being employees’ contribution towards PF & ESI, the same has been deposited by the assessee before the due date for filing of ITR u/s 139 (1) of the Act. Ld. CIT (A) considered the issue and referring to a newly contribution towards ESI & PF etc. will only be available if the amount is deposited before the date as specified in Clause 36 (va) of the Act and not before the due date for filing of return u/s 139 (1) of the Act. Therefore, he upheld the disallowance of Rs.12,17,302/-.
As regards issue of disallowance u/s 37 of the Act being interest on late deposit of TDS, ld. CIT (A) upheld the disallowance inter alia by referring the decision of ITAT, Mumbai Bench in the case of DNV GL AS (formerly known as DET Norske Veritas AS) vs. ADIT (International Taxation) in dated 31.05.2017.
Against this order, assessee is in appeal before us. We have heard both the parties and perused the records.
As regards the issue of late deposit of PF & ESI is concerned, we note that the said issue has been settled by Hon’ble Supreme Court in a batch of appeals in Civil Appeal No.2833 of 2016 in the case of Checkmate Service P. Ltd. vs. CIT-1 judgement dated 12.10.2022.
Hon’ble Apex Court has expounded that the employees’ contribution in this regard deposited after the due date specified in the relevant Act is not allowable. Concluding portion of Hon’ble Apex Court in this regard is as under :-
“51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil ./2022 Ltd; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.
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 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 ./2022 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 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 ./2022 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 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 precedent as above, we do not find any infirmity in the order of ld. CIT (A), hence we uphold the same on this issue.
As regards the issue of disallowance of interest on late payment of TDS, we note that ITAT, Delhi Bench in the case of M/s. Hebe No.257/Del/2022 vide order dated 23.08.2022 has adjudicated the identical issue as under :-
“8. Heard the parties perused the orders of the authorities below. On perusal of the order of the ld. CIT (Appeals) it is noticed that the disallowance made by the CPC, Bangalore in respect of interest paid by the assessee on delayed remittance of TDS placing reliance on the decision of the Jaipur Bench in the case of M/s. Govindam Clearing Agencies Pvt. Ltd. Vs. DCIT in dated 1.09.2020. On the other hand, we observe that the assessee placed reliance on the decision of the Kolkata Bench in the case of DCIT Vs. M/s. Narayani Ispat Pvt. Ltd., Kolkata (supra). On perusal of both the decisions of the Tribunal, we observe that there are divergent views on the issue. In our opinion, whether interest paid by the assessee on delayed remittances of TOS is allowable expenditure or not is certainly a debatable issue and, therefore, is outside the scope of purview of the provisions of section 143(1) of the Act. Thus, the CPC, Bangalore/ Assessing Officer is directed to delete the disallowance made in respect of interest paid on delayed remittances of TDS while passing the return under section 143(1) of the Act. Grounds raised by the assessee are allowed.”
From the above precedence, it is clear that the issue is debatable and, therefore, is outside the scope of purview of the provisions of section 143 (1) of the Act. Accordingly, respectfully following the precedence, we allow this issue in favour of the assessee.
In the result, this appeal filed by the assessee stands partly allowed. Order pronounced in the open court on this 2nd day of February, 2023 after the conclusion of the hearing..