RAJARAM SHANKARLAL SONAGRA,MUMBAI vs. DCIT CPC, BANGALORE

Rajaram ShankarlalSonagra, Dy. Commissioner of 2804/2805, The Address, Income Tax, CPC, Boulevard-1, Opp. R-City Mall, Bangalore, Karnataka-560100 Vs. LBS Road, Ghatkopar (W), Mumbai-400086. PAN No.AOWPS3153G Appellant) : Respondent) Appellant/Assessee by : None Respondent/Department by : Smt. Mahita Nair, Sr. DR Date of Hearing : 13.09.2023 Date of Pronouncement : 22.09.2023 O R D E R Per N. K. Choudhry, JM:

The Assessee/Appellant herein has preferred this appeal against the order dated 22.09.2021 impugned herein passed by Ld. Commissioner of Income Tax (Appeals)-7,Mumbai/National Faceless Appeal Centre {in short ‘Ld. Commissioner)’} under section 250 of the Income Tax Act 1961 (in short ‘the Act’).

Rajaram ShankarlalSonagra 2. Thisis recalled matter. Though the notice for the date of hearing on 13-09-2023 was sent to the Assessee through RPAD at the address mentioned in Form-36, however, the Assessee neither appeared nor filed any adjournment application, hence in the constrained circumstances, we are inclined to decide this appeal as ex-parte.

“52. 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 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

Rajaram ShankarlalSonagra that are permissible as expenditures, or outgoings 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.

Rajaram ShankarlalSonagra 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.