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Income Tax Appellate Tribunal, MUMBAI BENCH “ H”, MUMBAI
आयकर अपीलीय अिधकरण मुंबई पीठ “एच ”,मुंबई �ी िवकास अव�थी, �ाियक सद� एवं सु�ी प�ावती. एस, लेखाकार सद� के सम� IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “ H”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER& MS. PADMAVATHY.S, ACCOUNTANT MEMBER आअसं.1728/मुं/2022 (िन.व. 2018-19) (A.Y.2018-19) Coronation Cigar Co. 63, MG Road, Fort, Mumbai 400 001. PAN: AAEFC-3151-A ...... अपीलाथ�/Appellant बनाम Vs. The Deputy Commissioner of Income-tax Circle -17(1) 1st Floor, Kautiliya Bhavan, Bandra Kurla Complex, Mumbai – 400 051. ..... �ितवादी/Respondent Assessee by : S/Shri Falee Bilimoria & Furquan Ahemad Revenue by : Shri Prashant Mahajan सुनवाई की ितिथ/ Date of hearing : 12/07/2023 घोषणा की ितिथ/ Date of pronouncement : 22/09/2023 आदेश/ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short ‘CIT(A)’] Delhi dated 26/05/2022 , for the Assessment Year 2018-19.
The assessee in appeal has raised eight grounds. Ground No.1 to 6 of the appeal are on the single issue i.e. disallowance u/s. 36(1)(va) of the Income Tax Act, 1961 [in short ‘the Act’] on late payment of employees share of contribution to provident fund aggregating to Rs.77,093/-.
2.1 The ground No.7 and 8 of appeal are against charging of interest u/s. 234B and 234C of the Act, respectively.
2.2 The assessee has raised an additional ground of appeal, the same reads as under:-
The learned CIT(A), National Faceless Appeal Centre erred in upholding the disallowance of the deduction claimed under Section 36(l)(va) of the Act by the Appellant towards the Employees' contribution to Provident Fund under the guise of making a primafacie adjustment under Section 143(1) of the Act and upholding the same under Section 154 of the Act.
3. Shri Falee Bilimoria appearing on behalf of the assessee submit that the assessee had filed return of income for the impugned assessment year on 30/10/2018, inter-alia, claiming deduction u/s. 36(1)(va) of the Act in respect of contribution towards employees provident fund. Admittedly, contribution towards provident fund was made after the ‘due date’ as specified under the relevant Act, but before the due date for filing return of income. The return of income was processed u/s. 143(1) of the Act disallowing assessee’s claim of deduction u/s. 36(1)(va) of the Act. The assessee filed rectification petition u/s. 154 of the Act, the same was rejected vide order dated 17/12/2019. The ld. Authorized Representative of the assessee submitted that when the assessee had filed return of income, the claim was made on the basis of decision of Hon'ble Jurisdictional High Court in the case of Gadge Patil Transports Ltd., 368 ITR 749 (Bom). There were contrary decisions by non- Jurisdictional High Courts on same issue as well. This makes the issue debatable. In proceedings u/s. 143(1)(a) of the Act no disallowance can be made on debatable issue. To support his submission he placed reliance on the decision rendered in the case of CIT vs. Richa & Company, 252 ITR 40 (Del).
4. Per contra, Shri Prashant Mahajan representing the Department vehemently defended the impugned order. The ld. Departmental Representative submitted that now the issue is well settled by the Hon’ble Supreme Court of India in the case of Checkmate Services (P) Limited Vs. CIT,448 ITR 518(SC). He prayed for upholding the impugned order and dismissing appeal of the assessee.
We have heard the submissions made by rival sides, examined the orders of authorities below and have considered the decision on which the ld. Authorized Representative of the assessee has placed reliance.
This appeal by the assessee emanates from the order passed u/s. 154 of the Act. In assessment proceedings u/s. 143(1) of the Act the assessee’s claim of deduction u/s. 36(1)(va) in respect of employees share of contribution towards provident fund made after the ‘due date’ as specified under the Provident Fund Act & Rules was disallowed. The Hon'ble Apex Court in a recent decision rendered in the case of Checkmate Services (P) Ltd. vs. CIT (supra) has held as under:-
“37. It is evident that the intent of the lawmakers was clear that sums referred to in clause (b) of section 43B. i.e., "sum payable as an employer, by way of contribution" refers to the contribution by the employer. The reference to "due date" in the second proviso to section 43B was to have the same meaning as provided in the explanation to section 36(1) (va). Parliament therefore, through this amendment, sought to provide for identity in treatment of the two kinds of payments: those made as contributions, by the employers, and those amounts credited by the employers, into the provident fund account of employees, received from the latter, as their contribution. Both these contributions had to necessarily be made on or before the due date. ……………………………… ……………………………… ……………………………… 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 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 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.” The Hon'ble Apex Court in an unambiguous terms has made it clear that the law as it always was that employees share of contribution has to be deposited before the ‘due date’ as specified under the relevant Act to be eligible for deduction u/s. 36(1)(va) r.w.s. 43B of the Act. Thus, in so far as the provisions of the section are concerned, the decision rendered by Hon'ble Apex Court leaves no scope of ambiguity.
The CPC while processing return of income has disallowed the claim of deduction u/s. 36(1)(va) of the Act in accordance with the provisions set out u/s.143(1)(a) of the Act. The assessee’s claim of deduction u/s. 36(1)(va) was an incorrect claim in the light of provision explained by the Hon'ble Apex Court. Hence, we find no merit in the argument raised by the ld. Authorized Representative of the assessee.
The ld. Authorized Representative of the assessee has placed reliance on the decision in the case of CIT vs. Richa & Company (supra). We find the same to be distinguishable on facts. In the said case after intimation u/s. 143(1)(a), the Assessing Officer initiated action u/s. 154 of the Act on the ground that in view of retrospective amendment the assessee’s claim for deduction u/s. 80HHC was to be altered. The assessee succeeded before the Tribunal. The Tribunal after examining the facts held that adjustment could not have been made u/s. 143(1)(a) of the Act, being debatable issue. On further appeal by the Department, the Hon’ble High Court upheld the findings of Tribunal. The Hon'ble High Court further clarified that the law is well settled that section 154 has no application where debatable issues are involved. We are in agreement with the law reiterated by the Hon’ble Delhi High Court that debatable issues cannot be part of rectification proceedings and summary assessments. In so far as adjustment u/s. 143(1)(a) of the Act in the instant case is concerned, the issue is settled, the Assessing Officer had made adjustment in accordance with the provisions of the Act.
Thus, ground No.1 to 6 and additional ground of appeal are dismissed.
10. In ground No.7 & 8 the assessee has challenged charging of interest u/s. 234B & 234C of the Act. Levy of interest under the aforesaid sections is consequential and mandatory. Hence, ground No.7 & 8 of appeal are dismissed being devoid of any merit.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on Friday the 22nd day of September, 2023.