JOSEPH LESLIE & COMPANY LLP,MUMBAI vs. CIRCLE 22(1), MUMBAI, LALBAUG

This appeal is directed against order dated 17.12.2021 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19. The appeal was originally heard on 18.05.2020 and adjudicated on 25.05.2020, however subsequently, by way of order in Miscellaneous Application No. 73/Mum/2023 the Tribunal recalled this order on 13.04.2023 and hence this appeal P a g e | 2 Joseph Leslie & Company LLP came before us for hearing. The grounds raised by the assessee are reproduced as under:

A. Additions of Rs. 4,34,2367- under head income from business and profession.

2. Despite notifying neither anyone attended on behalf of the assessee nor any application for adjournment was filed and therefore, in the circumstances, we were of the opinion that assessee was not interest in prosecuting this appeal, thus the P a g e | 3 Joseph Leslie & Company LLP Ld. Departmental Representative (DR).

3. The only issue involved in the appeal is allowability of deduction for employee’s contribution to Provident Fund/ESIC deposited after the due date under the relevant Acts. The ld CIT(A) on the issue adjudicated as under:

“Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43Bon employee contribution as well. There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. Accordingly, in order to provide certainty, it is proposed to – Amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the – due date) under this clause ; andamend section 43B of the Act by inserting Explanation 5 to the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applied.

P a g e | 4 Joseph Leslie & Company LLP These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. [Clauses 8 and 9] Here there is a plea / question as to whether the amended provisions would apply only from the assessment year 2021-22 and subsequent assessment years or retrospectively. In this context, it would be pertinent to bring attention to three case laws of Supreme court on retrospectively of an amendment. These three cases are co-related, and need to be read in a sequence, as below: - Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR (SC) 733 CIT vs. Raman Lal C. Hathi (2008) 217 CTR (SC) 105 CIT Vs. Gold Coin Health Food (P) Ltd., (2008) 304 ITR 308 (SC) In the case of Virtual Soft Systems Ltd. amendment to section 271(1)(c) was held to be prospective by the Apex Court, as the statute categorically stated that it would apply w.e.f. 01.04.2003. On this ground, the Supreme Court held that the amendment cannot be applied to the period prior to 01.04.2003. However, subsequently while deciding the case of Raman Lal C. Hathi, the Apex Court once again examined the same amendment to section 271(1)(c), and came to the conclusion that the law laid down by the Division Bench in the case of Virtual Soft Systems Ltd. (supra) needed reconsideration. Accordingly, the issue was placed before a larger bench of Supreme Court in the case of Gold Coin Health Foods. On receiving this reference, the larger Bench held as below: 6. It would be of some relevance to take note of what this Court said in Virtual’s case (supra). Pointing out one of the important tests at 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory of declaratory, that is not the end of the matter. The Court has to analyze the nature of the amendment to come to the conclusion whether it is in P a g e | 5 Joseph Leslie & Company LLP reality of clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive. After discussing the issue in detail and referring to various case laws, the Supreme Court in the case of Gold Coin Health Food held that amendment to section 271(1)(c) was retrospective, even though as per the amended statute it came into force w.e.f. 1st April, 2003. In another important case of CIT vs Vs. Podar Cement (P) Ltd., 226 1TR 0625 (1997), the Supreme Court placed reliance on the Memorandum explaining provisions in Finance Bill, 1987, and held that amendment to be retrospective. The said amendment was brought in Sec.27 of the Act, by Finance Act 1987, and it was held to be retrospective in this case, despite the fact that Memorandum explaining the amendment/provisions in Finance Bill, 1987, said that these amendments will take effect from 1st April, 1988, and will, accordingly apply in relation to the Asst. year 1988-89 and subsequent years. The above case laws settle the position that the date/year from which the amendment is made operative does not conclusively decide the question, and the scheme of the statute must be examined prior to the amendment and subsequent to the amendment, to determine whether amendment is retrospective or prospective. ITAT Delhi ‘F’ Bench, New Delhi in the case of M/s Vedvan Consultants Pvt. Ltd. v. DCIT, CPC, Bangaluru in for assessment year 2018-19 has dismissed the appeal of the assessee after discussing the issue in details and after elaborate discussion and after keeping in view the order of the Co-ordinate Bench of the Tribunal in the case of Eagle Shipping & Logistics (India) (P) Ltd. v. ACIT in ITA No. 324/Del/2017 order dated 25.07.2019 which relied on the judgment of the Hon’ble High Court of Delhi in the case of CIT v. Bharat Hotels Ltd. (410 ITR 417).

P a g e | 6 Joseph Leslie & Company LLP AS per the above discussions, it is amply clear that the amended provisions being clarificatory in nature would apply retrospectively. In view of the above discussion and after finding no illegality or perversity in the impugned order of the Assessing Officer, the appeal filed by the assessee is hereby dismissed.” 3.1 We find that issue in dispute is squarely covered by the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT reported in 143 taxmann.com 178,wherein, Hon’ble Supreme Court, held that employees’ contribution to PF/ESIC etc deposited after due date under relevant Acts is not allowable in terms of section 36(1)(va) of the Act, therefore, respectfully following the same, the claim of deduction of PF/ESIC of Rs. 4,34,236/- deposited after due date under the relevant Acts is not allowable. The finding of the Ld. CIT(A) on the issue in dispute is accordingly upheld. The grounds of appeal of the assessee are dismissed.