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Income Tax Appellate Tribunal, ‘D‘ BENCH
Before: SHRI AMIT SHUKLA & MS PADMAVATHY S
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS PADMAVATHY S, ACCOUNTANT MEMBER ITA No.1928/Mum/2021 (Assessment Year :2019-20) M/s. Mahindra And Vs. Deputy Commissioner Mahindra Financial of Income Tax Circle Services Ltd. 7(1)(1), Mumbai Sadhana House Aayakar Bhavan 2nd Floor, 570, Maharshi Karve Road P.B. Marg, Worli New Marine Lines Mumbai-400 018 Churchgate-400 020 PAN/GIR No.AAACM2931R (Appellant) .. (Respondent) Assessee by Shri Viral Shah Revenue by Smt. Mahita Nair Date of Hearing 09/05/2023 Date of 12/05/2023 Pronouncement आदेश / O R D E R PER AMIT SHUKLA (J.M):
The aforesaid appeal has been filed by the assessee against the impugned order dated 13/09/2021, passed by NFAC, Delhi for the quantum of assessment passed u/s.143(1) of the IT Act for the A.Y.2019-20.
The following grounds have been raised by the assessee:-
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“Being aggrieved by the order of Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (hereinafter referred as 'CIT(A)'), dated September 13, 2021 and the intimation passed by the Assistant Director of Income Tax, Central Processing Centre, Bengaluru ('the Assessing Officer') under section 143(1) of the Income-tax Act, 1961 (the Act), the Appellant submits the following grounds of appeal for your sympathetic consideration: A) On the facts and the circumstances of the case and in law, the order of the CIT(A) has been passed without providing an opportunity of being heard (video conferencing) and in violation of principles of natural justice and thus, the order is void ab- initio B) On the facts and the circumstances of the case and in law, the CIT(A) and Assessing Officer erred in making adjustment on account of disallowance u/s 36(1)(va) of the Act, even though the same is not permissible u/s 143(1)(a)(iv) of the Act and without jurisdiction. C) On the facts and the circumstances of the case and in law, the CIT(A) and the Assessing Officer erred in disallowing a sum of Rs. 3,07,01,091 under section 36(1)(va) of the Act for the delay in crediting the employees' contribution received to Provident Fund. D) On the facts and the circumstances of the case and in law, the CIT(A) and the Assessing Officer failed to appreciate that the employees' contribution was allowable under section 43B of the Act. E) On the facts and the circumstances of the case and in law, the CIT(A) and the Assessing Officer failed to appreciate that the amendment to section 36(1)(va) by the Finance Act 2021 (which provided for the disallowance of delayed deposit of the employees' contribution received to Provident Fund) was applicable from the AY 2022-23 and not for the year under appeal.
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F) Without prejudice to the above grounds of appeal, on the facts and the circumstances of the case and in law, the CIT(A) failed to appreciate the typographical mistake in the tax audit report and also ignored the auditors certificate clarifying the inadvertent error The CIT(A) erred in not restricting the disallowance to Rs. 1,53,50,545 as against double disallowance made of Rs. 3,07,01,091 (.e. 1,53,50,545*2).
Facts in brief are that assessee company e-filed the Return of Income for the AY 2019-20 on 29/11/2019. Thereafter, the return of income was revised on 11/08/2020 to claim the deduction of education cess and excess TDS credit. The said return was processed u/s. 143(1) of the Act vide intimation dated 31/12/2020 disallowing a sum of Rs.3,07,01,091/- towards PF u/s. 36(1)(va) of the Act.
The only issue raised in the grounds of appeal is with regard the CPC's action in making a disallowance of 3,07,01,191/- u/s 36(1)(va) of the Act on account of late deposit of Provident Fund/ESI.
The ld. CIT (A) has confirmed the disallowance after observing as under:-
4.2 I have examined the issue. It is matter of fact that the appellant has not paid the employee's contribution towards PF/ESI totalling to Rs. 3,07,01,091/- within the due date provided under the relevant law. The provisions, the Act are very clear on the issue. Clause (24) of Section 2 of the Act provides an inclusive definition of the income Sub-clause (x) to the said clause provides that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the
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provisions of ESI Act or any other fund for the welfare of such employees. 4.3 Section 36 of the Act pertains to the other deductions Sub- section(1) of the said section provides for various deductions allowed while computing the income under the head "Profit and gains of business or profession". Clause (va) of the said sub- section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, 'due date" shall mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund in accordance with any Act, rule, order or notification issued there-under or under any standing order, award, contract of service of otherwise. 4.4 Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. Accordingly to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee's contribution referred to in clause (va) of sub-section (1) of section 36 of the Act, though section 43B of the Act covers only employer's contribution and does not cover employee's contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer's contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure that 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
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PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee's 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 4.5 Accordingly, in other to provide certainty, the finance Act, 2021 amended clause (va) of sub-section (1) of the 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 purposed of determining the "due date" under that clause; and also amended section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of 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 applies. 4.6 Keeping in view the amendments made by the Finance Act, 2021 in section 36 and section 43B of the Act and that these amendments are clarificatory in nature, the addition made by the CPC, Bangalore on account of delayed payment of employee's contribution of PF/ESI of Rs. 3,07,01,091/- is confirmed. Therefore his ground of appeal is in respect of this issue is dismissed.
After considering the submissions made by the parties and also gone through the relevant finding during the impugned order as well as material placed before us, the facts emanating from the impugned order are that the assessee had accrued employees PF liability of Rs.4,22,47,146/- for the month of March 2019. This liability was paid as follows:-
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a) Rs.2,68,96,601 paid on April 12, 2019 b) Rs.1,53,50,545/- paid on May 2, 2019 7. The above liability for the month of March 2019 was disclosed in the following manner in the Tax Audit Report.
Sr. Reference in EPF payable Amount Payment date Remarks No the Tax Audit for the paid (Rs.) . Report month of March 2019 (Rs.) 1 Point No. 24 4,22,47,146 2,68,96,601 12/04/2019 The amount of at Clause 20 Rs.4,22,47,146 was inadvertently reported instead of Rs.2,68,96,601/- The differential amount of Rs.1,53,50,545 was paid on 02/05/2019, which was separately disclosed at point no.25, referred below. 2 Point No.25 1,53,50,545 1,53,50,545 02/05/2019 at Clause 20
24 Provident 42247146 15/04/2019 26896601 12/04/2019 Fund 25 Provident 15350545 15/04/2019 15350545 02/05/2019 Fund
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Before us it has been contended that, while processing the return, the CPC noted delayed deposit of amount of Rs.3,07,01,100/- which was nothing but double amount of Rs.1,53,50,545/- which liability has been shown twice as noted above. Due to such inadvertent error, CPC has made disallowance of Rs.3,07,01,100/- u/s.36(1)(va) of the Act. Thus, EPF liability of Rs.4,22,47,146/- has been paid, however, the tax audit reflected short payment of Rs.1,53,50,545/-(difference of Rs.4,22,47,146 less Rs. 2,68,96,601) (in row no 24 of clause 20(b)) and a payment of Rs. 1,53,50,545 after the due date under the EPF Act. The aggregate of these (i.e. Rs. 3,07,01,090) is disallowed under section 36(1)(va). Thus, before the ld. CIT(A), it was submitted that the difference of Rs.1,53,50,545/- is inadvertent reporting error and the correct amount to be reported was Rs. 2,68,96,601/- instead of 4,22,47,146/-. Therefore, it was prayed that disallowance of Rs.1,53,50,545/- was nothing but inadvertent error. This fact was clearly borne out from the records, however, the ld. CIT(A) has not given consequential relief.
We find that, it is an admitted fact that total accrued employees PF liability for the month of March 2019 was Rs.4,22,47,146/- out of which Rs.2,68,96,601/- was paid before the due date i.e.15/04/2019. Only Rs.1,53,50,545/- was paid on 02/05/2019 which is a belated payment as per the provision of the PF Act. Thus, the double disallowance of twice the amount of
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Rs.1,53,50,545/- is uncalled for and is deleted and accordingly, the disallowance if at all is to restricted to Rs.1,53,50,545/- only.
Now, in so far as the delayed payment of employees PF of Rs.1,53,50,545/- is concerned, the assessee’s contention has been that –
Firstly, there is only a marginal delay and in any case the deposit has been made on or before the due date of filing of return income u/s.139(1) and Secondly such adjustment is beyond the scope of Section 143(1)(a).
The issue whether, employees’ contribution of PF & ESI which has not been deposited before the due date under the relevant acts and regulations, can it be treated as deemed income u/s. 2(24)(x) r.w.s. 36(1)(va). There were various sets of judgments in favour of the assessee including the judgment of Hon’ble jurisdictional High Court. r.w.s. 36(1)(va), wherein it was held that if employee's contribution towards PF and ESI has been deposited on or before due date of filing of return u/s 139(1), the same has to be allowed. However, the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT reported in (2022) 448 ITR 518 (SC) held as under:-
“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
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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.
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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. 54. 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
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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. 55. 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. 12. The Hon'ble Supreme Court has considered the judgments of the Hon’ble High Court and analyzed the provisions of the law contained in section 2(24)(x), 36(1)(va) and 43B, and had come to the conclusion that if the deposit has been made after the due date prescribed under respective Acts, the same is not allowable. It is a trite law that once the Hon'ble Supreme Court has decided and settled the issue, then it becomes the law of the land and it has to be interpreted and understood as if it was from the date of the enactment of the statute/provisions. Once the delayed payment of employee's contribution to PF and ESI beyond the due date of respective Acts, has been interpreted to be deemed income, then the same is not allowable claim, therefore, no such deduction of claim can be allowed. In fact, it tantamounts to
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incorrect claim made in the return of income, which can be adjusted or disallowed. The scope of adjustments under Section 143(1)(a) reads as under:-
(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", if the return is furnished beyond the due date specified under sub- section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:
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Ergo, once there is incorrect claim apparent from the return of income, then the section provides that adjustment has to be made. The Auditor in the audited accounts only points out the date of payment and the due date prescribed under the respective Act (PF and ESI Act) and it is incumbent upon the assessee that, while computing the income he has to disallow the said payment, if it has been made beyond the due date. Thus, in view of the judgment of Hon’ble Apex Court, such claim cannot be allowed as it is an incorrect claim and therefore, it falls within scope of prima facie adjustment u/s.143(1). Accordingly, the disallowance of Rs.1,53,50,545/- is confirmed in view of the judgement of the Hon’ble Apex Court and such law is applicable retrospectively which tantamount to incorrect claim which needs to be disallowed / adjusted even within the scope of prima facie adjustment u/s.143(1). Accordingly, the appeal of the assessee is partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 12th May, 2023
Sd/- Sd/- (PADMAVATHY S) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 12/05/2023 KARUNA, sr.ps
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Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER,
(Asstt. Registrar) ITAT, Mumbai