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Income Tax Appellate Tribunal, ‘SMC‘
Before: SHRI AMIT SHUKLA & SHRI S RIFAUR RAHMAN
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 28/11/2022, passed by NFAC, Delhi against adjustments made u/s. 143(1) for the A.Y.2017-18.
The assessee has raised the following grounds of appeal:-
“GROUND I 1. On the facts and circumstances of the case, and in Law, the CITA erred in confirming the addition made by Asst. Director of Income Tax, CPC is bad at law.
2. On the facts and circumstances of the case and in law the CITA failed to appreciate that a. There is no discrepancy either clerical or technical in the return filed. b. All the disallowances made by the tax auditor are already added back to the income of the assessee while filing the return. c. The amount mentioned in tax audit towards the PF amount and date of payment is mere disclosure not disallowance. d. No addition can be made u/s 143(1) unless there is some clerical or technical discrepancies in the return. e. CPC processing return and considering the amount of PF paid after the due date mentioned in the PF Act cannot be termed as discrepancy and cannot be added u/s 143(1) of the Act. In this case, the amount added to the income of the assessee is a disallowance in nature and cannot be made without assessment.
3. The appellant, therefore, prays that the disallowance made u/s 143(1) of the Act is bad at law and shall be deleted. GROUND II 1. On the facts and circumstances of the case, and in Law, CITA erred in confirming the disallowance made by Asst. Director of Income Tax, CPC of Rs.2,60,180 being Payment of PF dues u/s 36(1)(va) of the Act considering the same as not deposited on time.
2. On the facts and circumstances of the case and in law the CITA failed to appreciate that The payments were deposited in the relevant fund before the due date of filing the return, 3. The appellant, therefore, prays that the disallowance of Rs. 2,60,180/- Is respect of Late payment of PF shall be deleted, 3 M/s. DIEU Consultancy Pvt. Ltd. The appellant craves leave to produce additional evidence if any in support of its claim in the course of appeal hearing. The appellant craves leave to add to, alter, and / or amend the above grounds of appeal
2. Thus, in the grounds of appeal of the assessee has challenged the addition / adjustment made by the CPC Bangalore for a sum of Rs. 63,553/-. In respect of employees’ contributions towards Provident Fund, ESI and labour welfare fund made u/s.2(24)(x) r.w.s. 36(1)(va) of the Act for alleged delayed payment.
The facts in brief are that, the assessee has filed return of income declaring a total income of Rs. 1,07,770/-. Thereafter, the return was processed u/s 143(1) of the Act with assessing income at Rs. 3,67,950/- During the year, the assessee has deposited employees contribution in respect of PF and ESIC amounting Rs.2,60,180/- after the due dates for payment of PF Tax Auditor had mentioned the same in the tax audit reports relevant clause. The said issue was picked up the CPC and proceedings u/s 143 (1)(a) were initiated asking for reasons that why the amount of Rs. 2,60,180/- of PF paid after the due date for payment of PF as mentioned in tax audit is not added back in income tax return and accordingly proposed to increase the income by the said amount. Further, CPC went ahead with making the adjustment towards the above mentioned amount and passed an order u/s 143(1) of the act increasing the income offered to tax under the head income from business/profession.
4 M/s. DIEU Consultancy Pvt. Ltd.
After considering the submissions made by the assessee as well as the findings given in the impugned orders, we find that there is no dispute that employees’ contribution towards PF and ESI has been made late and beyond the due date prescribed u/s.36(1)(va) of the respective acts. 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 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 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.
5 M/s. DIEU Consultancy Pvt. Ltd. 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, 6 M/s. DIEU Consultancy Pvt. Ltd. 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.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the 7 M/s. DIEU Consultancy Pvt. Ltd. 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.
The Hon'ble Supreme Court has considered the judgments of the 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, then the same is not allowable claim, therefore no such deduction of claim can be allowed and it tantamount to incorrect claim made in the return of income. The scope of adjustment 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; 8 M/s. DIEU Consultancy Pvt. Ltd. (iv) disallowance of expenditure 68[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 69[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: 6. Thus, 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 and therefore, it falls within prima facie adjustment u/s. 143(1). Accordingly, we confirm the order of the ld. CIT (A) holding that once the Hon’ble Apex Court has settled the issue, then that is the law which is applicable retrospectively and therefore, any such claim of payment on account of employees’ 9 ITA No.3204/Mum/2022 M/s. DIEU Consultancy Pvt. Ltd. contribution to PF & ESI beyond the due dates given in the respective acts as given in 36(1)(va) is incorrect claim which needs to be disallowed / adjusted even within the scope of prima facie dispute u/s.143(1). Therefore, disallowance has rightly been made by CPC, Bangalore.
In the result, appeal of the assessee is dismissed.