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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI S RIFAUR RAHMAN
Date of hearing 09/01/2023 Date of pronouncement 23/02/2023 ORDER PER: KULDIP SINGH (JM):
The Appellant, Lloyd Healthcare Pvt Ltd (hereinafter referred to as the 'assessee')by filing the present appeal, sought to set aside the impugned order dated 26/07/2022 passed by the National Faceless Appeal Centre (NFAC),Delhi [hereinafter referred to as the 'CIT(A)'] qua
2 ITA 2342/Mum/2022 the assessment order for Assessment Years 2018-19 on the grounds interalia that:-
“1) In the facts and circumstances of the case and in law the Assessing Officer[CPC] erred in adding Rs. 7264S59/- on account of alleged delay in payment towards Provident Fund, and any Other Welfare Fund u/s 36(l)(va) r.w.s 43B and 2(24)(x) of the Act thereby a) Disregarding the case laws of Bombay High Court and Supreme Court etc. b) By overlooking the fact that even though the same is paid on or before due date of filing of return. c) By disregarding the judgement of Jurisdictional High Court of Bombay in the case of Ghatge Patil Transports Ltd. 368 ITR 749 and Hind Filter Ltd 90 taxmann.com 51 (Bombay) and Alom Extrusions Ltd. [2009] 319 ITR 306 (SC). d) By disregarding the fact that the judgement of Jurisdictional High Court is binding even in faceless appeal and assessment as per the order of Mahadev Cold Storage 127 taxmann.com 722 (Agra) in which it is held that, "Though Centralized NFAC has been created by Notification by CBDT, it should be ensured that whenever any appellate order is passed by NFAC as per Notification either by way of draft or Final appellate order, then decision of Jurisdictional High Court having jurisdiction over Assessing Officer should be followed and applied by NFAC. Merely because there is some conflicting decision of non-jurisdictional High Court, relief should not be refused to assessee" e) By disregarding the fact that the amendment made to section 36(l)(va) by the Finance Act, 2021 is not retrospective as is recently held in the case of M/s Crescent Roadways Private Limited (ITA No. 1952/Hyd./2018). f) Making adjustment u/s 143(1) which is not permissible because the same are not prima facie adjustment as per various judgements of High Court and Supreme Court and 137 taxmann.com 475 Mumbai bench as well 2) In the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals), NFAC also erred in confirming the disallowance of-Rs. 7264559/-on The appellant therefore prays follows, 1. To delete the disallowance of Rs. 72645597- on account of alleged delay in payment towards Provident Fund, ESIC and any Other Welfare Fund made u/s 36(l)(va) r.w.s 43B and 2(24)(x) of the Act.
To delete interest u/s 234ABC.”
2. Briefly stated, facts necessary for consideration and adjudication of the issues at hand are : The assessee is into the business of marketing of 3 ITA 2342/Mum/2022 pharmaceutical formulations, products in its brand name, filed its return of income for the year under consideration by claiming deduction towards contribution of the provident fund on behalf of the employees, which was processed under section 143(1) by declining the deduction claimed. The assessee was served upon a notice under section 143(1)(a) as to depositing the employees contribution towards provident fund by the assessee after due date prescribed under the relevant Act to which assessee filed reply but the deduction was again disallowed by the Assessing Officer / CPC.
Assessee carried the matter before the Ld.CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld.CIT(A), the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld.AR for the assessee and the Ld.DR of the Revenue, gone through the documents available on record, order passed by the lower Revenue Authorities in the light of facts and circumstances of the case and the case law applicable thereto.
Undisputedly, assessee has claimed deduction on account of expenditure on employee’s contribution to provident fund to the tune of Rs.72,86,327/- which was disallowed under section 36(1)(va). It is also not in dispute that assessee has deposited the employees contribution towards provident fund after due date prescribed under the Act, but well before filing the return of income. 6. The Ld. A.R. for the assessee contended that the payment made by the assessee company qua the employees contribution on account of PF well 4 ITA 2342/Mum/2022 before due date of filing the return of income cannot be disallowed and relied upon the decision rendered by Hon’ble Bombay High Court in case of CIT V. Ghatge Patil Transporters Ltd. 368 ITR 749 and various other judgments mentioned in the written submissions running from page 1 to 47 of the paper book.
7. However, on the other hand, the Ld. D.R. for the Revenue by relying upon the order passed by the Ld. CIT(A) contended that when the employees contribution of PF & ESI has not been deposited by the employer before due date prescribed under the Act assessee is not entitled for any deduction.
We have perused the order passed by the Ld.CIT(A), who has thrashed the facts in the light of the provisions contained under section 36(1)(va) and section 43B(b) and the decision rendered by the Hon’ble Supreme Court in case of Alom Extrusions (2009) 319 ITR 306 (SC), decision rendered by Hon’ble High Court of Andhra Pradesh in case of Hitech (India) (P) Ltd vs UOI (1997) 227 ITR 446 (AP); decision rendered by Hon’ble Gujarat High Court in case of CIT VS Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100/366 ITR 170 / 223; and decision rendered by Hon’Kerala High Court in case of CIT vs Merchem Ltd (2015) 61 taxmann.com 119 and reached the conclusion that Assessee is not entitled for deduction on account of delayed payment of employees’ contribution of provident fund under section 36(1)(va) of the Act.
Now, the issue in question “as to whether the assessee is entitled for deduction claimed towards contribution of sum to provident fund on behalf of the employees deposited after due date prescribed under the Act but before the date of filing the return;” has been set at rest by the Hon’ble
5 ITA 2342/Mum/2022 Supreme Court in case of Checkmate Services P Ltd vs CIT Civil Appeal No.2833 of 2016 dated 12/10/2022 that assessee is not entitled for claim of deduction qua the amount deposited towards employees contribution on account of provident fund after due date prescribed under the Act by returning following findings:- "51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Income-Tax and another v. Sabari Enterprises; Commissioner of Income Tax v. Pamwi Tissues Ltd.; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Atom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.
When Parliament introduced Section 43 B, 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(l)(va) and simultaneously inserting the second proviso of Section 43 B, 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(l)(va)) was maintained - and continues to be maintained. On the other hand, Section 43 B 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.
6 ITA 2342/Mum/2022
The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(l)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(l)(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(l)(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 43 B.
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. 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.” 10. By following the decision rendered by Hon’ble Supreme Court in case of Checkmate Services P. Ltd. vs. CIT (supra), we are of the considered view that Ld. CIT(A) has rightly decided the issue against the assessee as the employees contribution on account of PF lying deposited with the employers has to be deposited before the due date prescribed under the Act. Since the 7 ITA 2342/Mum/2022 assessee has failed to comply with the condition precedent for depositing the employees contribution on account of PF & ESI before the due date prescribed under the Act he is not entitled for any deduction. So finding no illegality or perversity in the impugned order passed by the Ld. CIT(A) appeal filed by the assessee is hereby dismissed.