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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K. CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HONBLE
O R D E R PER BENCH This appeal has been preferred by the Assessee against the order dated 27/03/2021 impugned herein passed by the Ld. Principal Commissioner of Income Tax [for short, “Pr.CIT”], Visakhapatnam, u/sec. 263 of the Income Tax Act, 1961 (hereinafter referred to as "Act") for the A.Y. 2015-16, whereby the ld. Pr.CIT directed the AO to make the addition of Rs.1,34,401/- u/sec. 2(24)(x) of the Act to the income already assessed in the assessment order dated 31/08/2017 and to pass consequential order accordingly.
(M/s. Vani Constructions) Brief facts of the case are as under:-
The Assessee has filed its return of income on dated 27/09/2015 for the A.Y. 2015-16 by declaring total income of Rs.60,20,380/- which resulted into scrutiny under CASS and passing of assessment order u/sec. 143(3) of the Act dated 31/08/2017, by which some disallowance of expenses have been made and income of the Assessee was assessed at Rs.69,85,470/- Later on, ld. Pr.CIT while perusing the record, noticed that employees contributions to the Provident Fund (PF) to the tune of Rs. 1,34,401/- were not paid as per the due dates prescribed in the Provident Fund Act, 1925. Consequently, ld. Pr.CIT issued show-cause notice dated 27/08/2019 In response to the said notice, the Assessee while relying upon the orders passed by the co-ordinate bench of the tribunal in the case of DCIT Vs. EPDCL of AP Ltd. (ITA No. 609/VIZ/2014), ACIT Vs. UFC Pvt. Ltd. (ITA No. 484/VIZ/2018) and ACIT Vs. Arinana David Raj (ITA No. 285/VIZ/2019), has claimed that if the employees contribution qua PF has been deposited on or before the due date of filing of return u/sec. 139(1) of the Act, then no disallowance is attracted.
The ld. Pr.CIT did not accept the claim of the Assessee and without taking into consideration the judgments in favour of the Assessee, held the assessment order dated 31/08/2017 as erroneous and prejudicial to the interest of the revenue and accordingly directed the AO to make the addition of Rs. 1,34,401/- u/sec. 2(24)(x) of the Act to the income already assessed in the assessment order, while relying upon the judgment of the Hon'ble
(M/s. Vani Constructions) Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corporation (265 CTR 64) wherein it was held that when the Assessee has not deposited the employees contribution in the PF account before the due date provided under the PF Act and/or ESI Act, the Assessee shall not be entitled to deduction u/sec. 36(1)(va) of the Act, though the Assessee might have deposited employees contribution on or before due date of filing of the return u/sec. 139 of the Act.
The Assessee is in appeal against the impugned order.
Having heard the parties and perused the material available on record. It is not in controversy that there is plethora of judgments in favour of the Assessee’s contention and of the Revenue.
The controversy with regard to divergent views of different High Courts, has been settled by the Hon'ble Apex Court in the case of CIT Vs. M/s. Vegetables Products Ltd. (88 ITR 192) by laying the dictum that if two reasonable constructions of a taxing provision are possible that construction which favours the Assessee must be adopted.
The jurisdictional High Court in the case of State Of Andhra Pradesh vs Commercial Tax Officer [(1987) 169 ITR 564 (AP] also dealt with the identical situation to the effect that whenever there are judgments of different High Courts both in favour of the Assessee and the revenue, then the view favourable to the Assessee should be followed.
(M/s. Vani Constructions) 4.1 The coordinate bench of the tribunal in the case of DCIT Vs. M/s. Eastern Power Distribution Company of AP Ltd. in dated 29/07/2016 also extensively dealt with the issue in hand and held that if the employees contribution qua PF is deposited on or before the due date of furnishing return of income u/sec. 139(1) of the Act, then no disallowance can be made towards employees contribution to the provident fund. For ready reference, the concluding part of the order is reproduced herein below:-
“5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. made additions towards belated payment of employees’ contributions to PF. According to the A.O., employees’ contribution to provident fund is deductible under the provisions of section 36(1)(va) of the Act, if the same is paid on or before the due date specified under the provident fund Act. The A.O. further was of the opinion that in view of the clear provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act, any recovery from employees towards provident fund contribution is deemed to be income of the assessee, if the employer not paid the same to the provident fund account of the employee within due date specified under the provisions of PF Act. It is the contention of the assessee that second proviso to section 43B of the Act provides that no deduction shall be allowed unless such sum is actually been paid on or before due date as specified in explanation to 36(1)(va) of the Act which was omitted by the Finance Act, 2003 w.e.f. 1.4.2004 and accordingly, there was no special provision regarding employees’ contribution to PF. It is further contended that as per the amended provisions of section 43B of the Act, any sum payable by the assessee as an employer by way of contribution to PF shall be allowed, if the same is paid on or before the due date of filing of return of income u/s 139(1) of the Act.
6. The only issue to be resolved is whether the assessee would be entitled to claim deduction for the employees’ contribution made to PF after the due date prescribed under the PF Act, but before the due date prescribed for filing of income tax return in the light of the provisions contained in section 36(1)(va) of the Act and section 43B(b) of the Act. It is the contention of the assessee that there is no distinction between employer and employee contribution after omission of second proviso of section 43B of the Act by Finance Act,
(M/s. Vani Constructions) 2003 w.e.f. 1.4.2004. We find force in the arguments of the assessee for the reason that there is no difference between employees and employer contribution under the PF Act. Section 6 of Provident Fund Act provides for contribution and the manner in which such contribution shall be made. Paragraph 30 of the PF Scheme provides for payment of contributions. As per the said scheme, the employer at the first instance shall make the total contribution including employees’ share. Paragraph 32 provides for recovery of member share of contribution and as per the scheme, the employer can recover the employees’ share from the wages paid to the employee. Therefore, as per the PF Act and scheme of contributions, the contributions means and include both employees’ and employer’s share. Similarly, section 2(c) of the Provident Fund Act defines the contribution to mean a contribution payable in respect of a member under the scheme or the contribution payable in respect of an employee to whom the scheme applies. There is a prescribed mode of payment of contributions under the PF Act. Under the said Act, the employer shall contribute both employees and employer share along with administrative charges before the due date specified under the PF Act. The Act prescribed only one due date for depositing the contribution i.e. 15th of subsequent month with the grace period of 5 days which indicates that there is no difference between employee and employer contribution. If the legislature intends to differentiate employees and employer contribution, then there would have been two due dates like in the case of Income Tax Act. Therefore, from the above, it is clear that the Provident Fund Act does not differentiate employees and employer contribution and contribution means both employees and employer contribution under the PF scheme.
Section 43B of the Act provides for certain deductions to be allowed only on actual payment basis. Sub clause (b) of section 43B of the Act covers any sum payable by the assessee as an employer by way of contribution to any Provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. The proviso to section provides that any sum paid by the assessee on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made under the provisions of section 43B of the Act. A careful consideration of section 43B of the Act, it is clear that an extension is granted to the assessee to make the payment of PF contributions or any other fund till the due date of furnishing return of income u/s 139(1) of the Act. Therefore, in our opinion, there is no difference between employees and employer contribution to PF and if such contribution is made on or before the due date of furnishing return of income u/s 139(1) of the Act, then deduction is to be allowed under the provisions of section 43B of the Act.
(M/s. Vani Constructions) 8. The Hon’ble Karnataka High Court, in the case of Essae Teraoka (P) Ltd. Vs. DCIT 366 ITR 408 took the view that the word contribution occurring in section 43B of the Act would include employees’ contribution to PF in the light of the definition of the word contribution as per the provisions of section 2(c) of the PF Act. As per the said section, contribution would mean both employer’s contribution and employees’ contribution. Accordingly, it was held that the provisions of section 43B of the Act allowing deduction for payment made before the due date of filing of Income Tax return cannot be ignored. Similarly, the ITAT, Hyderabad Tribunal in the case of Tetra Soft (India) Pvt. Ltd. Vs. ACIT (2015) 40 ITR (Trib) 470 held that when assessee remitted employees’ contribution to PF within due date of filing return of income u/s 139(1) of the Act, amount of employees’ contribution to PF cannot be disallowed. Similar view was upheld by the Chennai bench of the ITAT, in the case of ACIT Vs. Farida Shoes Pvt. Ltd. (2016) 46 CCH 29. The coordinate bench held that if assessee had not deposited employees’ contribution towards provident fund up to the due date as prescribed under relevant statute, but before due date of filing of return no disallowance could be made in view of the provisions of section 43B of the Act. In the case of CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 35 Taxman 616, the Hon’ble High Court of Rajasthan, after referring to the apex court decision in the case of CIT Vs. Alom Extrusions Ltd. 319 ITR 306 & CIT Vs. Vinay Cement Ltd. held that the deductions should be allowed for the payment of employees’ contribution made before the due date of filing of return. Similarly, in the case of CIT Vs. State Bank of Bikaner, the Hon’ble Rajasthan High Court held that contribution paid after the due date under the respective Act, but before filing the return of income u/s 139(1) of the Act cannot be disallowed u/s 43B of the Act and or u/s 36(1)(va) of the Act.
The Ld. D.R. relied upon the decision of Hon’ble High Court of Kerala, in the case of CIT vs. Merchem Ltd, reported in (2015) 378 ITR 443 and submitted that employees’ contribution to provident fund is allowed as deduction, if the same is deposited on or before the due date specified under the provisions of provident fund Act. The D.R. also relied upon the decision of Gujarat High Court, reported in (2014) 366 ITR 170, wherein the Hon’ble Gujarat High Court held that since assessee had not deposited said contribution to respective fund account on the date as prescribed in explanation to section 36(1)(va) of the Act, disallowance made by the A.O. was just and proper. Though, the D.R. relied upon certain judicial precedents which are in favour of the revenue, in view of the decision of Hon’ble Supreme Court, in the case of CIT Vs. M/s. Vegetables Products Ltd. reported in 88 ITR 192, wherein the Hon’ble Supreme Court held that if two reasonable constructions of a taxing provision are possible that (M/s. Vani Constructions) construction which favours the assessee must be adopted, therefore, by respectfully following the decision of Supreme Court, when divergent views are expressed by different judicial forums, we prefer to follow the views expressed by the Courts which are in favour of the assessee.
Considering the facts and circumstances of this case and also following the judicial precedents as discussed above, we are of the view that there is no distinction between employees’ and employer contribution to PF, and if the total contribution is deposited on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made towards employees’ contribution to provident fund. The CIT(A) after considering the relevant details rightly deleted the additions made by the A.O. We do not see any reasons to interfere with the order of the CIT(A). Hence, we inclined to uphold the CIT(A) order and dismiss the appeal filed by the revenue.”
We may observe that an order cannot be termed as erroneous unless it is not in accordance with law. If assessing officer makes assessment in accordance with law, the same cannot be branded as erroneous by the commissioner. The Commissioner is not empowered to substitute his view to the view already taken by the AO in accordance with law or judgements of the higher Courts.
In the instant case the AO in view of the decisions of the Hon’ble High Courts, had taken the plausible and favourable view to the Assessee, while considering the expenses qua employees contribution to the provident fund deposited on or before due date of filing of return u/sec. 139(1) of the Act, and hence the assessment order can not be termed as erroneous and prejudicial to the interest of the revenue. Consequently the directions of the (M/s. Vani Constructions) ld. Pr.CIT to the AO to make the addition of Rs.1,34,401/- u/sec. 2(24)(x) of the Act to the income already assessed in the assessment order dated 31/08/2017 and to pass the consequential order accordingly, cannot survive.
The Assessee during the course of argument also raised an issue that Assessee’s return of income was selected for scrutiny under CASS but for limited purposes i.e. other deductions and other expenses claimed in the profit & loss account (as reflected in notice u/sec. 143(2) of the Act, dated 27/07/2016). The Assessee’s contention is that once the case is selected for limited scrutiny and not covering the issue other than involved for the limited purposes as specified in the notice, then the revenue authorities are not entitled to travel beyond the parameters except while following the due procedure prescribed as per law and instructions issued by the CBDT instructions No.20/2015, dated 29/12/2015 and 05/2016, dated 14/07/2016 etc., but not otherwise. The Assessee also relied upon the order passed by the coordinate bench of the tribunal in the case of M/s. Suraj Diamond Dealers Pvt. Ltd. Vs. Pr.CIT in dated 27/11/2019.
6.1. We have perused the other expenses and deductions debited in the profit & loss account and the expenditure incurred and specified in the profit & loss account for the year under consideration. The contention of the Assessee prima-facie seems to be correct, however as we are inclined to quash the impugned order on merit and therefore not travelling to this issue in detail, as the exercise would become academic only.
(M/s. Vani Constructions) 7. In overall consideration, the impugned order is quashed.
Resultantly, the appeal of the Assessee stands allowed.
Order Pronounced in open Court on this 23rd day of Sep., 2021.