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Income Tax Appellate Tribunal, BANGALORE BENCHES “C”, BANGALORE
Before: Shri George George K, JM & Ms.Padmavathy S, AM
O R D E R
Per George George K, JM :
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 04.11.2022. The relevant assessment year is 2020-2021.
2. The grounds raised read as follows:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned Commissioner of Income tax [Appeals] / National Faceless Appeal Centre [NFAC for short] is not justified in upholding the determination of total income of appellant in the Intimation u/s. 143[1] of the Act, at Rs.87,04,840/- as against the returned income of Rs.50,34,940/- under the facts and in the circumstances of the appellant's case.
. Sri Ramdurg Channa Basavana Goud.
3. The learned CIT[A] / NFAC ought to have appreciated that the extent of belated payments made in respect of the Employee's share of PF and ESI amounts to Rs. 32,94,611/- only and not Rs. 35,34,163/- disallowed by the CPC in the impugned intimation and thus disallowance to the extent of Rs. 2,39,552/- deserves to be deleted straightaway under the facts and in the circumstances of the appellant's case.
4. The learned CIT[A] / NFAC is not justified in sustaining the disallowance Rs. 23,42,878/- being the employees share of PF and similarly sustaining the disallowance of Rs. 55,711/- being the employees share of ESI, both of which was due on 15/08/2019, which was a national holiday and therefore, the payment made by the appellant on the next working day i.e., 16/08/2019 cannot be considered as a belated payment to invoke the provisions of section 36[1 ][va] of the Act, under the facts and in the circumstances of the appellant's case.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies herself liable to be charged to interest u/s. 234A, 234B and 234-C of the Act, as computed in the intimation u/s.143[1] of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case are as follows: For the assessment year 2020-2021, the return of income was filed on 06.11.2020, declaring total income of Rs.50,34,940. The assessee was served with an intimation u/s 143(1) of the I.T.Act by assessing the total income at Rs.87,04,840. The reasons for the difference between the returned income and the assessed income u/s 143(1) of the I.T.Act was on account of disallowance of sum of Rs.35,34,163
. Sri Ramdurg Channa Basavana Goud. being late remittance of employees’ contribution to PF and ESI under the respective Acts.
Aggrieved by the intimation u/s 143(1) of the I.T.Act, the assessee preferred an appeal before the first appellate authority. It was stated that the assessee had paid the employees’ contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) of the I.T.Act. Therefore, it was submitted that the assessee is entitled to deduction of employees’ contribution to PF and ESI having regard to the provisions of section 43B of the I.T.Act. In this context, the assessee relied on the judgment of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT, reported in 366 ITR 408 (Kar.). The CIT(A), however, rejected the appeal of the assessee. The CIT(A) noticed the difference between employer and employees’ contribution to PF and ESI and held that only employers contribution to PF and ESI is entitled to deduction u/s 43B of the I.T.Act, if the same is paid prior to due date of filing of return of income u/s 139(1) of the Act. It was further held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and has got retrospective operation.
5. Aggrieved, assessee has filed this appeal before the Tribunal. The learned AR submitted that the payment of employees’ contribution to PF & ESI though belated, but was before the due date of fling the return of income u/s. 139(1) of the I.T.Act and otherwise allowable u/s. 43B of the I.T.Act.
. Sri Ramdurg Channa Basavana Goud.
The learned Departmental Represent, on the other hand, brought to our attention the latest decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 197 ITD 655 (SC) where the Hon’ble Apex Court has held that Section 43B(b) of the I.T.Act does not cover employees' contributions to PF, ESI etc. deducted by employer from salaries of employees and that employees’ contribution has to be deposited within the due date u/s 36(1)(va) of the I.T.Act, i.e. due dates under the relevant employees welfare legislation like PF Act, ESI Act etc. failing which the same would be treated as income in the hands of the employer u/s.2(24)(x) of the I.T.Act.
We have heard rival submissions and perused the material on record. We notice that the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. CIT (supra) has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) of the I.T.Act whether otherwise allowable u/s.43B of the I.T.Act, putting to rest the contradicting decisions of various High Court. The relevant finding of the Hon’ble Supreme Court reads as follows:-
“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 . Sri Ramdurg Channa Basavana Goud. 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 isto 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, 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- . Sri Ramdurg Channa Basavana Goud. 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 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.”
In view of the above judgment of the Hon’ble Supreme Court, we hold that the employees’ contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) of the I.T.Act, i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B of the I.T.Act. We, therefore, see no reason to interfere with the order of the CIT(Appeals). It is ordered accordingly.
The assessee in ground 3 has stated that before the first appellate authority it was submitted that the employees’
. Sri Ramdurg Channa Basavana Goud. share of PF / ESI amount is only Rs.32,94,611 and not Rs.35,34,163 disallowed by the CPC in the impugned intimation. However, we find that the CIT(A) has not adjudicated the same. Therefore, the matter needs to be examined by the A.O. and we restore ground 3 to the files of the A.O.
As regards, ground 4 is concerned, it is submitted that the assessee had paid a sum of Rs.23,42,878 being employees’ share of PF on 16.08.2019. It is submitted that the due date under respective Act was on 15.08.2019 and the same being a holiday, the payment was made on the very next day, i.e. on 16.08.2019. It is submitted that the payment deemed to have been paid within the due date of the respective Act. In this context, the learned AR relied on the CBDT Circular No.639 dated 13.11.1992, which states as follows:-
“1. Representations have been received by the Board seeking clarifications as to whether, the assessee could file a return of income/loss under the Income-tax Act, 1961 on the next working day following a holiday and claim it to have been filed within the statutory time limit.
The matter has been examined in consultation with the Ministry of Law and the Board are advised that, in such cases, section 10 of the General Clauses Act, 1897 will be applicable. According to this section, where any act or proceeding is directed or allowed to be done or taken in any court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the court or office is open.
3. In view of the above, it is hereby clarified that where the last day for filing return of income/loss is a day on which the office is closed, the . Sri Ramdurg Channa Basavana Goud. assessee can file the return on the next day afterwards on which the office is open and, in such cases, the return will be considered to have been filed within the specified time limit. 4. This clarification also applied to the returns under other direct tax enactments.”
Similarly, it is submitted that a sum of Rs.55,711 being employees’ share of ESI was also paid on 16.08.2019. It is submitted that both the above payments, i.e. PF / ESI should be deemed to have been paid within the due date specified under the respective Acts. We find that this aspect has not been adjudicated by the A.O. nor by the CIT(A). Moreover, the facts are not on record for the adjudication of the issue at our end. Therefore, the issue is restored to the files of the A.O. The A.O. is directed to afford a reasonable opportunity of hearing to the assessee before a decision is taken in the matter. It is ordered accordingly.
Hence, grounds 3 and 4 are allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 10th day of January, 2023.