MAHAVEER BULK CARRIERS,BANGALORE vs. ASSISTANT DIRECTOR OF INCOME TAX, CPC, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC-B’’ BENCH: BANGALORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.1000/Bang/2022) Assessment Year: 2019-20 MAHAVEER BULK CARRIERS Asst. Director of Income Tax , 207, III Floor, Elegance CPC, Royalle, II A Cross, Sindhi Bangalore Colony, Vs. J.C. Road Banglore , 560002 PAN No. AAJFM4868P APPELLANT RESPONDENT Appellant by : None Respondent by : Shri Ganesh R Ghale, Standing Counsel (DR.) Date of Hearing : 20.12.2022 Date of Pronouncement : 06.01.2023 O R D E R

ITA No.1000/Bang/2022 Page 2 of 8 the assessee filed appeal before the Income Tax Appellate Tribunal. The sole issue involved in all the ground Nos.1 to 4 is disallowance for delayed deposit of PF/ESI for employees’ contribution, disallowed u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T.Act. 2. None was present on behalf of the assessee. Therefore, I proceed to dispose off this appeal after hearing the learned DR. The ld. DR submitted that the latest decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC), wherein the Hon’ble Apex Court has held that Section 43B(b) does not cover employees' contributions to PF/ESI etc. deducted by employer from the salaries of employees and that employees’ contribution has to be deposited within the due date u/s 36(1)(va) of the Act i.e. due dates under the relevant employees welfare legislation like PF/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 Act. Therefore, the order of lower authorities should be restored.

2.1 He further submitted that the adjustments u/s 143(1)(a) of the Act can be made, it is very clear that which type of adjustments can be made. He also relied on judgment of the Hon’ble Madras High Court in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax reported in (2022) 138 taxmann.com 571, wherein he also relied on the decision of the coordinate bench of the Tribunal in the case of M/s. IV Sanctum vs Asstt. Director of Income Tax CPC Bengaluru, in ITA No. 986/Bang/2022 vide order dated 24.11.2022 for the AY 2019-20..

ITA No.1000/Bang/2022 Page 3 of 8 provisions and issue of whether the employees’ contribution paid before due date for filing the return of income u/s.139(1) of the Act otherwise allowable u/s.43B of the Act and putting to rest the contradicting decisions of various High Courts. The relevant extract of the decision is as under:-

ITA No.1000/Bang/2022 Page 4 of 8 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as "Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]", for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.'" . . . . . “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, isevident 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

ITA No.1000/Bang/2022 Page 5 of 8 entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. 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.

3.1 In the above judgment the Hon’ble Apex Court has upheld that the deduction for employees’ contribution can be claimed deduction in terms of section 36(1)(va) r.w.s. 2 (24)(x) of the I.T. Act. and the amendment by the Finance Act. 2021 in section 43B has been incorporated in “para 05” of this

ITA No.1000/Bang/2022 Page 6 of 8 judgment. Keeping in view of the decision of the Hon’ble Supreme Court, I uphold that the addition can be made in respect of the employees’ contribution in regard to PF/ESI, which has not been deposited within the stipulated date as per the respective Acts, since in the case on hand, the assessee has not deposited the employees’ contribution within the due date as per the respective Acts. Therefore, the disallowance can be made as per section 36(1)(va) r.w.s. 2(24)(x) of the Act. Hence, respectfully following the judgment of Hon’ble Supreme Court cited (supra), the grounds raised by the assessee is not acceptable.

ITA No.1000/Bang/2022 Page 7 of 8 5. Respectfully following the above judgments, we reject the contention raised by the assessee.

Order pronounced in the court on 06th January , 2023

Sd/- (Laxmi Prasad Sahu) Accountant Member

Bangalore, Dated 06th January, 2023. Devadas Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar/ITAT, Bangalore.