COMMUNITY PURE WATER INDIA PRIVATE LIMITED,HYDERABAD vs. ITO, WARD-1(1), HYDERABAD

Briefly stated relevant facts are that the assessee is a company and engaged in the business of sale of water, RO plants and material. Common issue relating to the assessment years 2018-19 and 2019-20, is that in the intimation under section 143(1) of the Income Tax Act, 1961 (‘the Act’), the amounts relating to the employees’ contribution to Provident Fund and Employees’ State Insurance (‘PF & ESI’) were disallowed and addition was made under section 36(1)(va) of the Act. According to the assessee, though such amounts were remitted to the Government, not before the due dates under the enactments, but before filing of the return of income in the same financial year and, therefore, such a disallowance is not sustainable.

Learned CIT(A) relied upon the decision of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC) to sustain the addition, but the learned AR now contends that the disallowability of PF & ESI contribution of the employees is a debatable issue and not available at the stage of 143(1) of the Act. His further argument is that as on the date of the intimation under section 143(1) of the Act, neither the amendment to section 36 of the Act has come into force nor the judgment of the Hon’ble Supreme Court was there. He, therefore, contends that the benefit of conflict of judicial opinion must go to the assessee and even otherwise, such an issue is not available to be considered for disallowance at the stage of 143(1) of the Act. Learned AR placed reliance on the decision dated 07/12/2022 of the Mumbai Bench of the Tribunal in the case of M/s. PR Packaging Service vs. ACIT in in support of his contention.

Per contra, learned DR placed heavy reliance on the authorities below. To justify the conclusions reached by the learned CIT(A) that the assessee is not entitled to claim the deduction in respect of the delayed remittance of the employees’ contribution of PF and ESI, she placed reliance on the decision reported in Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC). She, however, acknowledging the decision rendered by the Mumbai Bench of the Tribunal in the case of M/s P R Packaging Service Vs. ACIT (supra) submitted that the judicial opinion is not unanimous on this aspect since in the case of M/s. Electrical India Vs. ADIT, CPC in (AY.2019-20) and the Co-ordinate Bench of this Tribunal in the case of Grip Strapping Technologies Pvt. Ltd. Vs. DCIT in ITA No. 249/Hyd/2022 (AY.2018-19) dated 16/12/2022 took contrary views on the aspect of disallowance under section 36(iv)(a) at the time of processing the return under section 143(1) of the Act. She submitted that amendment to section 36 of the Act is only clarificatory in nature with retrospective effect, and as has been held in P.V. George v. State of Kerala, (2007) 3 SCC 557, the law declared by the Hon'ble Supreme Court will always be retrospective effect, if not otherwise stated to be so specifically.

I have gone through the record in the light of the submissions made on either side. It is an admitted fact that the assessee remitted the employees’ contribution to PF & ESI not before the due date by which the assessee was required as an employer to credit such contribution to the employees account in the relevant fund under respective enactment or rules governing it, but such remittance was subsequently, though during the same financial year and before filing of the return of income. The decision of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra), is clear that the same cannot be allowed under section 43B of the Act.

Now, I shall consider the retrospective nature of the amendment to section 36(1)(va) of the Act by way of Finance Act, 2021. Under section 2(24)(x) of the Act, the ‘income’ includes any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of the employees. It, therefore, goes without saying that this deemed income has to be treated as the income of the assessee, the moment such amount comes to the possession of the assessee. It is open for the assessee to claim deduction of the same under section 36(1)(va) of the Act by complying with the said provision. Explanation 1 added by amendment by way of Finance Act, 2021 with effect from 01/04/2021 explains the term ‘due date’ and it does not impact any rights, liabilities and disabilities created by the provision. Such provisions which will only explain certain terms of the existing provision do not create any new rights or liabilities but only the rights and liabilities that were created by the provisions stood explain by the explanation, and, therefore, such explanations will take effect from the date of the provision itself.

Coming to the effect of the decision of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra), in view of the decision of the Hon’ble Apex Court in the case of P.V. George Vs. State of Kerala reported in (2007) 3 SCC 557 any decision of a court declaring the law is retrospective in nature unless otherwise provided, and, therefore, the decision in Checkmate Services Pvt. Ltd. (supra) will take the retrospective effect since it is not specifically stated to be prospective in nature. It is, therefore clear that the law under section 36(1)(va) of the Act in the light of the Explanation-1 as declared by the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra), shall be taken to have effect from the enactment of the provision by way of Finance Act, 1987 with effect from 01/04/1988. No other inference is possible.

It is pertinent to note that in the case of M/s.Electrical India vs. ADIT, CPC in AY.2019-20 Chennai Bench of the Tribunal held that where the assessee failed to credit the sums received from the employees towards PF & ESI contribution within the date by which the assessee was required to deposit, the same is in direct conflict with the claim made by the assessee seeking deduction under section 36(1)(va) of the Act and, therefore, falls within the ambit of section 143(1)(a)(ii) of the Act. Accordingly it was held that any addition made on account of disallowance by invoking the provisions under section 36(1)(va) of the Act cannot be interfered with. I am in respectful agreement with the same.

Insofar as the other issues relating to the assessment year 2018-19, it is submitted that the assessee preferred a rectification petition before the learned Assessing Officer to rectify the mistakes apparent from record and the learned CIT(A) observed that the learned Assessing Officer will examine the same and make due corrections. Hence, no adjudication is required on these aspects.

In the result, both the appeals are dismissed.