TIBERWALA ELECTRONICS LIMITED,HYDERABAD vs. DCIT CIRCLE -2(2), HYDERABAD

When the matter is called, neither the assessee nor the authorized representative of the assessee is present. It could be seen from the record that the notices were sent to the address given in form No. 36. There is a presumption in law that all the official acts are performed regularly and properly, and the prescribed procedure is followed in such performance. When the notices were issued to the proper address of the assessee, with postage prepaid, and if the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, or by making request to the postal department to detain the mail till the assessee claims the same. In these circumstances, the non-service of notice, if any, is solely attributable to the conduct of the assessee. We, therefore, find no option but to proceed to hear the counsel for Revenue and decide the matter on merits basing on the material available on record.

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, he placed reliance on the decision reported in Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC).

We have gone through the record in the light of the submissions made on either side. In the case of M/s P R Packaging Service (supra), the Bench while referring the provisions under section 143(1)(a)(iv) of the Act, in the light of the view taken by the Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum), was of the opinion that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income; and that if the tax auditor had not stated to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act, the action of the CPC in disallowing the employees’ contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. On the premise, the addition made on account of delayed remission of employees’ contribution of PF and ESI was directed to be deleted.

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.

In Checkmate Services Pvt. Ltd., (supra), the Hon'ble Apex Court dealt with the impact of the provisions under section 36(1)(va) of the Act in depth and while holding the issue against the assessee, held as under :

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.”

This decision of the Hon'ble Apex Court declaring the law under the provision under section 36(1)(va) of the Act will take the retrospective effect, if not otherwise stated to be so specifically. In the decision, nothing contrary is indicated for any prospective effect only. 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.

Further, a useful reference could be made to the relevant portions of section 143 of the Act which read thus,-

The above provisions indicate that while processing the return of income that was filed under section 139 or section 142(1) of the Act and computing the total income or loss, the adjustment need not be confined to the disallowance of expenditure or increase in income, indicated in the audit report, but not taken into account in the total income under clause (iv), but law permits such adjustment could also be in respect of an incorrect claim which is apparent from the information in the return under clause (ii).

With the law declared by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), any claim for deduction under section 36(1)(va) of the Act wherein the assessee fails to credit the sums received from the employees to which the provisions under section 2(24)(x) of the Act are applicable, preferred by the assessee would be patently an incorrect claim and the adjustment in that respect at the stage of 143(1) of the Act process is perfectly justified.

With this view of the matter, we are of the considered opinion that there is nothing illegality or irregularity in making the disallowance under section 36(1)(va) of the Act in the order dated 14.05.2019 passed under section 143(1) of the Act and, therefore, we hold that the learned CIT(A) rightly upheld the same. No interference is warranted and the appeal is, accordingly, liable to be dismissed. Accordingly, the appeal of assessee in ITA 424/Hyd/2022 for A.Y. 2017-18 is dismissed.

In the result, appeal of the assessee is dismissed.

Now coming to the other appeal i.e. A.Y. 2019-20 which is identical to the facts and issues raised in ITA 424/Hyd/2022, our decision in would apply mutatis mutandis. Accordingly, this appeal is also dismissed.

In the result, both the appeals of assessee are dismissed. The copy of the same may be placed in respective case files.