CLEANFLO INDIA PRIVATE LIMITED,DELHI vs. CIRCLE-6(1), DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

“1. That on the facts and circumstances of the case, the order dated as 27.08.2020 passed by the Assistant Director of Income Tax, CPC - Bangalore [hereinafter for the sake of brevity referred to as "The Ld. A.O."] under section 154 of the Income-tax Act, 1961 [hereinafter for the sake of brevity referred to as "The Act"] and as upheld by the Ld. Commissioner of Income-tax (Appeals) - NFAC [hereinafter for the sake of brevity referred to as "The CIT(A)"] is bad at law and void ab initio.

2 Cleanflo India Pvt. Ltd. 2. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in upholding the addition to the tune of Rs. 36,99,564/-on account of employee's contribution of PF under section 36(1)(va) of the Act and the same is not sustainable on various legal and factual ground.

3. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in upholding the addition to the tune of Rs. 3,94,843/-on account of employee's contribution of ESI under section 36(1)(va) of the Act and the same is not sustainable on various legal and factual ground.

4. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in Law in holding that explanation 2 to u/s 36(i)(va) is applicable in A.Y. 2019-20 when its provided is applicable w.e.f. A.Y. 2021-22.

5. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in Law in not followed jurisdiction Delhi high Court judgments.”

3 Cleanflo India Pvt. Ltd. Court dismissed the challenge against this order of AO. In appeal, the court noted that the Kerala High Court has also ruled in favour of revenue on this issue whereas the Hon’ble High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi have favoured the interpretation beneficial to the assessee. The Hon’ble Apex Bench effectively reversed the judgment in Commissioner of Income Tax vs. Alom Extrusions Ltd. (1 SCC 489) relied upon by the assessee.

"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 43 B 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 4 Cleanflo India Pvt. Ltd. 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 43 B 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."