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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. ASTHA CHANDRA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
These two appeals by the assessee are preferred against two separate orders dated 28.07.2021 & 30.07.2021 framed u/s 250 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] by the CIT(A), National Faceless Appeal Centre, New Delhi.
Since common grievances are involved in both the appeals, they were heard together and are disposed of by this common order for the sake convenience and brevity.
3. The grievances of the assessee in Assessment Year 2018-19 read as under:
“1. “That the Ld. CIT(A), NFAC, has erred in law as well as on the facts of the case by confirming the adjustment/ disallowance u/s 143(1)(a)(iv) of Rs.6,78,168/- u/s 36(1 )(va) of the Income tax Act, 1961, being the amount of employees share of ESI and EPF Contributions, which were deposited beyond due dates prescribed under the relevant Acts but were duly deposited before due date for filing of ROI of the appellant, wrongly ignoring the submissions made and the judgments relied upon by the appellant.
2. That the Ld. CIT(A) has erred in law in holding that the Explanation 2 to section 36(1 )(va) and Explanation 5 to section 43B inserted by Finance Act, 2021 are having retrospective effect, ignoring the legal provision that the said two Explanations haVe been introduced w.e.f. 1st April 2021, and will accordingly apply in relation to AY-2021-22 onwards.
3. That the Ld. CIT(A) has erred in law and as well as on the facts of the case by holding that the adjustment made by CPC on late payment of employees contribution to ESIC & EPF was covered within the preview of sec. 143(1)(a), ignoring its debatable nature.”
4. The grievances of the assessee in Assessment Year 2019-20 read as under:
““1. “That the Ld. CIT(A), NFAC, has erred in law as well as on the facts of the case by confirming the adjustment/ disallowance u/s 143(1)(a)(iv) of Rs. 3,69,074/- u/s 36(1 )(va) of the Income tax Act, 1961, being the amount of employees share of ESI and EPF Contributions, which were deposited beyond due dates prescribed under the relevant Acts but were duly deposited before due date for filing of ROI of the appellant, wrongly ignoring the submissions made and the judgments relied upon by the appellant.
2. That the Ld. CIT(A) has erred in law in holding that the Explanation 2 to section 36(1 )(va) and Explanation 5 to section 43B inserted by Finance Act, 2021 are having retrospective effect, ignoring the legal provision that the said two Explanations haVe been introduced w.e.f. 1st April 2021, and will accordingly apply in relation to AY-2021-22 onwards.
3. That the Ld. CIT(A) has erred in law and as well as on the facts of the case by holding that the adjustment made by CPC on late payment of employees contribution to ESIC & EPF was covered within the preview of section 143(1 )(a), ignoring its debatable nature.”
A perusal of the afore-stated substantive grounds of the appeals in both the Assessment Years shows that the quarrel is in respect of deposit of employee’s contribution of provident fund and ESI after the due date under the respective Act but before the due date of filing of return of income under the Income tax Act being 13.09.2018 in Assessment Year 2018-19 and 19.09.2019 in Assessment Year 2019-20, which is clear from the following charts of both the Assessment Years:
2018-19 S. No Nature of fund Due date for The The actual Sum payment actual date of received amount payment to from paid the employees concerned authorities Employees State 1 6660 21/05/2017 6660 20/05/2017 Insurance 5842 15/06/2017 5842. 16/06/2017 Employees State 2 Insurance 3 6971 15/07/2017 6971 24/07/2017 Employees State Insurance
Employees 4 Insurance State 6924 15/08/2017 6924 23/08/2017
5 6955 15/09/2017 6955 18/09/2017 Employees State Insurance
Employees 6 State 6990 15/10/2017 6990 18/10/2017 Insurance 7 State 15/11/2017 20/11/2017 Employees 6880 6880 Insurance State 15/12/2017 25/12/2017 Employees 8 6128 6128 Insurance 9 State 6292 15/01/2018 6292 20/01/2018 Employees Insurance State 6305 15/02/2018 6305 17/02/2018 Employees 10 Insurance
Employees 11 State 6215 15/03/2018 6215 15/03/2018 Insurance Employees 12 State 6386 15/04/2018 6386 17/04/2018 Insurance 13 Provident Fund 59416 15/05/2017 59416 20/05/2017 14 Provident Fund 60424 15/06/2017 60424 16/06/2017 15 Provident Fund 62639 15/07/2017 62639 24/07/2017 16 Provident Fund 59414 15/08/2017 59414 23/08/2017 17 Provident Fund 60820 15/09/2017 60820 20/09/2017 18 Provident Fund 60637 15/10/2017 60637 18/10/2017 19 Provident Fund 60046 15/11/2017 60046 21/11/2017 20 Provident Fund 62174 15/12/2017 62174 25/12/2017 21 Provident Fund 63214 15/01/2018 63214 02/01/2018 22 Provident Fund 63229 15/02/2018 63229 19/02/2018 23 Provident Fund 61942 15/03/2018 61942 15/03/2018
24 Provident Fund 63694 15/04/2018 63694 17/04/2018 2019-20 S. No Nature of fund Due date for The The actual Sum payment actual date of received amount payment to from paid the employees concerned authorities Employees State 1 6660 21/05/2017 6660 20/05/2017 Insurance 5842 15/06/2017 5842. 16/06/2017 Employees State 2 Insurance 3 6971 15/07/2017 6971 24/07/2017 Employees State Insurance
Employees 4 Insurance State 6924 15/08/2017 6924 23/08/2017 5 6955 15/09/2017 6955 18/09/2017 Employees State Insurance Employees 6 State 6990 15/10/2017 6990 18/10/2017 Insurance
7 State 15/11/2017 20/11/2017 Employees 6880 6880 Insurance State 15/12/2017 25/12/2017 Employees 8 6128 6128 Insurance 9 State 6292 15/01/2018 6292 20/01/2018 Employees Insurance State 6305 15/02/2018 6305 17/02/2018 Employees 10 Insurance
Employees 11 State 6215 15/03/2018 6215 15/03/2018 Insurance Employees 12 State 6386 15/04/2018 6386 17/04/2018 Insurance 13 Provident Fund 59416 15/05/2017 59416 20/05/2017 14 Provident Fund 60424 15/06/2017 60424 16/06/2017 15 Provident Fund 62639 15/07/2017 62639 24/07/2017 16 Provident Fund 59414 15/08/2017 59414 23/08/2017 17 Provident Fund 60820 15/09/2017 60820 20/09/2017 18 Provident Fund 60637 15/10/2017 60637 18/10/2017 19 Provident Fund 60046 15/11/2017 60046 21/11/2017 20 Provident Fund 62174 15/12/2017 62174 25/12/2017 21 Provident Fund 63214 15/01/2018 63214 02/01/2018 22 Provident Fund 63229 15/02/2018 63229 19/02/2018 23 Provident Fund 61942 15/03/2018 61942 15/03/2018 24 Provident Fund 63694 15/04/2018 63694 17/04/2018
The quarrel is now well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. AIMIL Limited 321 ITR 508 vide order dated 23.12.2009. The Hon'ble High Court held as under:
“If the employees‟ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed.”
The ld. DR placed heavy reliance on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Bharat Hotels 410 ITR 417 followed by this Tribunal in the case of Vedvan Consultants Pvt Ltd.
We find that this Tribunal in & Others has duly considered the decision of the Hon'ble Delhi High Court in the case of Bharat Hotels [supra] and has further relied upon the decision of the Hon'ble Jurisdictional High Court in the case of PCIT Vs. Pro Interactive Services (India) Pvt. Ltd. in ITA 983/2018 dated 10.09.2018.
Further, this issue has been examined by the Finance Act, 2021 as under:
“Section 2 (24) (x) o f the Income Tax Act, 1961 reads: “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 o f the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare o f such employees.”
FINANCE ACT, 2021 [13 OF 2021]
An Act to give effect to the financial proposals o f the Central Government for the financial year 2021-2022.BE it enacted by Parliament in the Seventy-second Year of the Republic o f India as follows:—
CHAPTER I
Short title and commencement .
(1) This Act may be called the Finance Act, 2021. (2) Save as otherwise provided in this Act,—
(a) sections 2 to 88 shall come into force on the 1st day of April, 2021;
(b) sections 108 to 123 shall come into force on such date as the Central Government may, by notification in the Official Gazette , appoint.
Amendment of section 36.
9. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:—
'Explanation 2.—For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;' . Amendment of section 43B.
In section 43B of the Income-tax Act, after Explanation4, the following Explanation shall be inserted, namely:—
"Explanation5 .—For the removal o f doubts, it is hereby clarified that the provisions o f this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any o f his employees to which the provisions o f sub-clause (x) o f clause (24) o f section 2 applies." .
We have also perused the Memorandum Explaining the Provisions in the Finance Bill, 2021. Under the head “Provision relating to Direct Taxes” with to rationalization of various provisions, the issue of clause (24) of Section 2 sub- clause (x), Section 36(1) clause (va), Section 43B with regard to provisions of sub-Section (1) of Section 139 have been dealt at length. The gist is as under:
“Rationalization of various Provisions
Payment by employer o f employee contribution to a fund on or before due date
Clause (24) of section 2 of the Act provides an inclusive definition o f the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions o f ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Subsection (1) of the said section provides for various deductions allowed while computing the income under the head Profits and gains o f business or profession‘.
Clause (va) o f the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions o f sub-clause (x) o f clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date .
Explanation to the said clause provides that, for the purposes of this clause , "due date to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule , order or notification issued there-under or under any standing order , award, contract o f service or otherwise .
Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) o f section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub- section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year . This provision does not cover employee contribution referred to in clause (va) o f sub-section (1) of section 36 o f the Act.
Though section 43B of the Act covers only employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee‘s contribution towards welfare fund. It may be noted that employee‘s contribution towards welfare funds is a mechanism to ensure the compliance by the employers o f the labour welfare laws. Hence , it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is employee own money and the employer deposits this contribution on behalf o f the employee in fiduciary capacity. By late deposit o f employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) o f sub-section (1) o f Section 36 o f the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee‘s contributions.
Accordingly, in order to provide certainty, it is proposed to –
(i) amend clause (va) of sub-section (1) o f section 36 of the Act by inserting another explanation to the said clause to clarify that the provision o f section 43B does not apply and deemed to never have been applied for the purposes o f determining the ―due date under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) o f clause (24) o f section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.” [Clauses 8 and 9] 33.
Thus, the matter has been finally decided and the controversy has been put to rest.”
After considering the facts of the case in totality, in light of judicial decisions discussed hereinabove, and considering the decisions relied upon by the ld. DR, we are of the considered opinion that no disallowance is called for belated payment of employee’s contribution to the respective PF and ESI in the case of the assessee who has deposited the same before the due date of filing of Income tax return.
The Assessing Officer is directed to delete the impugned additions.
In the result, both the appeals of the assessee in ITA Nos.
1255/DEL/2021 and 1256/DEL/2021 are allowed.
The order is pronounced in the open court on 24.08.2022.