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Income Tax Appellate Tribunal, DELHI “SMC” BENCH: NEW DELHI
Before: SHRI KUL BHARAT
ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2019-20 is directed against the order of Ld. CIT(A), National Faceless Appeal Centre (“NFAC”) dated 30.09.2021.
The assessee has raised following grounds of appeal:-
1. ““That CIT(A)-NFAC, Delhi erred in confirming the addition of Rs.11,45,054/- made in the intimation dated 12/03/2020 issued under section 143(1) processed by the ADIT, CPC, Bangalore on account of delay in deposit of employees contribution to PF & ESI without appreciating the fact that employees contribution to PF & ESI was duly deposited on or before the due date of filling return of income u/s 139(1).
2. That CIT(A)-NFAC, Delhi erred in confirming the addition of Rs.11,45,054/- under the head income from business or profession in the intimation issued u/s.143(1) due to delay in deposit of employees contribution to PF and ESI under the relevant Acts but the same was duly deposited before the due date of filling return of income under section 139(1) of the I.T Act, 1961 without appreciating the fact that section 143(1)(a) does not permit addition on account of debateable issues where two views are possible.
3. That CIT(A)-NFAC, Delhi further erred in discarding the binding judicial precedents of jurisdictional Punjab & Haryana High Court in the case of CIT Vs. Mark Auto Industries Ltd (2103) 40 taxmann.com 482 and CIT Vs. Hemla Embrodiery Mills (P) Ltd. (2014) 366 ITR 167 relied upon by the assessee and confirm the addition on relying upon the judgments of non jurisdictional High Courts without appreciating the fact that on the same issue non jurisdictional High Court orders can not supersede the binding orders of jurisdictional High Court.
4. That CIT(A)-NFAC, Delhi erred in applying the amendment brought in by the Finance Act,2021 in the provisions of section 36(1)(va) applicable w.e.f 1st April, 2021 relevant to F.Y 2020-21 which was categorically mentioned in the Page | 2 'Memorandum -Explaining the Provisions of the Finance BiII,2021' accordingly entire disallowance relating to AY 2019-20 amounting Rs.11,45,054/- on account of delayed deposit of employees contribution to PF and ESI being deposited on or before the due date of filling return of income u/s 139(1) deserves to be deleted in full.
5. That CIT(A)-NFAC, Delhi erred in passing appeal order confirming addition of Rs.11,45,054/- on account of delayed deposit of employees contribution to PF and ESI under section 143(1)(a)(iv) without appreciating the fact that the tax audit report in Form No.3CB and in Form No.3CD was silent regarding disallowance of employees contribution to PF and ESI when not deposited within the due dates given under the specific Acts , accordingly addition of Rs.11,45,054/- confirmed by CIT(A)-NFAC, Delhi deserves to be deleted in full.
The above grounds of appeal
are without prejudice to each other. The appellant may be allowed to add/amend/withdraw any grounds of appeal at the time of hearing or at any time before hearing with due permission of the Hon'ble Tribunal.”
3. Facts giving rise to the present appeal are that Central Processing Centre (“CPC”), Bengaluru vide intimation u/s 143(1) of the Income Tax Act, 1961 (“the Act”) for Assessment Year 2019-20 made adjustment regarding delay in deposit of employees contribution to PF & ESI.
4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A). The Ld.CIT(A), NFAC dismissed the appeal and confirmed the disallowance made by CPC, Bengaluru.
5. Now, the assessee is in appeal before this Tribunal.
6. Ld. Sr. DR vehemently submitted that law is clear in this respect and he relied upon the decision of Ld.CIT(A). He further relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Bharat Hotels Ltd. [2019] 103 Taxmann.com 295 (Delhi) wherein the Hon’ble High Court has decided the issue in favour of the Revenue by observing as under:-
“Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent Page | 4
notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.”
I have heard the Ld. Representatives of both the parties and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A) has decided the issue by observing as under:-
“I have carefully considered the order of the CPC, grounds of appeal, facts of the case and submission filed by the appellant. It is observed that the only issue involved is whether the late deposit of Employee's contribution of PF/ESI as per respective Act is allowable u/s 43B(b) being the payment deposited on or before the date of filing return u/s. 139(1) of the I.T. Act, 1961. As per the plain reading of provisions of the Act, Section- 2(24)(x) is applied to any sum received by the assessee from any of his employee being contribution towards labour welfare laws and the same is considered as income. The deduction thereon in computing the income referred to in section 28 is provided u/s. 36(1)(va) 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. Clause b of Section 43B provides allowability to any sum payable by the assessee as an employer by way of contribution to any provident fund or Page | 5
superannuation fund or any other fund for the welfare of employees. In view of the above, the question arises whether the sum of employee contribution being deposited beyond the due date as prescribed in the respective Act but before the filing of return u/s. 139(1) of the IT. Act comes within the purview of Section 43B(b) as an allowable deduction. This query is being clarified by the insertion of Explanation 5 to Section 43B by the Finance Act, 2021 w.e.f. 01.04.2021 which is as under: "[Explanation 5.-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.]" Therefore, the law is now made clear that Section 43B(b) attracts the allowability as a deduction for the sum of employers contribution towards welfare fund only and a distinction between employer contribution and employee's contribution towards welfare fund has been made through the insertion of this explanation in Section 43B. Now, the issue remains unanswered is the determination of due date for the deposit of employee contributions of PF/ESI which is well explained in Explanation 2 to sub clause (va) of clause 1 of Section 36 of the Act wherein it is clarified that for the purpose of determining the 'due date' under this clause the provisions of section 43B shall not apply and shall be deemed never to have Page | 6 been applied. Therefore, it is made clear that deposition of sum of employee contribution will be allowable as a deduction u/s 36(1)(va) if the same has been deposited within the due date as prescribed under respective Act. It is pertinent to note with respect to the above discussion held that the language of newly proposed explanation 2 to section 36(1)(va) and explanation 5 to section 43B makes it dear that the amendment is retrospective and shall also be applicable for earlier years. The appellant relied on the various judicial precedents in support of his grounds of appeal raised, which are considered and perused. I have gone through the judicial decision of the Sagun Foundry (P.) Ltd. Vs Commissioner of Income tax, Kanpur [2017] 78 taxmann.com
47. (Allahabad) following the decision in CIT Vs Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 (SC). The decision of Hon'ble Supreme Court is not applicable to the facts and circumstances of the case because Hon'ble Supreme Court has decided the issue in Alom Extrusions Ltd. case qua employers contribution as per section 43B(b) of the Act and not qua employees contribution u/s. 36(1)(va) of the Act. The various other judicial decisions quoted by the appellant are considered and found not to be applicable in the case of appellant since the provisions of section 36(1)(va) and section 43B has been amended as discussed in above paras to provide clarity and certainty on non-applicability of section 43B on employees contribution to specified fund.
Therefore, the employee contribution of PF/ESI deposited beyond the due date as mentioned in the respective Act cannot be allowable as an eligible deduction u/s. 36(1)(va) of the Act and the addition of Rs.11,45,054/- is upheld. The appeal of the appellant is dismissed on this ground.” 8. I find that the issue is covered by the judgement of Hon’ble Delhi High Court rendered in the case of AIMIL Ltd. (supra) wherein it has been held:-
“We may only add that 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, as per the principle laid down by the Supreme Court in Vinay Cement (supra).” 9. Further, Hon’ble Delhi High Court in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in [Del.] order dated 10.09.2018 held as under:-
“In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Page | 8
Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.”
Therefore, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court in the above-mentioned binding precedents, I hereby direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.