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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 2018-19 is directed against the order of Ld. CIT(A), National Faceless Appeal Centre (“NFAC”) dated 31.08.2021.
2. The assessee has raised following grounds of appeal:-
1. “That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding disallowance of Rs.16,247/- by invoking provision of section 36(1)(va) of the Act in an intimation dated 17.10.2019 u/s 143(1) of the Act. Page | 1
That even otherwise the adjustment so made in any intimation u/s 143(1) of the Act of a debatable and contentious issue is impermissible and thus untenable.
That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that intimation dated 17.10.2019 was made without granting opportunity much less fair meaningful and effective opportunity and therefore such an intimation is otherwise vitiated. 4. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that intimation dated 17.10.2019 was made without jurisdiction; and therefore, deserves to be quashed as such. 5. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that disallowance made is contrary to judgment of Apex Court in the case of IT vs. Alom Extrusions Ltd. reported in 319 ITR 306 and, therefore the same is untenable and liable to be deleted as such. 6. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that intimation dated 17.10.20 19 is without reasons and therefore unreasonable is otherwise a nullity.” 3. Facts giving rise to the present appeal are that the assessee filed its return of income on 25.10.2018 declaring income from business/profession at Rs.7,91,692/-. While processing the return u/s 143(1) of the Income Tax Act, 1961 (“the Act”), the DCIT, CPC Page | 2 determined the income from business/profession at Rs.9,16,780/- after making addition of Rs.1,25,090/- in respect of late payment of PF and ESI. The CPC vide intimation u/s 143(1) dated 17.10.2019 has disallowed a sum of Rs.1,25,090/-.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who confirmed the addition.
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 Page | 3
and 21 days + any other grace period in terms of the extent 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 rival contentions 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:-
DECISION: “Considering the grounds of appeal
, statement of facts and the submission filed by the appellant, as well as the intimation u/s. 143(1) of the Act and the applicable law in this regard, the appeal is decided as under: 6.1. The ground Nos. 1 and 2 are grounds of appeal relating to the grievance of the appellant in respect of addition of Rs. 1,08,838/- and Rs. 16,247/- on account of PF and ESI towards employee contribution. Therefore, both these grounds are clubbed together and are dealt into as under: 6.1.1 In this regard, it is pertinent to note Circular No. 22/2015 dated 17/12/2015 issued by the CBDT is as under:
3. Accordingly, w.e.f. 1.4.1988, the settled position is that if the assessee deposits any sum payable by it by way of tax, duty, cess or fee by whatever name called under any law for the time being in force, or any sum payable by the assessee as an employer by way of contribution to any Page | 4 provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, on or before the 'due date' applicable in his case for furnishing the return of income under section 139(1) of the Act, no disallowance can be made under section 43B of the Act.
5. It is clarified that this Circular does not apply to claim of deduction relating to employee's contribution to welfare funds which are governed by section 36(1)(va) of the IT Act. 6.1.2. The ITAT, Ahmedabad in case of Morakhia Copper and Alloys (P.) [2020] 119 taxmann.com 214 (Ahmedabad - Trib.) has held as under: "11. We have heard the rival contentions and perused the materials available on record. The issue arises before us whether the payment of employee contribution made by the assessee towards ESI are within the due date as specified under the relevant Act. In this regard, we note that the assessee has made the payment employees contribution beyond the due date as specified under the relevant Act. Therefore the same cannot be allowed as deduction. We also note that the identical issue has been decided vide order dated 15th Oct, 2018 by the Hon'ble Gujarat High Court in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v. DCIT reported in Tax Appeal No. 1256 of 2018 against the assessee. The head note reads as under:
"Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) Held that : Provision requires an employer before paying the employee his wages to deduct the employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. If not so paid then no deduction 36(1)(va)". 11.1 From the above it is very clear that the payment under section 36(1)(va) would be allowed in respect to the payment of employee contribution towards ESI if such payment is made on/before due date as specified under the relevant Act (i.e. 15 days from the month for which salary is due). Thus the payment made by the assessee on account of employee contribution towards ESI after due date stands disallowed in view of the judgment in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v. DCIT (supra). We uphold the order of the lower authorities. Hence the ground of appeal of the assessee is dismissed. " 6.1.3. The head note of the decision of High Court of Kerala in case of Merchem Ltd. [2015] 61 taxmann.com 119 (Kerala) is as under: "Section 36(1)(va), read with sections 2(24)(x) and 43B, of the Income-tax Act, 1961 - Employee's contributions (Section 36(1)(va) v. section 43B) - Assessment year 2010- 11 - Whether section 36(1)(va) and section 43B(b) operate Page | 6 in different fields i.e. former takes care of employee's contribution and latter employer's contribution - Held, yes - Whether, therefore, an assessee is entitled to get benefit of deduction under section 43B(b) as provided under proviso thereto only with regard to portion of amount paid by employer to contributory fund - Held, yes - Whether so far as employee's contribution is concerned, assessee is entitled to get deduction of amounts as provided under section 36(1)(va) only if amounts so received from employee is credited in specified account within due date as provided under relevant statute - Held, yes [Paras 19 and 30] [In favour of revenue] 6.1.4. The head note of the decision of High Court in case of Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 (Gujarat) is as under: "Section 43B, read with section 36(1)(va) of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed on actual payment (Employees contribution) - Whether where an employer has not credited sum received by it as employees' contribution to employees account in relevant fund on or before due date as prescribed in Explanation to section 36(1)(va), assessee shall not be entitled to deduction of such amount though he deposits same before due date prescribed under section 43B i.e., prior to filing of return under section 139(1) - Held, yes - Assessee State transport corporation collected a sum being provident fund contribution from its employees - However, it had deposited lesser sum in provident fund account. Assessing Officer disallowed same under section 43B - However, Commissioner (Appeals) deleted disallowance on ground that employees contribution was deposited before filing return - Whether since assessee had not deposited said contribution in respective fund account on date as prescribed in Explanation to section 36(1)(va), disallowance made by Assessing Officer was just and proper - Held, yes [Para 8] [In favour of revenue]" 6.1.5 The head note of decision of High Court of Madras in case of Unifac Management Services (India) Pvt. Ltd. [2018] 100 taxmann.com 244 (Madras) is as under: "Section 36(1)(va), read with sections 43B and 2(24)(x), of the Income-tax Act, 1961 - Employees contribution (General) - Whether sum received by assessee as an employer from employee is an income at hands of assessee, as per section 2(24)(x) and said sum would be entitled for deduction only when it is paid to concerned authority within due date as per section 36(1)(va) and certainly, sum payable by assessee as an employer by way of his contribution towards beneficial fund cannot be treated as an income at his hand but only as an expenditure allowable for deduction when such payment is made in accordance with section 43B(b) - Held, yes - Whether scope of section 43B and section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether assessee employer is entitled to deduction in respect of sum paid (employees contribution to PE, ESI) belatedly and therefore; for considering such question, application of section 36(1)(va), read with section 2(24)(X) alone is proper course and any other interpretation would only defeat object and scope of both provisions, viz., 43B and 36(1)(va) - Held, yes [Paras 18 to 27] [ln favour of revenue] Section 43B, read with section 36(1)(va)of the Income Tax Act, 1961 - Business disallowance - Certain deduct to be allowed on actual payment - Employers Contribution(General) – Whether though an amendment has been introduced to section 43B, whereby actual date of payment is enough for considering deduction, if such date falls before date for filing return but in absence of any amendment made to section 36(1)(va), both contributions, viz, ‘employees’ and ‘employers’ cannot be brought under same scope and ambit of section 43B to claim deduction - Held, yes-Whether Circular No. 22/2015 dated 17-12- 2015, issued in consequence of amendment made to section 43B, to inform settled position that if assessee deposits contribution before due date for furnishing return, no disallowance can be made under section 43B, specifically excludes extension of such scope to employee's contribution governed by section 36(1)(va) - Held, yes [Para 19] [In favour of revenue]" 6.1.6 The head note of decision of ITAT, Delhi in case of Eagle Trans Shipping & Logistics (India) (P.) Ltd. [2019] 109 taxmann.com 426 (Delhi - Trib.) is as under: Page | 9
"Section 36(1)(va) of the Income-tax Act, 1961 - Employee's contributions (Allowability of deduction) - Assessment year 2013-14 - Whether where assessee employer failed to deposit entire amount towards employees contribution on account of PF and ESI with concerned department on or before due date prescribed under relevant statutes; assessee would not be entitled to deduction under section 36(1 )(va) - Held, yes [Paras 5, 9, 11 and 12] [In favour of revenue].” 6.1.7 The same view i.e. the assessee is entitled to deduction in respect of employees' contribution to ESI and EPF as provided under section 36(1 )(va) only if same is paid within due date as specified under relevant statutes was held in the following decisions: a) The High Court of Kerala in case of Popular Vehicles & Services (P.) Ltd. [2018] 96 taxmann.com 13 (Kerala) b) The High Court of Gujarat in case of Suzlon Energy Ltd. [2020] 115 taxmann.com 340 (Gujarat) 6.1.8 This is also to pertinent to note that clarificatory amendments were brought in by the Finance Act 2021 by adding explanation 2 in Section 36(1)(va) and explanation 5 to section 43B. The language of these explanation clearly suggest that the amendment is clarificatory and-intent of legislature was never to apply provisions of section 43B on provisions of Section 36(1)(va). Now section 36(1)(va) and section 43B after amendment by Finance Act, 2021 read as under:-
"36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (va) any sum received by the assessee from any of his employees to which the provisions of sub-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 1 - For the purposes of this clause, "due date" means 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, award, contract of service or otherwise.] [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.] "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of Page | 11 accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: [Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. 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. 6.1.9 It is noticed that the appellant relied on the following decisions :- • M/s. Kichha Sugar Company vs. CIT (ITA No.50/2009 • AIMIL Ltd vs. Commissioner of Income Tax (ITA No.1063/2008) • CIT v.Rajasthan State Beverage Corporation Ltd. I.T. Act, 1961 Appeal (Supreme Court) 2017
6.1.10. However, it is seen that the said decisions relied on by the appellant were rendered before the amendments of section 36(1)(va) and section 43B of the Act as discussed above in para 6.1.8. However, with the insertion of explanatory clarification 2 in section 36(1)(va) and explanation 5 in section 43B of the I.T. Act as per finance Act, 2021, the reliance of the appellant on the above case laws do not help the case of the appellant. 6.1.11 In view of the above discussions and also keeping in view of the clarificatory amendments brought in by the Finance Act, 2021 vide (a) Explanation 2 in section 36(1)(va) (b) Explanation 5 in section 43B the intimation u/s.143(1) of Act passed by Dy. CIT, CPC, 8angalore is upheld and the grounds of appeal of the appellant are dismissed. 6.2 Ground No.3, in this ground the appellant craves leave to add, modify and /or delete any of the above grounds of appeal before or during the course of hearing of the appeal. 6.3.1. Since the appellant has not added, altered, amended, substituted and/or varied all the above grounds, this ground of appeal dismissed.”
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 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.” Page | 14
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.
Order pronounced in the open Court on 22nd February, 2022.