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Income Tax Appellate Tribunal, DELHI BENCH : SMC : NEW DELHI
Before: SHRI R.K. PANDA
ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 27th August, 2020 of the CIT(A)-2, New Delhi, relating to assessment year 2018-19.
The grounds of appeal
raised by the assessee are as under:- “1. That the ld.CIT(A) has erred on facts and in law in upholding the order of the AO, passed under section 154 of the Income Tax Act, 1961.
2. That the Ld. CIT(A) has erred on facts and in law in upholding the addition of Rs.23,55,432/- made by AO by invoking the provisions of Section 36(1)(va) of the Income Tax Act, 1961
3. That the Ld. CIT(A) has erred on facts and in law in ignoring the well- established judicial pronouncements including that of the jurisdictional High Court.
That the impugned appellate order is arbitrary, illegal, bad in law and the violation of rudimentary principle of contemporary jurisprudence.
5. That the appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal before or at the time of hearing of the appeal.”
Facts of the case, in brief, are that the assessee is a company and filed its return of income on 27th October, 2018 declaring the total income at Rs.17,22,282/-. The return was processed u/s 143(1) of the IT Act making an addition/adjustment of Rs.23,55,432/- on account of late deposit of employees’ contribution to ESI and PF u/s 36(1)(va) of the IT Act. The assessee filed a rectification application with the CPC on 3rd December, 2019 for the deletion of addition made u/s 143(1) of Rs.23,55,432/- in respect of late deposit of employees’ contribution of PF and ESI as reported in the tax audit report. However, the CPC rejected the rectification application.
3.1 The assessee preferred an appeal before the CIT(A) and the ld.CIT(A) dismissed the appeal filed by the assessee by observing as under:- “4. Decision:- From the details filed, it is noted that deposits of employees' contribution towards PF and EPF was made beyond the due date stipulated under the respective Statutory Acts. The appellant has analyzed the various sections pertaining to sections 43B, scope of 143(l)(a), 36(l)(va) etc., alongwith the following judicial decisions :- i) CIT vs. Kichha Sugar Company Ltd. (Uttarakhand) ii) CIT vs. Vinay Cement Ltd., 213 CTR 268 (SC) iii) CIT vs. AIMIL Ltd. & Anrs., 321 ITR 508 iv) CIT vs. Alom Extrusion Ltd., 319 ITR 306
4.1 The submissions made by the appellant needs to be evaluated in the context of legal provisions laid down in the Act. The same are enumerated hereunder:- 4.1.1 The legal provision > Section 36(1)(va) deals with deduction in respect of the sum received by the assessee from any of his employees to which the provisions of sub-section 2(24)(x) applies, provided such sum is credited by the assessee to the employee’s account in the relevant fund on or before the due date. > The definition of Income u/s 2(24)(x) 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, or any other fund for the welfare of such employees. > However, a deduction from the amount of income received from employees as contributions to any provident fund or superannuation fund etc. is provided u/s 36(1 )(va) of the Act. According to this section any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) will be allowed as deduction, if such sum is credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date. “Due Date” here means the date by which the assessee is required as an employer to credit an employees’ contribution to the employees’ account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. > The Act also allows certain deductions u/s 43B, on actual payment such that the 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 section 139(1) are also allowed as deduction. > If any of the deposit is outside the due date mandated under the statute then that amount shall never be allowed as deduction under section 36(l)(va) even though it might have been deposited with a delay of just 1 day. There is no provision in the Act under which this amount can be allowed as deduction in any year thereafter. 4.1.2 The judicial decision:- In this context, the Jurisdictional High Court of Delhi in CIT vs. Bharat Hotels Limited (2019) 410 ITR 417 (Del.) had an occasion to examine the matter. The Hon’ble Court has made the following observations:-
“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, 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 (ie. 15+5 days in the case of EPF 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.” 4.2 Therefore, in the context of the legal proposition laid down and in consonance with the ratio of decision laid down by the Hon’ble Jurisdictional High Court in CIT vs. Bharat Hotels Limited (supra), the grounds of appeal are hereby dismissed. It may be mentioned here that the appellant has taken recourse to the decision in CIT vs. AIMIL Limited (supra), in its support. However, the decision in CIT vs. Bharat Hotels Limited was rendered in 2019. The same being later to the AIMIL case, the ratio of decision in Bharat Hotels case is being followed here in deciding the appeal.
5. In the result, the appeal of the appellant is dismissed.”
4. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee relied on the following decisions, copies of which are placed in the paper book and submitted that the coordinate Benches of the Tribunal, after considering the various decisions including the decision of the Hon’ble Delhi High Court in the case of Bharat Hotels Limited (supra) has allowed the deduction for late payment of PF and ESI if the same is paid on or before the due date of filing of the return u/s 139 of the Act. Since the assessee, in the instant case, has admittedly, deposited the employee’s contribution to PF and ESI, therefore, in view of these decisions, the addition made by the AO and sustained by the CIT(A) has to be deleted:-
(i) M/s. Adama Solution P. Ltd. v. The Asst. Director of Income Tax. (ITAT, Delhi); (ii) M/s. Aroon Facilitation Management Services Pvt. Ltd. v. DCIT, CPC New Delhi. (ITAT, Delhi); (iii) Vansh Jain v. DCIT, CPC New Delhi (ITAT, Delhi); (iv) Commissioner of Income-tax v. AIMIL Ltd., (Delhi High Court); (v) Pr. Commissioner Of Income Tax-7 v. Pro Interactive Service (India) Pvt. Ltd. (Delhi High Court); (vi) Yogi Ji Technoequip (P.) Ltd. v. Deputy Commissioner of Income-tax CPC, Bengaluru, (ITAT, Delhi); & (vii) DCIT Circle-7(1) v. Dee Development Engineers Ltd., (ITAT, Delhi).
The ld. DR, on the other hand, heavily relied on the order of the AO and the CIT(A).
7. I have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. The only issue to be decided in the impugned appeal is regarding the allowability of late payment of employees’ contribution to PF and ESI after the due date prescribed under the respective Acts, but, paid on or before the due date of filing of 5 the income-tax return/s 139(1) of the IT Act. I find, identical issue had come up before the Tribunal in the case of M/s Adama Solution P. Ltd. vs. ADIT, vide order dated 13.10.2021 where the Tribunal has held as under:- “7. I have considered the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the Asst. Director of Income Tax, CPC, Bangalore in the instant case has adjusted the income of the assessee by Rs.8,37,850/- making addition of Rs.8,37,850/- on account of belated payment to employees' contribution towards PF & ESI by invoking the provisions of Section 143(1)(a)(iv) of the I.T. Act, 1961. I find the rectification application filed by the assessee under section 154 was dismissed by the DCIT, CPC and on further appeal, the Ld. CIT(A) dismissed the appeal filed by the assessee. It is the submission of the Learned Counsel for the Assessee that payment for employees' contribution towards PF & ESI have been made before the due date of filing of the income tax return under section 139(1), therefore, in view of the consistent decisions of the Coordinate Benches of the Tribunal, the same does not call for any disallowance. It is also his submission that after the decision of the Hon'ble Delhi High Court in the case of CIT vs., M/s. Bharat Hotels Ltd., (supra), the Hon'ble Delhi High Court in the case of PCIT vs., Pro Interactive Service (India) Pvt. Ltd., vide ITA.No.983/2018 order dated 10.09.2018 has held that no disallowance is called for where the assessee had paid the employees' contribution to PF & ESI before the due date of furnishing of return of income under section 139(1) of the I.T. Act, 1961. 7.1. I find the Hon'ble Delhi High Court in the case of PCIT vs., Pro Interactive Service (India) Pvt. Ltd., (supra), following the decision in the case of CIT vs., AIMIL Ltd., (supra), has held that legislative intent was/is to ensure that the amount paid is allowed as expenditure only when payment is actually made. It was further held that it was not the legislative intent and objective to treat belated payment of Employees' Provident Fund & Employees' State Insurance Scheme as deemed income of the employer under section 2(24)(x) of the I.T. Act, 1961. 7.2. I find the Coordinate Bench of the Tribunal in the case of Insta Exhibitions Pvt. Ltd., New Delhi vs., Addl. CIT, Special Range-4, New Delhi vide ITA.No.6941/Del./2017 order dated 03.08.2021 while allowing such belated deposit of employees' contribution to PF & ESI as per the respective Act, but, paid before the due date of filing of the income tax return, deleted such disallowance by observing as under :
"8. We have carefully considered contentions of the learned departmental representative and perused the orders of the lower authorities. The facts shows that the assessee has collected the sum of Rs. 12,16,260/- being employee's contribution under the provident fund and with respect to ESI laws. The above contribution was admittedly not deposited by the assessee within the due date prescribed under the respective ESI and PF statue however, same was deposited before the due date of filing of return of income. Therefore, the ld AO as well as the ld CIT(A) disallowed the same holding that such contribution becomes the income of the assessee under the provision of section 2(24)(x) of the Act and thereafter if the same is deposit within the due date prescribed under the respective laws then same is allowable as deduction u/s 36(1)(va) of the Act. Coordinate bench in case of DCIT Vs Dee Development Engineers in ( A.Y 2011-12) has held as Under:- "7. We have heard both the parties and perused all the relevant material available on record. As regards Ground No. 1, the assessee company has not deposited the employees' contribution within the due date which is prescribed under the said statute i.e. Provident Fund and ESIC. This issue is dealt by the Hon'ble Delhi High Court in case of CIT vs. M/s Bharat Hotels Ltd. 410 ITR 417 wherein the issue is decided in favour of the revenue, without considering the decision of the Hon'ble Delhi High Court in case of CIT vs. AIMIL Ltd.(2010) 321 ITR 508 (Del.). But the Ld. AR relied upon the decision of the Hon'ble Delhi High Court in case of Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. ITA No. 983/2018 pronounced on 10.09.2018 wherein the Hon'ble High Court decided the issue in favour of the assessee relying upon the judgment of AIMIL Ltd. (supra). The Hon'ble Delhi High Court held that the legislative intent was/is to ensure that the amount paid is allowed as 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(24)(x) of the Act. It is settled law that when two judgments are available giving different views then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon'ble Supreme Court. Hence, in light of the latest decision in case of Pro Interactive Service (India) Pvt. Ltd., the issue is covered in favour of the assessee. Hence, Ground No. 1 is dismissed."
Further with respect to the argument of the learned departmental representative that amendment made with finance act 2021 wherein explanation 1 is added u/s 36 (1) (va) of the act with effect from 1 April 2021, is applicable to the present case, we referred to the "Notes on clauses" at the time of introduction of the finance bill 2021 which says as Under:- "Clause 8 of the Bill seeks to amend section 36 of the Income tax Act, relating to other deductions. Sub-section (1) of the said section provides for allowing of deductions provided for in the clauses thereof for computing the income referred to in section 28 of the said Act. Clause (va) of the said sub-section provides for allowance of deduction for any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of 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" 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, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. It is proposed to insert Explanation 2 to clause (va) of sub-section (1) of the said section so as to clarify 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 the said clause. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021- 2022 and subsequent assessment years." Therefore it is apparent that the above amendment do not apply to the assessment year 2014-15 in this appeal.
In view of this we allow the solitary ground of appeal
raised by the assessee holding that the addition/disallowance made by the learned assessing officer of late deposit of employees contribution to the provident fund and ESI, as it is deposited before the due date of the filing of the return of an income but beyond the due date prescribed Under the respective provident fund and ESI laws is not sustainable in law.
9. In the result, appeal of the assessee is allowed." 7.3. Since in the instant case the assessee admittedly has deposited the employees' contribution to PF & ESI before the due date of filing of the income tax return, therefore, respectfully following the decisions cited (supra), I hold that the Ld. CIT(A) is not justified in sustaining the adjustment made by the A.O-CPC of Rs.8,37,846/- on account of belated payment of employees' contribution to PF and ESI. I, therefore, set aside the order of the Ld. CIT(A) and direct the A.O. to delete the disallowance. The grounds raised by the assessee are accordingly allowed.
8. In the result, appeal of the Assessee is allowed."
8. Since the assessee, in the instant case, has, admittedly, deposited the employees’ contribution to PF and ESI before the due date of filing of the return, therefore, following the decision of the coordinate Bench of the Tribunal cited (supra), I hold that the CIT(A) is not justified in sustaining the addition made by the AO on account of late payment of employees’ contribution to PF and ESI under section 36(1)(va) of the Income Tax Act, 1961. Accordingly, the order of the CIT(A) is set aside and the grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed.