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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRADIP KUMAR KEDIA
Since in both the years the issues are common arising out of identical set of facts, therefore, both the appeals are heard together and disposed off by this consolidated order. For the sake of ready reference, the grounds of appeal for AY 2017-18 are reproduced as under :-
“1 The Ld. Commissioner, Appeals ("CIT-A") was not justified in confirming the addition of Rs.2,04,43,454 made under section 36(1)(va) read with section 2(24)(x) in the intimation issued under section 143(1) by the Ld. Asstt. Director of Income Tax, CPC, Bangalore ("AO") on account of delay in depositing employees' contribution towards EPF/ESIC of Rs.2,04,43,454, ignoring the fact that the appellant had deposited the same before the due date for filing the return of his income under section 139(1) and the deduction was, therefore, allowable under the provisions of section 43B of the Income Tax Act, 1961. 2 The Ld. CIT-A was not justified in rejecting the appeal of the appellant and confirming the order of the Ld. AO making the said addition, ignoring the judicial precedents as laid down by the Hon'ble jurisdictional Tribunal, High Court and the Supreme Court in this regard 3 The Ld. CIT-A was not justified in confirming the action of the Ld. AO by holding that the amendments made to the sections 2(24)(x), 36(1)(va) and 43B of the Act by the Finance Act, 2021 were clarificatory and, therefore, retrospective in nature, ignoring the provision of the Memorandum Explaining the Provisions in the Finance Bill, 2021 making it applicable w.e.f. 01/04/2021 i.e. A.Y. 2021-22 and subsequent assessment years.
2.1 Similarly, in AY 2018-19, the assessee has challenged the disallowance/addition of Rs.1,09,78,450/- made u/s 36(1)(va) of the Income-tax Act, 1961 (for short ‘the Act’) read with section 2(24)(x) in the intimation issued u/s 143(1) of the Act by the Ld. ADIT, CPC, Bengaluru on account of delay in depositing employees’ contribution towards EPF/ESIC ignoring the fact that the same were deposited before the due date of filing the return of income u/s 139(1) of the Act.
3 & 1924/Del/2021 3. The facts in brief are that the assessee is an individual carrying on the business of Manpower Supply Contractor in the name of proprietary concern, M/s. Neha Associates. For the assessment year 2017-18, return of income was e-filed on 30.10.2017 vide Acknowledgement No. 272788981301017 declaring income at Rs.53,15,150/-. It was processed on 19.03.2019 u/s 143(1) and the assessee received communication from CPC under section 143(1) of the Act making an addition of Rs.2,04,43,454/- u/s 36(i)(va) of the Act, on account of delay in depositing employees' contribution of PF (Rs.1,64,13,599) and ESIC (Rs. 40,29,854) deposited with the authorities after the due date for payment but before the due date for filing of return. Similarly, for the AY 2018-19, the return of income was e-filed on 30.09.2018 vide Acknowledgement No. 315562741300918 declaring income at Rs.57,26,730/-. It was processed on 09.01.2020 u/s 143(1) and the assessee received communication from CPC under section 143(1) of the Act making an addition of Rs.1,09,78,450/- u/s 36(i)(va) of the Act, on account of delay in depositing employees' contribution of PF (Rs.89,32,436) and ESIC (Rs.20,46,014) deposited with the authorities after the due date for payment but before the due date for filing of return. Aggrieved by the action of the AO, the assessee preferred appeals before the ld. CIT (A).
The First Appellate Authority, NFAC, despite noting the fact that all the payments regarding employees’ contribution towards EPF/ESIC was made before the due date of filing return of income u/s 139(1), held that there was marginal delay in depositing the payment in the respective statute. Various decisions were cited on behalf of the assessee including the judgment of Hon’ble Supreme court in the case of CIT vs. Atom Extrusions (2009) 319 ITR 306 (SC) and Hon’ble jurisdictional High Court in the case of CIT vs. AIMIL Ltd. (2010) 321 ITR 508 (Del.) and catena of other judgments. The ld. First Appellate Authority relied upon amendment brought by the Finance Act, 2021 in the provisions of section 43B and the CBDT Circular No.22/2015 and also noted that there were conflicting decision of Hon’ble High Courts including that of Hon’ble jurisdictional High Court which were in favour as well as against the assessee held that all the judgments have been rendered before the clarificatory amendments made in the Finance Act, 2021 and also the Memorandum explaining the provisions of Finance Bill, 2021 and confirmed the said adjustment made u/s 143(1)(a)(iv) of the Act. The relevant observations read as under:- “26. Thus, in view of the above discussion and judgments of the Hon'ble Supreme Court reproduced above, clarificatory amendment brought out by the Finance Act, 2021 will be applicable to the issue in the instant appeal notwithstanding that the matter pertains to an earlier year. In the circumstances, it is proper to hold that the scope of Section 43B and Section 36(1)(va) are altogether different and there is no question of reading both provisions together to consider as to whether the taxpayer is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the employer from his employee. For considering such question, application of Section 36(1)(va) read with Section 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). If the payment was not done within the stipulated time prescribed under the relevant enactment, the benefit of deduction cannot be claimed, since such belated payment is not a valid payment to attract deduction, under the purview of the Income Tax Act.”
We have heard both the parties and also perused the relevant facts given in the impugned orders as well as various judgments referred to before us. It is an undisputed fact that payments made to the employees’ contribution towards EPF/ESIC have been made marginally after the due date under the PF Regulation but much before the due date of filing the return of income. This is evident from the chart given by the First Appellate Authority in his order. The law as was prevalent during the filing of return of income for AYs 2017-18 & 2018-19, as settled by various Hon’ble Courts including that of Hon’ble jurisdictional High Court was that if the payment towards EPF/ESIC has been made before the due date of filing of return, then the same is allowable u/s 43B r.w.s. 36(1)(va).
In the judgment of PCIT vs. Pro Interactive Service (India) Pvt. Ltd. in of 2018 (Delhi), the Hon’ble High Court vide judgment and order dated 10th September, 2018 following the earlier judgment of CIT vs. AIMIL Ltd. (supra) had decided this issue in the following manner:
In view of the judgment 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(24)(x) of the Act. Appeal is dismissed.
Ld. First Appellate Authority has strongly relied upon the amendment brought into the statute by the Finance Act, 2021 by bringing amendment in Section 36(1)(va) by way of insertion of Explanation 2 wherein it has been provided that 6 & 1924/Del/2021 Section 43B shall not apply for the purpose of determining the due date under this clause. However, the said amendment has been brought w.e.f. Assessment Year 2021-22 as explained in clauses (8) and (9) of the memorandum explaining the Finance Bill, 2021. Once the amendment has been brought from prospective dates and also explained in the said memorandum of the Finance Bill, then the decision of Hon’ble Jurisdictional High Court would be applicable.
Thus, prior to the amendment, the law which has been upheld by various High Courts as well as by the Hon’ble jurisdictional High Court, same cannot be negated by an amendment which has been specifically brought w.e.f. AY 2021-22. This view has been upheld by catena of judgments of this Tribunal, which has been referred to in the written submissions filed by the assessee and also in the order of the First Appellate Authority. Therefore, this issue is decided in favour of the assessee and the disallowances/additions as upheld by the First Appellate Authority are deleted.
In the result, both the appeals filed by the assessee are allowed.
Order was pronounced in open court on 14th day of February, 2022.