DEPUTY COMMISSIONER OF INCOME TAX- 1(1), RAIPUR, RAIPUR vs. CHHATTISGARH STATE POWER GENERATION COMPNAY LIMITED, RAIPUR

आदेश / ORDER PER BENCH: The present appeal preferred by the Revenue and corresponding cross-objection by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 21.08.2025 for the assessment year 2014-15 as per the grounds of appeal on record.

3 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

4 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

the action. Accordingly the assessee was asked to explain why the corresponding disallowance should not be made out of the claim of depreciation, as the assessee has claimed the depreciation on the assets taking transfer value of shares. 3.2 In reply, it has been contended that Explanation 4 to sec 2(19AA) is not applicable to the reorganization of CSEB on the ground that it is applicable only when the Central Govt. notifies such re-organization in the official gazette and they are not aware of any notification issued covering the reorganization under demerger within the meaning of sec.2(19AA) of the Act, It was also contended that the addition made in the earlier year and confirmed by the first appellate authority is under challenge before the Hon'ble ITAT, therefore, the claim u/s,32 is admissible. 3.3 The assessee’s reply has been considered and is found not acceptable. As per Explanation 4 to section 2(19AA) of the act, the splitting-up or re-organization of any authority or a body constituted or established under a Central, state or Provincial Act or local authority or a public sector company into separate authorities or bodies or local authorities or companies is deemed as demerger'. Thus, the re-organization of erstwhile body corporate i.e. CSEB into separate companies falls under the category of 'demerger. Further, as per Explanation-2B to Sec. 43(6) of the Act, where in a previous year, any assets forming part of a block of assets, is transferred by a demerged company to the resulting company, then notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company, shall be the written down value of the transferred assets of the demerged company immediately before the demerger. Therefore, depreciation is allowable only on such value as it was there before re-organization. Accordingly, the assessee was required to furnish the admissible depreciation on the basis of such WDV and the same was filed. The admissible depreciation works out to Rs, 1117,05,59,067/- as against depreciation claimed at Rs. 1147,93,42,320/- and the difference of Rs.30,87,83,253/- is disallowed and added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act are separately initiated.”

5 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

“5.1.8. From the above remarks, it can be seen that this concerned transfer is not a demerger as it does not fulfill the conditions of sub-clauses (i) to (vii). Hence by combined reading of explanation 4 and the memorandum it is interpreted that any government undertaking if it fulfills the sub-clauses (i) to (vii) it would be treated as demerger. In this case it is seen that the demerger section won't be applicable in the case of the appellant-company. 5.1.9. In a hypothetical situation, if we replace the government in the scenario of this case with a person, then it can be seen that the act of vesting the property and liabilities to the "person in between" would lead to tax under income from other sources for such "person". The consequential act of revaluing the property and receiving shares equal to the value of the revalued amount in the new company so formed, would be again taxable in the hands of the "person". It can be seen clearly that the tax liability falls on the "person" in the middle and not on the resulting company. Here the resultant company is liable to claim depreciation on the revalued amount as it is the actual cost for the company as it has given equivalent amount of shares. Income-tax act does not provide for taxation of state government in the middle and since the revaluation has been done as per the Electricity act, 2013, it can be safely concluded that this does not appear to be done for reducing tax liability either. 5.1.10. In merits of the assessee's submission, relying on Honourable ITAT's judgement in the assessee's own ca as submitted in appeal proceedings and the above discussion, the ground is allowed an. AO is directed to allow depreciation as claimed by the assessee in the ITR and addition of Rs.30,87,83,253/- is deleted.”

6 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

“9. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 10. Apropos the disallowance made by the A.O of the assessee’s claim for deprecation on the assets which the assessee company had received consequent upon restructuring/reorganization of erstwhile CSEB, i.e. by calculating the same on the WDV that was lastly shown by CSEB for each block of assets, and which thereafter were ultimately transferred to all the new companies formed by its disintegration, viz. CSPGCL ( i.e. assessee company), CSPTCL, CSPDCL and CHPHCL, as against the assessee’s claim which in turn was based on WDV received as per the transfer scheme, we find that the said issue is squarely covered by the order passed by the ITAT, Bench “C”, Mumbai in the case of Chhattisgarh State Power Distribution Company Ltd. Vs. DCIT, Circle-1(2), Raipur, ITA No.01/BLPR/2013 and ITA No.14/BLPR/2013 for A.Y.2009- 10 dated 31.05.2019. On a perusal of the aforesaid order of the Tribunal, it transpires that the latter’s indulgence was sought for adjudicating the core issue, viz. as to whether the acquisition of assets by the assessee was pursuant to demerger within the meaning of “Explanation 4” to Section 2(19AA) of the Act so as to invite the provisions of “Explanation 2B” to Section 43(6) of the Act for restricting the deprecation to the WDV of the erstwhile entity? It was observed by the Tribunal that as the assets belonging to CSEB were transferred to the State Government which in turn had transferred the same to the assessee company, therefore, the “Explanation 2B” to Section 43(6) of the Act which was triggered in a situation where there were only two parties i.e. demerged company and the resulting company, would, thus not be applicable to the facts involved in the case before them, wherein three parties were involved, i.e. (i) CSEB ; (ii) State Government and (iii) assessee company. 11. Considering the aforesaid factual position, it was further observed by the Tribunal that the deeming section created by virtue of “Explanation 4” to Section 2(19AA) treating the reorganization of State bodies as a demerger cannot be extended to Section 43(6) of the Act so as to calculate the WDV of the successor companies as per “Explanation 2B” below Section 43(6) of the Act. In sum and substance, it was observed by the Tribunal that the provisions of “Explanation 2B” to Section 43(6) of the Act

7 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

were not applicable to the case before them. On the basis of the aforesaid facts, it was observed by the Tribunal that the cost of assets acquired by the assessee company would be the consideration that was paid by it by issuing equity shares to CGSPHCL. It was further observed by the Tribunal that cost of assets in the hands of the assessee would be the value on which depreciation would be allowed as per the rates prescribed u/s.32(1)(ii) of the Act. Backed by its aforesaid observations, the Tribunal had directed the A.O to allow deprecation to the assessee on the cost of acquisition of the assets as was recorded by the assessee in accordance with the scheme framed by the Government of Chhattisgarh. For the sake of clarity, the relevant observations of the Tribunal are culled out as under: “10. We have carefully considered the rival submission. The question before us is whether the acquisition of assets by the assessee was pursuant to demerger within the meaning of Explanation 4 to section 2(19AA) of the Act so as to invite the provisions of Explanation 2B to section 43(6) of the Act in order to restrict the depreciation to the WDV of the erstwhile entity. At the outset, we refer to Explanation 4 to section 2(19AA) of the Act, which reads as under: “2(19AA)… “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 77 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that— (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils [such

8 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

conditions as may be notified in the Officer Gazette, by the Central Government”]. (Underlined for emphasis by us) 10.1 The Explanation 4 to section 2(19AA) of the Act was inserted vide Finance Act, 1999 which was subsequently amended by Finance Act, 2000 to provide that reconstruction will be deemed demerger subject to fulfilment of conditions as may be specified by the Central Government. The effect of amendment has been explained in the CBDT Circular No. 794 dated 9.8.2000, which reads as under: “6.1 Explanation 4 of section 2(19AA) as inserted by the Finance Act of 1999 provided that the splitting up or reconstruction of any authority or body constituted under a Central, State or Provincial Act or a local authority or a public sector company into separate bodies or authorities shall be deemed to be demerger on fulfilling the conditions specified in sub-clauses (i) to (vii), to the extent possible. It was pointed out that in case of spitting of these authorities, boards or companies, the conditions specified in the section may not be relevant in relation to such authorities or boards, inasmuch as all properties and liabilities may not be transferred; there may not be any consideration for demerger by way of issue of shares; the transfer may not be on going concern basis, etc. **** 6.2 The Act, therefore, amends Explanation 4 to provide that such splitting up or reconstruction shall be subject to conditions as may be specified by the Central Government. 6.3 This amendment takes effect retrospectively from the 1st day of April, 2000. (Underlined for emphasis by us) As can be seen from above, Explanation 4 to section 2(19AA) of the Act creates deeming fiction to cover within its ambit even the cases of splitting up or the reconstruction of any authority or body constituted under a Central, State or Provincial Act into separate company provided the split up or reconstruction fulfils the conditions notified by the Central Government. Thus, in order to fall within the deeming fiction, twin conditions need to be satisfied, namely, (a) there should be splitting up or reconstruction of any authority or body, etc.; and (b) such spilt up or reconstruction shall fulfil the conditions notified by the Central Government. Further, in

9 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

cases wherein Explanation 4 is applicable, the other conditions of demerger as stated on earlier part of the section will not be applicable as is evident from the above Circular explaining the rationale behind amendment in Explanation 4 to section 2(19AA). 10.2 In exercise of the power conferred under Explanation 4 to section 2(19AA) of the Act, the Central Government has issued Notification No. 11576/F.No.149/133/2000-TPL(Pt.) dated 26.12.2000 wherein it laid down following two conditions to be fulfilled for treating the reconstruction as demerger, namely, (i) splitting up or reconstruction is effected through a notification in the Official Gazette by the Central or the State. Government; and, (ii) assets of the split up or reconstructed authority or body, are transferred to one or more resulting companies on a going concern basis. 10.3 In the present case, the CSEB, being a body established under state law, was split up/ reorganized into separate companies. The State Government notified the scheme of reorganization known as 'CSEB Transfer Scheme Rules, 2010 according to which as per the provisions of section 131 of the Electricity Act, 2003, all the assets of the erstwhile CSEB were transferred and stood vested in the State Government, The State Government after acquiring the assets, transferred these assets to all the companies at the value determined on the basis of the earning potential of the assets. 10.4 We find that admittedly there was reconstruction of body established by the State Government, namely CSEB, into separate companies through a notification in the Official Gazette of Government of Chhattisgarh, being State Government. Thus, first condition laid down by the Central Government in the above notification is fulfilled. 10.5 The second condition is that assets of the reconstructed body should be transferred to one or more resulting companies on 'going concern basis. We find that the assets and liabilities of the power distribution activities were very much transferred in favour of the assessee company by the State Government as is evident from the Notification dated 29.10.2010 dated No. 202/F-21/13/09/13/2/ED notifying the opening balance sheet of successor company which, inter alia, included the liabilities.

10 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

10.6 Thus, we find that all the conditions of section 2(19M) of the Act are fulfilled in this case and, therefore, the above transaction clearly falls within the meaning of provisions of Explanation 4 to section 2(19AA). We may hasten to note here that the aforesaid finding is not enough to uphold the stand of the Assessing Officer in altering the depreciation claimed by the assessee. The next, and the more pertinent, question to examine is as to whether or not Explanation 2B to section 43(6) of the Act which provides for depreciation on WDV of the assets in the hands of resulting company under demerger is applicable in this case or not? Explanation 2B to section 43(6) of the Act reads as under: “Explanation 2B.-Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the [written down value of the transferred assets [***] of the demerged company immediately before the demerger" It is evident from the above that for applicability of the above provision, there ought De transfer of assets by the demerged company to the resulting company. In the =sent case, the assets have been transferred by the State Government to the assessee and admittedly, the State Government has not demerged its undertaking art thus, it cannot be said to be demerged company; the assets belonged to CSEB, fetich were transferred to the State Government, who in turn transferred the assets the assessee-company. The Explanation 2B to section 43(6) of the Act provides for situation wherein there are only two parties i.e. demerged company and resulting company, whereas in the present case three parties are involved namely (i) CSEB, (ii) State Government; and, (iii) assessee. Thus, the above Explanation 26 does not govern the present situation, as ostensibly, the deeming fiction created by virtu; of Explanation 4 to section 2(19AA) treating the reorganization of state bodies as demerger cannot be extended to section 43(6) of the Act so as to calculate the WDV of the successor companies as per Explanation 28 below section 43(6) of the Act. Thus, the provisions of section Explanation 2B to section 43(6) of the Act are not applicable in the present case. The aforesaid legal position is also fortified by the fact the WDV of the assets as per the Act which were transferred to the assessee are also not available, on account of the fact that all assets classifiable under one block sets formed part of that block of assets and thus, the

11 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

WDV of each individual asset was un-determinate. Thus, the stand of the Assessing Officer is liable to be vacated. 10.7 We may now examine the approach of the assessee while making the claim of depreciation. In this context, we may refer to the provisions of section 32(1)(ii) of the Act which provides for allowance and rate of depreciation. It has been pointed out that as per section 32(1)(ii) of Act, the deprecation is allowable on the WDV of the block of asset and in case the asset is acquired during the year, it will be actual cost of asset on which depreciation is to be allowed. 10.8 In this regard, it is pertinent to note here that the scheme notified by the State Government, namely 'CSEB Transfer Scheme Rules, 2070, for reorganization of CSBE, which at Rule 7(g) states that the value of the assets to be transferred to the transferees shall be the fair value determined in any one or more of the following basis namely, (a) revenue earning potential, (b) depreciation replacement value or (c) book value. Further Rule 7(j) states that opening balance sheet of the transferee companies may be notified by the State Government. Accordingly, in terms of Rule 7(j) of the Transfer Rules, Government of Chhattisgarh vide notification dated 29.10.2010 No. 202/F-21/13/09/13/2/ED notified the opening balance sheet of successor companies which included the opening balance sheet of the assessee company as on 01.01.2009, being one of the successor company. Based on the values assigned in the said opening balance sheet, assessee-company recorded the value of assets and liabilities in its books of account and also for the purpose of income tax it reported the addition to the fixed assets based on the same value. In consideration for the transfer of these assets, assessee issued equity shares to the CGSPHCL. As such, the cost of the assets acquired by the assessee corresponds to the consideration paid by the assessee by way of issue of shares. The fact that assessee has issued shares to the extent of value of the assets acquired by it, as above, is consideration of transfer of assets in its favour has not been controverted by the Revenue at any stage. Thus, the cost of assets in the hands of the assessee will be the value on which depreciation is to be allowed as per the rates prescribed in section 32(1)(ii) of the Act. 10.09 In view of the above discussion, we set aside the order of CIT(A) and direct the Assessing Officer to allow depreciation to the assessee on the cost of acquisition of the assets as recorded by the assessee in accordance with the

12 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

Scheme framed by the Government of Chhattisgarh. Thus, Ground of appeal no. 2 is allowed.” As the facts involved in the case before us remains the same as were there before the Tribunal in the aforementioned case of Chhattisgarh State Power Distribution company Ltd. (supra), therefore, we respectfully follow the same. Accordingly, we set-aside the order of the CIT(Appeals) and direct the A.O to allow depreciation to the assessee company on the cost of acquisition of the assets as recorded by the assessee in accordance with the scheme framed by the Government of Chhattisgarh. Thus, the Ground of appeal No.1 is allowed in terms of our aforesaid observations.”

13 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

the stale cheques being barred by time. Therefore, the assessee should have offered the same as income on account of cessation of liability. The ld. Counsel has submitted that the cheques were not presented for clearance within the validity period by the parties for various reasons and non presentation of cheques cannot be deemed as cessation of liability. It was also contented that such addition made in the assessment year 2009-10 in the assessee of one subsidiary company was deleted in the first appeal. Therefore, no addition is called for on this account. The assessee’s contention is not acceptable because the details of subsequent discharge of the liability in regard to these cheques till date were not furnished even during assessment proceedings. Accordingly, the amount of Rs.24,34,067/- is added to the total income as cessation liability. In this connection, reliance is placed on the decision of Hon’ble Supreme Court in the case of CIT Vs. TV Sundaram Iyengar & Sons Ltd. (222) ITR 344 (SC).”

“12. We shall now deal with the grievance of the assessee company that both the lower authorities had erred in making/confirming an addition of Rs.9,75,363/- on account of stale cheques u/s. 41(1) of the Act.

14 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

15 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

Accordingly, we uphold the decision of CIT(A) and the Ground of appeal No.4 raised by the revenue is hereby dismissed.” As the facts involved in the present appeal remains the same as were there before the Tribunal, therefore, we respectfully follow the same. Accordingly, we uphold the order of the CIT(Appeals) and vacate the addition of Rs.9,75,363/- made by the A.O. Thus, the Ground of appeal No.2 raised by the assessee company is allowed in terms of our aforesaid observations.”

Ground of appeal No.3 and Ground of appeal No.4 are general. 15.

CO No.16/RPR/2026 A.Y.2014-15 17. Now we shall adjudicate cross objection filed by the assessee wherein the assessee has raised following grounds: “1. That on the facts and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs.20,27,45,585.00 made by the ACIT on account of delayed payment of employees’s

16 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

contributions to GPF, GSLIS and NCP by treating these as income u/s. 2(24)(x) read with 36(1)(va) of the Income Tax Act, 1961. That addition on account the disallowance of impugned sum is liable to be deleted. 2. That the appellant reserves the right to add, alter or delete any ground.”

17 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

conclusively held that section 43B does not govern employees' contribution under section 36(1)(va) and cannot extend the statutory due date; amounts paid beyond the due dates under the relevant Acts are not deductible, even if paid before the return-filing due date. The Court also noted the Finance Act, 2021 insertions; Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B which clarify this position. Earlier decisions that applied Alom Extrusions to employees' contributions cannot survive in view of the Supreme Court's ratio; Alom Extrusions concerned employer's contribution under section 43B and was confined thereto. (ii). In light of the binding pronouncement in Checkmate Services, I hold that employees' contribution deposited after the due dates under the EPF enactments is not allowable under section 36(1)(va). Accordingly, the disallowance in respect of employees' contribution to the extent of Rs.20,04,753/- is confirmed for violation of Section 36(1)(va). The relevant ground is therefore dismissed.” 6. We observe that the Hon’ble Apex Court has held that the employee’s contributions if not deposited in respective accounts of PF & ESIC etc. within the due date prescribed in the respective statutes, in such scenario, the said amount deposited at later dates amounts to deemed income in the hands of the employer. That on similar facts and circumstances, ITAT, Division Bench, Pune in the case of Kohinoor Developments Corporation, Vs. The Asstt. Director of Income-tax, CPC, Bengaluru, ITA Nos.718 & 719/PUN/2021: A.Y. 2018-19 & 2019-20, dated 07.11.2022 has dealt with the aforesaid issue in a detailed manner in favour of the Revenue against the assessee observing as follows: “4. The only issue involved in both these appeals is the disallowance of employees’ contribution to Provident Fund as well as ESIC. It is the case of the assessee that as per various decisions of Pune Tribunal it has been held that if the employees’ contribution to provident fund is paid before the due date of filing of return of income, then it is deductible as per provisions of section 43B of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and the amendment made by the Finance Act, 2021 inserting Explanation 2 to section 43B is applicable prospectively i.e. from A.Y. 2021-22. Admittedly, in both the cases before us, the payment of impugned employee’s’ contribution to provident fund was

18 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

before the due date of filing of return of income u/s 139(1) of the Act. 5. In the recent past, it has been held by various Benches of the ITAT that if the assessee has not deposited employees’ contribution of E.P.F, ESI, etc. within due date prescribed under the respective statutes but paid before due date of filing the return of income under the provisions of section 139(1) of the Act, in such case, the A.O was directed to delete additions made under section 36(1)(va) of the Act from the hands of the assessee. Pune Tribunal have passed orders in favour of the assessees relying on Hon'ble Jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. 368 ITR 769 (Bom) which followed the decision of Hon'ble Himachal Pradesh High Court in the case of CIT Vs. Nipso Polyfabrics Ltd. (2013) 350 ITR 327 (HP). In the legal jurisprudence interpreting the provisions of sec. 30(1)(va) and section 43B of the Act, there has been a division of opinion on the issue where the Hon'ble High Courts of Bombay, Himachal Pradesh, Calcutta, Gauhati and Delhi have interpreted the provisions beneficial to the assessee while the Hon'ble High Courts of Kerala and Gujarat have interpreted the provisions in favour of the Revenue. These difference of views were noticed by the Hon'ble Supreme Court because of which it had allowed Special Leave to Appeal in a group of matters taking the lead case in the matter of Checkmate Services P. Ltd. Vs. CIT-1 (Civil Appeal No. 2833 of 2016 and others). In all these appeals, the common question involved is with respect to the interpretation of section 36(1)(va) and section 43B of the Act and whether the appellant-assessees were entitled to deduction of amounts deposited by them towards employees’ contribution in terms of EPF Act, EPF Scheme, ESI Act, ESI Regulations or any other provident fund or superannuation funds. In the year under consideration, the A.O has ruled that the appellant-assessee has belatedly deposited the employees’ contribution towards the EPF and ESI considering the due date under the relevant Acts and Regulations. Secondly, the A.O ruled by virtue of section 30(1)(va) read with section 2(24)(x) of the Act that such amounts received by the appellant-assessee constitute “income”. Those amounts could not have been allowed as deduction u/s 36(1)(va) of the Act when the payment was made beyond the relevant due date under the respective Statutes. In other words, as per the A.O as such amounts were paid beyond the due date as prescribed under the respective Acts the right to claim such amounts as allowable deduction while computing the income was lost for ever. The assessee’s plea was unsuccessful before the I.T.A.T. and

19 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

ultimately the Hon'ble Gujarat High Court also rejected the plea of the assessee. As noticed earlier, on this issue since there was a division of opinion amongst various Hon'ble High Courts, therefore, Hon'ble Supreme Court granted Special Leave to Appeal in all these cases. It was observed and held by the Hon'ble Supreme Court as follows: “51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Income-Tax and another v. Sabari Enterprises; Commissioner of Income Tax v. Pamwi Tissues Ltd.; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va)with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling n Alom Extrusions. As noticed previously, Alom Extrusions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retain by the employer from out of the employee’s income by way of deduction etc were treated as income in the hands of the

20 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)).The other important feature is that this distinction between the employers ‘contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out- goings forming part of the assessee’s liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non- obstante clause has to be understood in the context of the

21 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the nonobstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 6. In the aforesaid judgment, the Hon'ble Supreme Court has analysed the legal essence of the welfare legislations such as ESI, EPF, etc. which are primarily for the benefit of the employees. The employees’ hard earned money are contributed to these funds whereby their contributions are given to the employers to be deposited as per these enactments. When the money is given by the employees, the employer is holding that money on behalf of the employees in the manner of good faith and trust. They are not part of the employers’ income, nor are they heads of deduction per se in the form of statutory pay out. In fact, they are others income, money, only deemed to be income with the object of ensuring

22 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026

that they are paid within the due date specified in that particular statute. Therefore, they have to be deposited in terms of such welfare enactment. It is open to deposit in terms of those statutes on or before the due date as mandated by such concerned law that the amount which is otherwise retained and is deemed income in the hands of the employer is therefore, treated as a deduction. Essentially the condition precedent for deduction is that therefore, such amounts which are held in trust for the employees should be deposited by the employer on or before the due date as prescribed under the relevant Statutes. The Hon'ble Supreme Court further held that if this approach and reasoning is adopted then the non-obstante clause u/s 43B or anything contained in that provision would never absolve the assessee employer from its liability to deposit employees’ contribution on or before the due date as mentioned in the respective enactments as a condition for deduction. In view thereof, the Hon'ble Apex Court upheld the findings of Hon'ble Gujarat High Court and also stated that the decisions of other Hon'ble High Courts holding to the contrary do not lay down the correct proposition of law. 7. Reverting to the facts of the present case, it is an admitted fact that the payment of employees’ contribution to the provident fund was made before the due date of filing of return of income u/s 139(1) of the Act but beyond the due date as provided in the respective Statutes. 8. Respectfully following the judgment of Hon'ble Supreme Court (supra) we hold that the assessee-employer was duty bound to deposit the employees’ contribution to provident fund within the due date as mentioned in the respective Statutes. Since this was not done the assessee is not entitled for deduction u/s 36(1)(va) read with section 43B of the Act and the said amount has to be construed as deemed income of the assessee and added to his total income. We do not find therefore, any infirmity with the findings of the Revenue authorities and both the appeals of the assessee are dismissed.” 7. Respectfully following the aforesaid judicial pronouncements, we do not finding any infirmity with the findings of the Ld. CIT(Appeals) which is therefore, sustained. 8. As per above terms, appeal of the assessee in ITA No. 172/RPR/2026 for A.Y.2013-14 is dismissed.”

23 DCIT-1(1), Raipur Vs. Chhattisgarh State Power Generation Company Limited ITA No.658/RPR/2025 CO No. 16/RPR/2026 19. Respectfully following the aforesaid decision, the issue raised by the assessee in the cross objection is dismissed.

Order pronounced in the open court on 22nd May, 2026.

Sd/- Sd/- AVDHESH KUMAR MISHRA PARTHA SARATHI CHAUDHURY (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 22nd May, 2026. SB, Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� /The Appellant. 2. ��यथ� /The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. 5. गाड� फ़ाइल / Guard File. Samiran Bera, आदेशानुसार / BY ORDER, Sr. PS, ITAT, // True Copy // Senior Private Secretary Raipur आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur. Digitally signed by Samiran Bera, Sr. PS, ITAT, Raipur Date: 2026.05.22 09:29:17 +05'30'