COMMISSIONER OF INCOME TAX-II vs. M/S JMC PROJECTS (INDIA) LTD

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TAXAP/712/2009HC GujaratGJHC24023599200926 December 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.P.DHOLARIA6 pages
AI SummaryAllowed

What did the High Court hold?

The Gujarat High Court allowed the appeal filed by the revenue. The Court noted that it was not in dispute that the employees' contribution towards PF and ESI had not been deposited in the Government Account by the assessee within the prescribed period of the due date under the PF and ESI Act. The Court referred to its own decision in Commissioner of Income Tax II vs. Gujarat State Road Transport Corporation in Tax Appeal No. 637 of 2013 and other allied matters. In that decision, the Division Bench had observed and held that with respect to sums received from employees to which Section 2(24)(x) applies, the assessee is entitled to deduction only if such sum is credited to the employees' account in the relevant fund on or before the due date mentioned in the explanation to Section 36(1)(va). Consequently, the Court held that the ITAT had erred in deleting the disallowances made by the AO, as the sums were not credited to the employees' accounts in the Provident Fund and/or ESI Fund on or before the due date as per the explanation to Section 36(1)(va). The impugned judgment and order of the ITAT were quashed and set aside, and the disallowances made by the AO were restored. The issue was answered in favour of the revenue.

What were the facts?

The assessee, M/s JMC Projects (India) Ltd., engaged in construction, filed its Income Tax return for AY 2005-06 declaring a total loss. The Assessing Officer (AO) made a disallowance of Rs. 54,65,498/- for delayed payment of employees' and employer's contribution towards Provident Fund (PF) and Employees' State Insurance (ESI). The Commissioner of Income Tax (Appeals) partly allowed the appeal, granting relief for ESI and employer's PF contribution but confirming the disallowance of Rs. 27,40,758/- towards employees' contribution. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal, quashing the disallowance of employees' contribution on the ground that it was deposited within the due date of filing the return. The Revenue has filed the present Tax Appeal against the ITAT's order.

What were the issues?

1. Whether the Income-Tax Appellate Tribunal was justified in holding that Rs. 54,65,498/- had wrongly been disallowed on account of delayed payment of employees’ contribution towards provident fund and ESI? (Question of law) Assessee's Contention: The assessee relied on the decision of the Uttarakhand High Court in CIT vs. Kichha Sugar Company Limited, which held that even if employees' contribution towards PF and ESI is deposited before the due date of filing the return under Section 139, the assessee is entitled to deduction, even if not deposited within the due date under the PF/ESI Act. Revenue's Contention: The revenue argued that the issue is no longer res integra in light of the Gujarat High Court's decision in Tax Appeal No. 637 of 2013 and allied matters. It was submitted that if the employees' contribution towards PF and ESI is not deposited on or before the due date under the PF/ESI Act, as provided under Section 36(1)(va) of the Income Tax Act, 1961, the assessee is not entitled to deduction. The revenue further contended that the deletion of the second proviso to Section 43B and amendment in the first proviso to Section 43B do not affect the explanation to Section 36(1)(va).

Which sections of the Income-tax Act were involved?

Section 36(1)(va),Section 2(24)(x),Section 43B

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/712/2009 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 712 of 2009 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MR.JUSTICE R.P.DHOLARIA Sd/- =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ================================================================ COMMISSIONER OF INCOME TAX-II....Appellant(s) Versus M/S JMC PROJECTS (INDIA) LTD....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 26/12/2013

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. 00. Feeling aggrieved and dissatisfied with the impugned judgement and order dated 28/3/2008 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT” for short) in ITA No.4175/Ahd/2007 for AY 2005-06, the revenue has preferred the present Tax Appeal to consider the following substantial question of law :- “Whether the Income-Tax Appellate Tribunal was justified inholding that Rs.54,65,498/- had wrongly been disallowed on account of delayed payment of employees’ contribution towards provident fund and ESI?

2.00.

That the assessee, who is engaged in the business of construction, filed his return of Income Tax for AY 2005-06 declaring total loss of Rs.20,79,62,690/-. That during the assessment proceedings, AO made disallowance of Rs.54,65,498/- on account of delayed payment of PF and ESI to the Government Account (employees’ contribution and employer’s contribution).

2.01.

Feeling aggrieved and dissatisfied with the order passed by the AO the making disallowance of Rs.54,65,498/- on account of delayed payment of of employees’ contribution and employer’s contribution towards PF and ESI, the assessee preferred an appeal before the CIT(A) and the learned CIT(A) partly allowed the appeal and granted relief to the assessee in respect of ESI and employer’s contribution of PF and confirmed the disallowance of the amount towards employees’ contribution amounting to Rs.27,40,7589/-.

2.02.

Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) in so far as confirming disallowance of employees contribution towards PF, the assessee preferred an appeal before the learned ITAT and by the impugned judgement and order, the learned ITAT has allowed the said appeal and has quashed and set aside the disallowance of employees’ contribution towards PF holding that as the assessee deposited the aforesaid amount within due date of filing of the return for the year under consideration, the assessee would be entitled to the deduction.

2.03.

Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT, the revenue has preferred the present Tax Appeal to consider the following substantial question of law : “Whether the Income-Tax Appellate Tribunal was justified inholding that Rs.54,65,498/- had wrongly been disallowed on account of delayed payment of employees’ contribution towards provident fund and ESI?

3.00.

Ms.Mauna Bhatt, learned advocate appearing on behalf of the revenue has vehemently submitted that as such the question raised / involved in the present Tax Appeal is now not res-integra in view of decision of the Division Bench of this Court in Tax Appeal No.637 of 2013 and other allied matters. It is submitted that in the aforesaid decision it is held by the Division Bench of this Court that if the amount towards employees’ contribution with respect to PF and ESI is not deposited on or before the due date under the PF / ESI Act, as provided under section 36(1)(va) of the Income Tax Act, 1961, the assessee would not be entitled to the deduction. It is submitted that it is specifically held by the Division Bench of this Court in the aforesaid decision that deleting second proviso to section 43B and amendment in first proviso to section 43B would not in any way affect the explanation to section 36(1)(va) of the Act. Therefore, it is requested to allow the present appeal.

4.00.

Mr.Bhargav Karia, learned advocate appearing on behalf of the respondent has heavily relied upon the decision of Uttarakhand High Court in the case of The Commissioner of Income Tax Vs. M/s.Kichha Sugar Company Limited, rendered in Income Tax Appeal No.50 of 2009. It is submitted that in the aforesaid decision the Division Bench of Uttarakhand High Court has taken a contrary view and it is held that even if the employees’ contribution towards PF and ESI is deposited before due date of filing the return under section 139 of the Act and though the said contribution is not deposited within due date under the PF Act / ESI Act, as the case may be, the assessee shall be entitled to the deduction. By making above submissions and relying upon above decision, it is requested to dismiss the present appeal.

5.00.

Heard Ms.Mauna Bhatt, learned advocate appearing on behalf of the revenue and Mr.Bhargav Karia, learned advocate appearing for Mr.R.K. Patel, learned advocate appearing on behalf of the assessee.

5.01.

Short question which is posed for consideration of this Court is whether the Income Tax Appellate Tribunal is justified in holding that Rs.54,65,498/- has wrongly been disallowed on account of delayed payment of employees’ contribution towards PF and ESI. It is not in dispute that the employees contribution towards PF and ESI has not been deposited in the Government Account by the assessee within the prescribed period of due date under the PF and ESI Act. As such the issue / question involved in the present appeal is now not res-integra in view of decision of the Division Bench of this provisions of clause (x) of sub-section (24) of section 2 and section 36(1)(va) of the Act, in para 8 the Division Bench of this Court has observed and held as under :

“8. 00. In view of the above and for the reasons stated above, and considering section 3(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees’ accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees’ account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. With this, all these appeals are allowed.”

6.00.

Applying the ratio laid down by the Division Bench of this Court in Tax Appeal No.637 of 2013 and other allied matters, the impugned judgement and order passed by the learned ITAT in deleting disallowance on account of delayed payment of employees’ contribution towards PF and ESI, cannot be sustained. Under the circumstances, the present appeal is allowed and the impugned judgement and order dated 28/3/2008 passed by the learned Income Tax Appellate Tribunal in ITA No.4175/Ahd/2007 for AY 2005-06, is hereby quashed and set aside. The issue / question raised in the present appeal is answered in favour of the revenue. (M.R.SHAH, J.) (R.P.DHOLARIA,J.) Rafik

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