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Income Tax Appellate Tribunal, DELHI “SMC” BENCH: NEW DELHI
Before: SHRI KUL BHARAT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No.709/Del/2021 [Assessment Year : 2019-20] Radford Global Ltd., vs ADIT, Office No.704, Wellington Business CPC, Park 1, ANdheri Kurla Road, Andheri Bangalore. East, Mumbai, Maharashtra-400059. PAN-AABCM5771E APPELLANT RESPONDENT Appellant by None Respondent by Sh. Om Prakash, Sr.DR Date of Hearing 06.01.2022 Date of Pronouncement 10.02.2022
ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2019-
20 is directed against the order of Ld.CIT(A)-23, New Delhi dated 12.04.2021.
The assessee has raised following grounds of appeal:-
“On the facts and in the circumstances of the case and in law, the learned CIT(A) grossly erred in confirming the addition of Rs.21,96,923/- on account of delay in deposit of employees contribution to Provident Fund and ESIC u/s 2(24)(x) r.w.s 36(1)(va) of the Income Tax Act, 1961 even when the same were paid before the due date of filling the return of income. 2. The appellant craves leave to add, alter, amend or delete any of the above referred ground of appeal.”
At the time of hearing, no one appeared on behalf of the assessee.
Facts giving rise to the present appeal are that the assessee was engaged
in the business of Staffing and Manpower supply, who filed its original return
of income on 31.10.2019, declaring a total income of Rs.25,65,467/- under
normal provisions and Rs.21,97,669/- under MAT provision i.e. u/s 115JB of
the Income Tax Act, 1961 (“the Act”). The return was processed and the ADIT,
CPC, Bangalore issued an intimation u/s 143(1) of the Act for the year under
consideration, assessed the income of Rs.47,62,390/- under normal provisions
after making a disallowance of Rs.21,96,923/- u/s 36(1)(va) of the Act on
account of delayed payment of employee’s contribution to ESIC.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A),
who after considering the submissions, dismissed the appeal of the assessee.
Now, the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that the issues raised in this
appeal are squarely covered in favour of the assessee. He placed reliance on the
decisions of Hon’ble Delhi High Court rendered in the case of PCIT vs Pro
Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated
10.09.2018 and in the case of CIT vs AIMIL Ltd. 321 ITR 508 and stated that
that these binding precedents have been followed by the various Benches of
the Tribunal.
Per contra, Ld. Sr. DR vehemently opposed these submissions and
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‟ 8. 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 and 21 days + any other grace period in terms of the extent notification). As far as the amounts employees‟ constituting deductions from 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 Ld.Sr.DR 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:-
Findings/ Determination are as hereinafter- “I have considered the material on record including written submission of the AR of the appellant filed in course of appellate proceedings. I have also perused the assessment order u/s 143(1) of the Act. The appellant has filed three grounds of appeal. 5.1.1 In Ground No.2, the appellant has contended that the Assessing Officer erred in making an adjustment of Rs. 21,96,923/- (u/s 143(1)(a) read with section 36(1)(va) of the Act), being Rs. 21,96,923/- received towards fund set-up under the provisions of the ESI Act, 1948 which remained to be deposited on or before the prescribed due date of the relevant law. The appellant contended that on the facts and in the circumstances of the case and in law, the Assessing Officer ought not to Page | 3
have made the impugned adjustment in as much as such contributions received from the employees have been deposited in the relevant fund before filing of the return of income u/s 139(1) of the Act which has been communicated in the response to adjustment u/s 143(1)(a), and the issue is directly covered by jurisdictional High Court in the case of Ghatge Patil Transports Ltd. (368 ITR 749); as much, the impugned adjustment ought not to be made. 5.1.2 The appellant filed original return of income on 31.10.2019 declaring total income of Rs.25,65,467/- under normal provisions and Rs.21,97,669/- under MAT [(iii) disallowance of loss claimed. if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-lAB, 80-lB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (I) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:" 5.1.5 The above amount of Rs. 21,96,923 was added back in view of clause 143(1)(a)(iv) above as per which disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return is required to be added back, 5.1.6 The Income Tax Act has been amended by Finance Act, 2021. The amended section 36(1)(va) is reproduced below: "Other deductions. 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 ref erred to in section 28-
(va) 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 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, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] provision. In the intimation u/s. 143(1), a disallowance of Rs. 21,96,923/- was made u/s 36(1)(va) of ITA on account of delayed payment of employee's contribution to ESIC. The appellant claimed a deduction of Rs.26,95,005/-, being employees contribution under the ESIC Act, out of which Rs.21,96,923/- were paid into Employees State Insurance fund beyond the due dates as prescribed under the said statute but before the due date of filing of the income tax return. The assessing officer while issuing an intimation u/s. 143(1) of the Income Tax Act made a disallowance of Rs. 21,96,923/-, as the same were deposited to respective fund by the appellant beyond the due dates as prescribed under the said statute. 5.1.3 During appeal proceedings, the appellant submitted that the Assessing Officer failed to appreciate that contributions to ESIC were made before the due date of filing of original return of income by the appellant and as such the same was allowable as deduction in the return of income and accordingly in line with interpretation laid down by the jurisdictional High Court. Reliance was placed upon following judgments: (i) Hon'ble Bombay High Court (Jurisdictional High Court) in the case of CIT vs. Ghatge Patil Transports Ltd [2015] 53 taxmann.com 141 (Bombay) (ii) CIT vs. Hindustan Organics Chemicals Ltd (2014) 89 CCH 0157
(Iii) Hon'ble Delhi High Court in the case of CIT Vs. AIMIL Ltd [2010] 188 TAXMAN 265 (DELHI) 5.1.4 I have considered facts of the case as well as written submission of the appellant. In this regard, Section 143(1) of Income Tax Act is reproduced below: "Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the to income of loss shall be computed after making the following adjustments, namely:- i) any arithmetical error in the return; [***] (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; '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;' 5.1.7 Section 43B of Income Tax Act as amended by Finance Act, 2021 is reproduced below: "Certain deductions to be only on actual payment. 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, [ or] "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." 5.1.8 In the newly inserted Explanation 2 to Section 36(1)(va), it has been clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause. Also, in the newly inserted Explanation 5 to Section 43B, it has been 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. In view of these amended provisions of Income Tax Act which are clarificatory in nature, it is held that where payment is made on account of employees contribution under the ESIC Act beyond the due date prescribed in ESIC Act, deduction u/s 36(1)(va) is not allowable to the appellant. Hence, disallowance of Rs. 21,96,923/- made u/s 36(1)(va) of Income Tax Act is upheld and Ground No.2 is dismissed. 5.2.1 In Ground No.1, the appellant has contended that the Asst. Director of Income Tax, CPC, Bangalore (hereinafter referred to as the Assessing Officer) erred in determining the Gross Total Income at Rs. 47,62,390/- as against Rs.25,65,467/- per return of income and in consequently, raising a demand of Rs.11,90,598/-. The appellant contended that the Assessing Officer ought to have accepted the Rs. 25,65,467/- Income per return of income for the reasons more specifically mentioned in the ground of appeal nos 2. 5.2.2 In view of detailed reasons given in Ground No.2 above, Ground No.1 is dismissed. 5.3.1 In Ground No.3, the appellant has contended that the appellants crave leave to add to, alter or amend the aforestated grounds of appeal. 5.3.2 Since the appellant did not add to, alter or amend the aforestated grounds of appeal, Ground No.3 is dismissed.”
I find merit in the contention of Ld. Counsel for the assessee 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).” 11. Further, Ld. Counsel for the assessee placed reliance on the judgement of
Hon’ble Delhi High Court rendered in the case of PCIT vs Pro Interactive Service
(India) Pvt.Ltd. in ITA No.983/2018 [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.”
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, ground raised by
the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 10th February, 2022.
Sd/-
(KUL BHARAT) JUDICIAL MEMBER
*Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI