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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SMT. BEENA PILLAI & Ms. PADMAVATHY S
Per Padmavathy S., Accountant Member These appeals by the assessee are against the orders of the CIT(Appeals), National Faceless Assessment Centre, Delhi [NFAC] dated 26.11.2021 and 7.9.2021 for the assessment years 2018-19 and 2019-20 respectively.
There is a delay of 103 days in filing both the appeals before the Tribunal for both AYs 2018-19 and 2019-20. The ld. AR submitted that though the appeals ought to have been filed before the Tribunal on or before 6.11.2021 and the of delay is 227 days from the date of receipt of CIT(Appeals)’s order on 7.9.2021, the Supreme Court by orders dated 23.3.2020, 27.4.2021 has extended the period of limitation from 15.3.2020 to 28.2.2022 due to COVID-19. Therefore the effective date of the appeals being time barred are for 103 days from 30.5.2022 to 9.9.2022. The assessee filed an affidavit from the managing director of the assessee stating the reasons for delay in filing the appeal and the ld AR prayed for condonation of the delay. The reasons as stated in the affidavit are extracted as under – “4. While so, at the time of receipt of the final order by the CIT(A) on 26.11.2021, the Appellant was going through a business structuring and reconstitution of its shareholding pattern and an overall change in the management of the Company. This led to transfer/change of many personnel in the Company, including the accountant handling all the significant matters such as maintenance of books of accounts, direct and indirect tax compliances, litigations.
5. Once the transition phase was completed in March 2022 and new employees were also recruited, the accountants of the Appellant had revisited the income-tax portal in July 2022 and realized that an adverse order had been passed by the CIT(A) for the subject Assessment Year 2018-19.
6. Further, it is submitted that as per the Hon'ble Supreme Court's orders dated 23.03.2020 in SUO MOTU WRIT PETITION (CIVIL) NO(S). 3 OF 2020, the period of limitation in all proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended with effect from 15.03.2020 which was subsequently further extended vide Order 27.04.2021 in MISCELLANEOUS APPLICATION NO. 21 OF 2022 with effect from 15.03.2021 which was in effect till 28.02.2022. In the circumstances, the Appellant submits that the delay in filing of the appeal be viewed leniently and condoned.”
We have considered the rival submissions and perused the material on record on the condonation of delay in fling the appeals. The Hon'ble Supreme Court, in the case of Collector of Land Acquisition v. Mst. Katiji, (1987) 167 ITR 471, has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon'ble Apex Court has emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day's delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner. In the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, for the A.Y. 1993-94, the Tribunal condoned the delay of about 1331 days in filing the appeal wherein the plea of delay in filing appeal due to advice given by a new counsel was accepted as sufficient. The Hon'ble Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 has condoned the delay of five years in filing appeal before them which was explained due to delay in getting legal advice from its legal advisors and getting approval from Department of Science and PMO. In the aforesaid decision, the Hon'ble Court found that the very liability of the assessee was non-existent and therefore condoned the delay in filing appeal. In condoning the delay in filing the appeals, the expression 'sufficient cause' should receive liberal construction and advancement of substantial justice is of prime importance. Discretion of condoning the delay has to be exercised on the facts of each case.
Keeping in mind the aforesaid principles, we find that the explanation of the assessee for delay in filing the appeals in terms of assessee undergoing overall change in management and change in company personnel are bonafide and genuine reasons which constitute 'sufficient cause' for the delay. The number of days of delay cannot be looked in isolation and the reasons or explanation of the assessee for the delay have to be considered in the light of the test of bonafide reasons constituting sufficient cause for the delay in a pragmatic manner. We therefore condone the delay and consider both the appeals for adjudication.
The only issue in these appeals is regarding disallowance of delayed payment of employees’ contribution to ESI and Provident Fund u/s. 43B r.w.s. 36(1)(va) of the Income-tax Act, 1961 [the Act] by the revenue authorities.
The assessee is engaged in the business of development of software and related services and provides consulting services to its parent company. It leads engagements and supports Bridge Solutions Group USA global client base in managed services. It also provides services of re-selling of software licenses and subscription services to domestic customers located in India.
For the AY 2018-19, the assessee company filed its return of income u/s. 139(1) of the Income-tax Act, 1961 [the Act] on 30.11.2018 declaring a total income of Rs.2,54,94,660. An intimation u/s. 143(1) was passed on 16.10.2019 proposing following additions:-
i. Addition of Rs.5,22,469 on account of inconsistency in the amount debited to Profit & Loss u/s. 43B. ii. Addition of Rs.17,78,452 on account of delay in deposit of employee’s contribution to PF and ESI Fund after the due date.
The CPC failed to provide credit for self-assessment tax of Rs.35,55,480 and the assessee filed a rectification application towards the same and the disallowance u/s. 43B. The CPC issued a rectification order u/s. 154 of the Act dated 17.2.2020 sustaining the above disallowances. On appeal, the CIT(Appeals), NFAC confirmed the order of the AO.
For the AY 2019-20 the assessee filed return of income u/s. 139(1) of the Act on 30.11.2010 declaring a total income of Rs.2,15,09,830. The CPC passed intimation u/s. 143(1) of the Act making addition of Rs.34,95,321 on account of delayed deposit of employee’s PF after the due date. The CIT(Appeals), NFAC confirmed the intimation passed by the CPC u/s. 143(1) of the Act.
Aggrieved, the assessee is in appeals for both the assessment years.
Before us, the ld. AR submitted that the payment of employee contribution to PF & ESI though belated, but was before the due date of fling the return of income u/s. 139(1) of the Act and otherwise allowable u/s. 43B of the Act.
The ld. DR brought to our attention the latest decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC) where the Apex Court has held that Section 43B(b) does not cover employees' contributions to PF,ESI etc deducted by employer from salaries of employees and that employees contribution has to be deposited within the due date u/s 36(1)(va) i.e. due dates under the relevant employee welfare legislation like PF Act, ESI Act etc. failing which the same would be treated as income in the hands of the employer u/s.2(24)(x).
We have heard both the parties and perused the material on record. We notice that the Hon’ble Supreme Court in the case of Checkmate Services (supra) has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradicting decisions of various High Court. The relevant extract of the decision is as given below –
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 retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the 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 assessees’ 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.
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.
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 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 non-obstante 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.
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.
In view of the above decision of the Hon’ble Supreme Court, we hold that the employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. We therefore see no reason to interfere with the order of the CIT(Appeals). The grounds taken by the assessee on this issue is dismissed.
In the result, both the appeals by the assessee are dismissed.
Pronounced in the open court on this 21st day of October, 2022.