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Income Tax Appellate Tribunal, [DELHI BENCH “A”: NEW DELHI]
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
PER PRASHANT MAHARISHI, A. M. 1. These are two appeals filed by the ld ACIT, Circle-4(2), New Delhi against the order of the ld. Commissioner of Income Tax (Appeals)–2, New Delhi, for assessment years 2013-14 and 2014-15 dated 19.02.2018 and 23.03.2018 raising following common grounds of appeal:-
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is legally justified in law in holding that the employees’ contribution to the Employees Provident Fund (EPF) and the Employees State Insurance Scheme (ESI) which is deemed as the employer’s income u/s 2(24)(x) of the Act and which is subject to deduction u/s 36(l)(va) of the Act is also governed by Section 43B of the Act.
The appellant craves leave for reserving the right to amend, modify, alter, add or forgo any grounds(s) of appeal at any time before or during the hearing of this appeal.”
2. In both these appeals, the only issue involved is the deletion of disallowances by the ld CIT(A) on account of late deposit of employee‟s contribution to the employees provident fund and ESIC fund relying on the decision of the Hon'ble Delhi High Court in case of CIT Vs. AIMIL Ltd 321 ITR 508. The ld AO is aggrieved with that and hence these appeals.
The fact for Assessment Year 2013-14 shows that the assessee filed its return of income on 29.09.2013 at loss of Rs. 57,83,50,735/-. The assessment u/s 143(3) of the Act was made on 30.12.2015 determining loss of the assessee of Rs. 57,98,00,740/-. Thereafter the ld AO noted that sum of Rs. 2,38,71,196/- on account of delay in deposit of employees, provident fund is not allowable u/s 43B of the Act and therefore, there is under assessment of income. The ld AO proposed to make an adjustment u/s 154 of the Act. The assessee did not remain present before the ld AO and therefore, the ld AO passed order u/s 154 read with Section 143(3) of the Act dated 06.02.2017 wherein, he made an disallowance of Rs. 2,38,71,196/- being an amount of employees contribution towards provident fund and ESIC scheme deposited after the due date of payment in those respective acts on the basis of detailed contained in tax audit report. The order u/s 154 determined the total loss of the assessee at Rs. 55,59,74,600/- after above disallowances.
The assessee preferred an appeal before the ld CIT(A) who deleted the disallowance holding that the issue is covered by the decision of the Hon‟ble Supreme Court in case of CIT Vs. Vinay Cement Ltd 313 ITR 01 and Hon'ble Delhi High Court in case of CIT Vs. AIMIL Ltd 321 ITR 508. Thus, the appeal of the assessee was allowed. 5. The ld AO is aggrieved with the above order. 6. The ld DR relied upon the order of the ld AO and submitted that that is the correct position of law and therefore, the ld AO is correct in rectifying of this order u/s 154 of the Act. 7. Despite notice, none appeared on behalf of the assessee and therefore, the issue is decided according to the information available on record. 8. We have carefully considered the contention of the ld DR. The only issue involved in this appeal is the disallowance made by the ld AO on the delayed payment of employees‟ contribution beyond the due dates prescribed under the respective P F and ESIC laws but before the due date of filing of return of income by the assessee. We find that in view of the decision of the Hon'ble Delhi High Court in case of Pr. CIT Vs. Pro Interactive service India Pvt. Ltd ITA 983/2018 dated 10.09.2018 has held that the legislative intent was to ensure that the amount paid is allowed as expenditure only when payment is actually made. In fact, assessee has made the above payment before the due date of filing of Income tax Return.
9. While deciding the issue, We are also conscious of the fact that Honourable Delhi high court on 6/9/2018 in case of CIT V Bharat Hotels Limited [2019] 103 taxmann.com 295 (Delhi) has held that “Question No.2 7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees' Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions - made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief.
Having regard to the specific provisions of the Employees' 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 constituting deductions from employees' salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.
In view of this discussion, the Revenue's appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act.”
However Honourable Delhi high court in case of PR. COMMISSIONER OF INCOME TAX-7 VERSUS PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. 2018 (9) TMI 2009 - DELHI HIGH COURT dated Dated.- September 10, 2018 in ITA 983/2018 has held as under :- “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 Page | 4
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.” Therefore, the issue is squarely covered in favour of the assessee by the later decision of Honourable Delhi high court. Even otherwise, the issue is highly debatable and it cannot be said to be a mistake apparent from the record because the claim of the assessee supported by several decisions of the jurisdictional High Court. Therefore, it cannot be a matter of adjudication u/s 154 of the income tax act.
We are also conscious of the amendment made to the provisions of the law introducing explanation 1 by The Finance Act, 2021 with effect from 1 April 2021 wherein it has been specifically clarified that that the „due date‟ means the date by which the assessee is required as an employer to credit employees contribution to the employees‟ account in the relevant fund under the respective act, rule or order of notification issued under the respective law. The notes on clauses to The Finance Bill 2021 also notes that:- “Clause 8 of the Bill seeks to amend section 36 of the Income-tax Act, relating to other deductions. Sub-section (1) of the said section provides for allowing of deductions provided for in the clauses thereof for computing the income referred to in section 28 of the said Act. Clause (va) of the said sub-section provides for allowance of deduction for 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 to the said clause provides that 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 there under or under any standing order, award, contract of service or otherwise. It is proposed to insert Explanation 2 to clause (va) of sub- section (1) of the said section so as to clarify that the Page | 5
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 the said clause. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.”
Therefore it is apparent that above explanation is inserted with effect from 1 April 2021 will apply from assessment year 21 – 22 only and thereafter from assessment year 21 – 22, the provident fund and ESIC and other funds collected from the employees but are deposited beyond the due date prescribed Under the respective laws Under which the contribution is collected, same are disallowable. However, for impugned year before us i.e. assessment year 2013 – 14, this insertion does not help the case of the revenue.
Therefore, we do not find any infirmity in the order of the ld CIT (A). Accordingly, we confirm the order of the ld CIT(A) and dismissed the appeal of the ld AO. 14. The similar is the case in substance for Assessment Year 2014-15 wherein, the disallowance has been made by the ld AO in the assessment order passed u/s 143(3) of the Act itself. However, as the subject matter remains the same that whether the employees contribution to the provident fund and ESIC is disallowable if these are paid after the due date prescribed in the respective laws but before the due date of filing of return of income. As we have already pointed out that the issue is squarely covered in favour of the assessee by the later decision of the honourable Delhi High Court, we do not find any merit in the appeal of the learned assessing officer. Further For the reason given by us while dismissing the appeal of the ld AO for Assessment Year 2013-14, we also dismiss this ground of appeal
for Assessment Year 2014-15 preferred by AO.
15. In the result, both the appeals filed by the learned assessing officer are dismissed. Order pronounced in the open court on conclusion of the hearing on 12 12/08/2021. -Sd/- -Sd/- (AMIT SHUKLA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:12 /08/2021.