M/S. SURYA ENTERPRISE,BANGALORE vs. ASSISTANT DIRECTOR OF INCOME TAX, CPC, BANGALORE

None appeared on behalf of the assessee. The notice sent by registered post was returned back by the postal authorities with the noting that “no such company in this address”. I notice that the issue contested by the assessee is squarely covered by various

M/s. Surya Enterprises Page 2 decisions of this Tribunal. Hence I proceed to dispose of this appeal ex-parte, without the presence of the assessee.

The assessee filed its return of income for AY 2019-20 on 25.10.2019. The return of income wasprocessed u/s 143(1) of the Act, wherein the above said disallowance was made u/s 36(1)(va) of the Act on the ground that the employees contribution to PF and ESI has been paid by the assessee beyond the due date prescribed in the respective Acts.

The assessee challenged the above said additionby filing appealbefore Ld. CIT(A) contending that the disallowance should not be made, since the above said payments have been made prior to the due date for filing return of income prescribed u/s 139(1) of the Act. The assessee also placed reliance on the decision rendered by Hon’ble Karnataka High Court in the case of Sabari Enterprises (298 ITR 141)(Kar). However, the Ld. CIT(A) rejected the contentions of the assessee by following the amendment brought in by the Finance Act, 2021 in sections 43B and 36(1)(va) of the Act. Aggrieved, the assessee has filed this appeal before us.

The Ld Standing Counsel Mr Ganesh R Ghale, however, submitted that the amendment made in Finance Act 2021 is a M/s. Surya Enterprises Page 3 clarificatory amendment and hence it should apply retrospectively to the year under consideration also. He submitted that the intention of the legislature has been clarified by way of amendment made in Finance Act, 2001.In this regard, he placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Zile Singh vs. State of Haryana (Appeal (civil) 6638 of 2004).

I heard Ld D.R and perused the record. The question whether the payment made beyond the due date prescribed under respective statutes, but before the due date prescribed u/s 139(1) of the Income tax Act was considered and decided in favour of the assessee by the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DICT in (order dated 21.10.2021). The question as to whether the amendment made by Finance Act, 2021 shall have retrospective effect or not was also answered in this order.

I notice that the Bangalore Bench of the Tribunal, in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra), has followed the decision rendered by the Hon’ble jurisdictional Karnataka High Court in the case of EssaeTeraoka Pvt. Ltd Vs. DCIT ((2014)(43 taxmann.com 33)(Kar), wherein the Hon’ble High Court has held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T. Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The relevant finding of the ITAT in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra), reads as follows: “7. We have heard rival submissions and perused the material on record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of M/s. Surya Enterprises Page 4 the I.T. Act. The Hon'ble jurisdictional High Court in the case of EssaeTeraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T. Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36[1][va] of the I.T. Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.

The submission of Mr. Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.

With respect, we find it difficult to endorse the view taken by the Gujarat High Court. We agree with the view taken by this Court in W.A.No.4077/2013.

In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs."

Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment year under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of EssaeTeraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1)

The Ld D.R submitted that the Hon’ble Gujarat High Court has taken a contrary view on this issue in the case of CIT vs. Gujarat Road Transport Corpn. (2014)(41 taxmann.com 100) and the matter is pending before Hon’ble Supreme Court. Accordingly, he prayed that in the event of Hon’ble Apex Court taking a view in favour of the revenue on this issue confirming the view taken by Hon’ble Gujarat High Court, then the Revenue should be given liberty to seek rectification of the present order. The prayer of the Ld D.R so made is accepted, subject to the statutory limitations, if any.

In the result, the appeal filed by the assessee is allowed.