SRI BASAVARAJ GUNJEGAI,BENGALURU vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CPC, BENGALURU

This appeal by the assessee is directed against the order dated 01.09.2021 of the CIT(Appeals), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2018-19.

There is a delay of 58 days in filing this appeal by the assessee. The assessee submitted that the impugned order dated 1.9.2021 was received on 1.9.2021 and appeal had to be filed on or before 30.10.2021. However, owing to COVID-19 pandemic there was a lockdown imposed by the Govt. of India / Govt. of Karnataka and the CBDT vide Circular No.8 of 2021 dated 30.4.2021 provided various relaxations till 31.05.2021 and further extended by Hon’ble Supreme Court in Suo Moto Writ Petition (Civil) No.3 of 2020 vide order dated 27.4.2021. Recently the Hon’ble Supreme Court vide order dated 23.9.2021 has held that period from 15.3.2020 to 2.10.2021 shall not be included while computing limitation and also held that a further period of 90 days shall be available from 3.10.2021 irrespective of period of limitation available as per the relevant statute to file appeals. In these circumstances, the ld. AR for the assessee submitted that there was no delay in filing the present appeal. Even if it is considered as a delay, it was due to bonafide reasons and the delay was neither intentional, wilful nor deliberate.

I have heard both the parties on the issue of delay in filing the appeal before the Tribunal. In view of the Hon’ble Supreme Court dated 27.4.2021 and 23.9.2021 in Suo Moto Writ Petition (Civil) due to COVID-19 pandemic providing for the period of limitation in filing the appeals under relevant statute, we hold that the delay is covered by the extended period of limitation as the Hon’ble Supreme Court orders. Therefore, the appeal is admitted for adjudication.

The only issue in this appeal is regarding disallowance of delayed payment of employee contribution to PF and ESI of Rs.7,85,152 u/s. 43B r.w.s. 36(1)(va) of the Act by the revenue authorities.

The assessee is an ex-serviceman engaged in the business of providing security services. He filed return of income on 30.9.2018 declaring total income of Rs.17,01,380. The AO vide intimation u/s. 143(1) disallowed a sum of Rs.7,85,152 towards belated remittance of employee’s contribution to PF. The CIT(Appeals), NFAC confirmed the order of the AO. Against this the assessee is in appeal before me.

The ld. AR submitted that the payment of employee contribution to ESI and PF though belated, but was before the due date of fling the return of income and otherwise allowable u/s. 43B of the Income-tax Act, 1961 [the Act].

The ld. DR supported the orders of lower authorities and relied on the judgment of Supreme Court in the case of Zile Singh v. State of Haryana & Ors. dated 7.10.2004.

In the present case, admittedly, though the employer did not deposit the contribution, within the stipulated time, as contemplated by paragraph-30 of the PF Scheme or before the due date under the provisions of the PF scheme/Act, he deposited the contribution to the PF/ESI fund before the due date contemplated under Section 139(1) of the Act.

Section 6 of the PF Act provides for contributions and matters which may be provided for in Schemes. Paragraph-29 of the PF Scheme states what is "Contribution". The expression "contribution" is also defined under the PF Act by Section 2(c) of the PF Act, which means a contribution payable in respect of a member under the Scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies. If this definition is read with sub-para(1) of paragraph-29 in Chapter-V of the PF Scheme, it would mean that the contributions payable by the employer under the Scheme shall be at a particular rate and the contribution payable by the assessee shall be equal to the contribution payable by the employer.

Paragraph-30 of the PF Scheme provides for payment of contributions. Sub-para(1) of paragraph-30 states that the employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer's contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member's contribution).

From bare perusal of sub-para(1) of paragraph-30, it is clear that the word "contribution" is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly.

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 subsection(1) of Section 139 of the IT Act is made, the employer is entitled for deduction. 21. 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. 22. 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.407712013. 23. 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. 8. Further, he relied on the judgment of Hon’ble Karnataka High Court in the case of CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.) has held as under: “This clause is inserted by the Finance Act with effect from April 1, 1988. The Explanation to this clause is read very carefully. "Due date" has been explained stating that: means the date by which the assessee is required as an employer to credit contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise." Prior to the above clause was inserted to section 36 giving statutory deductions of payment of tax under the provisions of the Act, section 43B(b) was inserted by the Finance Act, 1983, which came into force with effect from April 1, 1984. Therefore, again the provision of section 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including section 36(l) clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by the Finance Act, 1987, which came into effect from April 1, 1988, the letters numbered as clause (a), or clause (c) or clause (d) or clause (e) or clause (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of section 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under section 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under section 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessees as contended by learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us.

The ld.AR drew our attention to the deletion of the second proviso to section 43B of the Income-tax Act by the Finance Act 2003, which provision has come into force, with effect from April 1, 2004. The reliance placed upon the decision of the apex court in Allied Motors P. Ltd. v. CIT [1997] 224 ITR 677 and also on the decision in General Finance Co. v. CIT (Asst.) [2002] 257 ITR 338 (SC) in respect of applicability of section 43B(b) and also omission of clause (a) or (c) or (d ) or (e) or (B referred to above occurred in the first proviso to section 43B, supports the case of the assessees and also relevant paragraphs extracted from Allied Motor's case [1997] 224 ITR 677 and paragraph 59 referred to supra in this judgment from the Finance Bill with all fours supports the case of the assessee/ respondents. Therefore, we have to answer the substantial question of law No. 1 framed by this court in these appeals at the instance of the Revenue against them, viz., in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative.

Accordingly, following the above order of the Tribunal, I allow the grounds taken by the assessee on this issue.

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