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Facts
The assessee claimed deduction for employees' contribution towards PF and ESIC. The Assessing Officer disallowed this claim and levied penalty under Section 271(1)(c). The CIT(A) upheld the penalty. The assessee appealed.
Held
The Tribunal held that the issue regarding the disallowance was debatable, especially given the conflicting judicial precedents at the time. The Supreme Court's decision in Checkmate Services Private Ltd. settled the issue later. Therefore, levying penalty under Section 271(1)(c) was considered erroneous.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when the disallowance of employees' contribution to PF/ESIC is based on a debatable issue subsequently settled by the Supreme Court?
Sections Cited
250, 271(1)(c), 36(1)(va), 2(24)(x), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
(Assessment Year: 2016-2017) Capacite Infraprojects Limited 605 607, Shreekanth Chambers, Phase 1, Sion Trombay Road, Chembur – 400071. Maharashtra. [PAN:AAECC9463G] …………. Appellant Vs Assistant Commissioner of Income Tax/ Deputy Commissioner of Income Tax Central Circle 1(2) Prathishtha Bhavan, 9th Floor, Churchgate, Mumbai - 400020 …………. Respondent Appearance For the Appellant/ Assessee : Shri Viraj Mehta For the Respondent/Department : Shri Mahesh Pamnani Date Conclusion of hearing : 28.01.2025 Pronouncement of order : 31.01.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee against the order, dated 15/10/2024, passed by the Commissioner of Income Tax (A)- 47, [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had dismissed the appeal against the Penalty Order, dated 24/02/2024, passed under Section 271(1)(c) of the Act for the Assessment Year 2016-2017.
The Assessee has raised following grounds of appeal : “Ground of Appeal No.1: Levy of penalty on Disallowance of Employees contribution towards PF and ESIC is bad in law: a) The Learned Assessing Officer has erred in levying penalty on addition on account of disallowance of employees contribution towards PF and ESIC u/s 36(1)(va) r.w.s. 2(24)(x) and the Ld. CIT(A) has erred in confirming such levy of penalty. b) The appellant contends that the disallowance u/s 36(1)(va) r.w.s. 2(24)(x) is purely a legal and debatable issue as it a based on the question in law and not the case of concealment of particulars or furnishing inaccurate particulars. Thus, the same qualifies for non-levy of any penalty based on various judicial precedents. c) The appellant contends that they had claimed the deduction of Employees contribution towards PF and ESIC on the basis of reliance on judicial pronouncement of various courts in this regards. The Ld. Assessing Officer had disallowed the claim on the basis of an administrative circular for filing of appeals by the departmental officers. The said circular is not applicable in the instant case and therefore the said disallowance is itself bad in law. Therefore no penalty can be levied in the instant case. d) The appellant contends that the levy of penalty on disallowance u/s 36(1)(va) r.w.s. 2(24)(x) is in contravention to the principles of natural justice and needs to be deleted.”
3. The relevant facts in brief are that vide order, dated 24/02/2024, penalty of INR.54,51,888/-was levied on the Assessee under Section 271(1)(c) of the Act in respect of disallowance of INR.1,57,53,261/-, made under Section 36(1)(va) read with Section 2(24)(x) of the Act. The appeal preferred by the Assessee challenging the levy of the aforesaid penalty was dismissed by the CIT(A) vide order, dated 15/10/2024. Being aggrieved the Assessee has preferred the present appeal before the Tribunal.
We have heard the rival submission and have perused the material on record. During the appellate proceedings before the Tribunal it was contended on behalf of the Assessee that the issue was debatable and the assessee had claimed deduction by placing reliance upon the binding judgments of the Hon’ble Bombay High Court. Therefore, penalty levied under Section 271(1)(c) be deleted.
Perusal of the record shows that deduction of INR.1,57,53,261/- was claimed by the Assessee under Section 36(1)(va) read with Section 43B of the Act in respect of employees’ contribution towards Provident Fund (PF) and Employees’ State Insurance Corporation (ESIC) by placing reliance upon the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Ghatge Patil Transports Ltd. (2015) 53 taxmann.com 141 (Bombay), CIT vs. Hindustan Organics Chemicals Ltd. [2014] 366 ITR 1 (Bombay) and the judgment of the Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC). In the aforesaid judgments it was held by the Hon’ble Courts that employees’ contribution towards PF/ESIC deposited before the due date of filing return was allowable as deduction under Section 36(1)(va) read with Section 43B of the Act (even though it was deposited after the expiry of the statutory time period specified in the applicable statute). However, subsequently, the Hon’ble Supreme Court in the case of Checkmate Services Private Ltd. v. CIT-1:[2022] 448 ITR 518 (SC)[12/10/2022] had taken a contrary view and had held that deduction for employees’ contribution towards PF/ESI shall be allowed as deduction only if the deposit is made by the employer on or before the due date specified in the applicable statute in view of Section 2(24)(x) read with Section 36(1)(va) of the Act. The fact that employees’ contribution towards PF/ESI has been made before the due date of filing of return of income would not entitled the Assessee to claim deduction under Section 36(1)(va) read with Section 43B of the Act. Clearly, the issue was debatable and was finally settled by the Hon’ble Supreme Court after examining the contrary views taken by the different high courts on this issue. Thus, given the facts and circumstances of the present case we hold that the Assessing Officer erred in levying penalty under Section 271(1)(c) of the Act. Our view Assessment Year 2016-2017 draws support from the judgment of the Hon’ble Bombay High Court in the case of Nayan Builders & Developers Ltd. : [2014] 368 ITR 722 (Bombay)[08/07/2014] cited on behalf of the Assessee during the course of hearing. Accordingly, penalty of INR.54,51,888/- Section 271(1)(c) of the Act is deleted. Thus Ground No. 1(a) raised by the Assessee is allowed while all the other Grounds raised by the Assessee are dismissed as having being rendered infructuous.
In result, in terms of paragraph 5 above, the present appeal preferred by the Assessee is allowed.
In result, the present appeal preferred by the Assessee is allowed.
Order pronounced on 31.01.2025.