DEEPAK VASUDEV RAO,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CPC, BENGALURU

The assessee has filed these appeals challenging the orders, both dated 23.11.2021, passed by Ld. CIT(A), National Faceless Appeal Centre, Delhi and they relate to the assessment years 2018- 19 & 2019-20. In both the appeals, the only issue urged relates to disallowance of Rs.4,40,126/- for the A.Y. 2018-19 & Rs.2,41,717/- for the A.Y. 2019-20, being employees contribution to provident fund and employees state insurance, u/s 36(1)(va) of the Income- tax Act,1961 ['the Act' for short]. Accordingly, both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.

The assessee filed its returns of income on 8.10.2018 for the A.Y. 2018-19 and 17.9.2019 for the A.Y. 2019-20. The same were processed u/s 143(1) of the Act, wherein the disallowance u/s 36(1)(va) of the Act was made on the ground that the employees contribution to PF and ESI totalling to Rs.4,40,126/- for the A.Y. 2018-19 & Rs.2,41,717/- for the A.Y. 2019-20 has been paid by the assessee beyond the due date prescribed in the respective Acts.

The assessee challenged the above said additions by filing appeals before Ld. CIT(A) contending that the disallowance should not be made, since the above said payments have been made prior to the due date prescribed u/s 139(1) of the Act. In this regard, the assessee relied on the decision rendered by jurisdictional Karnataka High Court in the case of CIT vs. 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 and also following certain decisions rendered by Tribunals. Aggrieved, the assessee has filed these appeals before the tribunal.

The contention of the assessee was that it has remitted the employees contribution of PF & ESI before the due date prescribed u/s 139(1) of the Act in both the years, even though the contributions were paid in few instances beyond the due date prescribed in the respective Statutes. We also notice the details of payments made by the assessee every month have been extracted in the orders of Ld CIT(A). A perusal of the same would show that the assessee has remitted the payments before the due date prescribed u/s 139(1) of the Act for filing returns of income for the AYs 2018- 19 & 2019-20.

We heard both parties and perused the record. On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra) by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT ( had 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 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 Page 4 of 6 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?"

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.

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 Essae Teraoka 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) of the I.T. Act is an allowable deduction. Accordingly, we decide these issues in favour of the assessee and the disallowances made by the Assessing Officer are deleted. & 58/Bang/2022 Shri Deepak Vasudev Rao, Bangalore Page 6 of 6 8. 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, both the appeals filed by the assessee are allowed.