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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
PER AMIT SHUKLA, JM:
This appeal is filed by Mr. Ashish Vaid (the assessee/ appellant) passed by National Faceless Appeal Centre (NFAC), Delhi {the learned Commissioner of Income-tax (Appeals) [CIT(A].]} for A.Y. 2017–18 dated 1st October, 2021 raising following grounds of appeal:-
Ground no.1
The National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as CIT(A)) erred in passing the order without disposing the grounds of appeal raised by the Appellant. The CIT(A) by mistake disposed the ground involving disallowance under
"that the DCIT erred in disallowing the setoff of brought forward long term capital loss of Rs.62,98,574 while processing the Return under section 143(1) of the Act on the ground that the Appellant has filed the respective income tax Returns after the due date. The Appellant submits that the Returns for the respective years were filed in time and therefore the claim of set off shall be allowed"
The Appellant therefore prays that the order passed by the CIT(A) to be quashed as bad in law and void ab initio.
Ground no. 2
Without prejudice to above, the DCIT erred in disallowing the setoff of brought forward long term capital loss of Rs.62,98,574 while processing the Return under section 143(1) of the Act on the ground that the Appellant has filed the respective income tax Returns after the due date. The Appellant submits that the Returns for the respective years were filed in time and therefore the claim of set off shall be allowed.
The Appellants pray that the Jurisdictional Assessing officer be directed to allow the set off of
The brief fact of the case shows that assessee is an individual, earning brokerage income, income from sale of shares, mutual funds and interest and dividend income. He is also a partner in a partnership firm as a working partner drawing interest and remuneration.
For impugned assessment year, assessee filed his return of income on 18th October, 2017, declaring total income of `1,36,22,189/–. Assessee also claimed set off of long term loss of `62,98,674/–. Out of this loss of `1,70,845/– is carried forward from A.Y. 2012–13 and `16,27,729/– form A.Y. 2013–14. On 15th May, 2019, Central Processing Centre (CPC) (the learned Assessing Officer) proposed to disallow the set off of above brought forward long term capital loss on the ground that return for A.Ys. 2012–13 and 13–14 were not filed within the due date.
Assessee submitted its reply that as assessee is a working partner in a partnership firm which is subject to tax audit and the due dates for filing return of income is 30th September, 2012 and 30th September, 2013 for A.Y. 12– 13 and A.Y. 13–14, respectively. Assessee submitted that for A.Y. 2012–13 return of income was filed on 22nd September, 2012 and on 22nd September, 2013 for A.Y. 13–14 and therefore, return of income for both these years were filed before the due date prescribed under Section 139(1) of the Act for respective years and
Central Processing Centre processed the return of income and passed an order on 13th December, 2019, under Section 143(1) of the Act without allowing the set off of brought forward losses. Accordingly, at serial no. 9 of the Income Tax computation of brought forward losses set off stated in the return of income of `62,98,573/– was considered as nil.
The aggrieved with the order of the learned Assessing Officer preferred the appeal before the NFAC [the CIT(A)]. The learned CIT(A) passed an order under Section 250 of the Act dismissing the appeal of the assessee holding as under:–
“ASHISH VAID INCOME TAX ASSESSMENT YEAR 2017-18 SUBMISSIONS BEFORE CIT(A), NATIONAL FACELESS APPEAL CENTRE Facts of the case The Appellant is an Individual. During the year the Appellant earned Brokerage Income, Income from sale of shares, mutual funds and F&O, Interest and dividend income. Appellant also a Partner of AG Enterprise (here after referred as "Firm") since 1991. The Appellant has filed income tax return for the assessment year 2017-18 declaring total income Rs.1,36,22,189/-. The Appellant has claimed the setoff of long term loss of Rs.62,98,574/– carried forward from AY 2012-2013 (Rs.1,70,845) and from AY 2013-2014 (Rs.61,27,729).
The Appellant filed his reply to notice issued under section 143(1)(a) (Annexure 3). The Appellant in his reply submitted that he was a working Partner in the Partnership Firm (M/s) A. G. Enterprises) which was subjected to tax audit and therefore in view of section 139 his due dates were extended to 30/9/2012 and 30/9/2013. Since he has filed his Return on 22.09.2012 (AY 2012-2013) and on 22.09.2013 (AY 2013-2014) the respective Returns were filed within due date and therefore the setoff of long term loss b/fd from AY 2012-2013 and AY 2013-2014 is available.
The DCIT without appreciating the Appellant's reply, passed an order dated 13.12.2019 under section 143(1) disallowing the setoff of brought forward long term capital loss of Rs.62,98,574/- u/s 143(1) raised a demand of Rs. 18,31,730/-( Annexure 4).
Ground No.1,
The Appellant respectfully submit that the DCIT has not given any reasoning for not accepting the Appellant submission and has passed the order mechanically without application of mind.
The Appellant prays that the DCIT be directed to allow the claim of setoff of long term capital loss as claimed by the Appellant in his Return of income.
Ground No.2
Without prejudice to above, the Appellant submit that the adjustments made by DCIT under section 143(1) are bad in law as he has filed his Return for AY 2012- 2013 and 2013-2014 within due dates.
The Appellants submits as under:
The Appellant is a working partner in A. G. Enterprises (PAN:-AAAFA3517E) (enclosed Partnership deed in Annexure 5) whose accounts were subject to tax audit during AY 2012 2013 and 2013-2014, details of which are as under:
Assessment Year Subject to Tax Due date of filing Enclosed Annex Audit of Return A.Y. 2012–13 Yes 30–09–2012 Tax audit Report Annexure 6 & Accounts A.Y. 2013–14 Yes 30.09.2013 Tax audit Report Annexure 7 & Accounts
In view of 139(1)-Explanation 2 Clause (a) sub clause (iii) the due date of filling of return of a working partner of the Firm whose accounts are required to be audited under this Act or any other law for time being in force shall be 30th September of the assessment year. Accordingly the due date for filing the Return of the Appellants was 30 September 2012 for AY 2012
The Appellants respectfully submit that he has filed his Returns for AY 2012-2013 and 2013 2014 within the due dates prescribed under section 139(1) and therefore the disallowance of setoff of long term capital loss in bad in law and void ab initio.
DECISION:
The submissions made on behalf of the appellant have been duly considered. The only issue in appeal is admissibility of deduction u/s 36(1)(va) of the Income Tax Act, 1961 relating to employees contribution to ESI & PF fund if the employer deposits the same after the due date as prescribed under the relevant ESI & PF Act but before the due date of filing of return of income.
A bare reading of the provisions of Section 36(1)(va) of the Income Tax Act, 1961 makes it clear that the '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.
Finance Act, 2021 made the following amendments:
"Amendment of section 36.
In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:
Explanation 2-For the removal of doubts, it is hereby clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause.
Amendment of section 43B.
In section 43B of the Income-tax Act, after Explanation4, following Explanation shall be inserted, namely:
“Explanation5-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub clause (x) of clause (24) of section 2 applies."
Rationalization of various Provisions
Payment by employer of employee contribution to a fund on or before due date
Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head "Profits and gains of business or profession. Clause (va) of the said sub-section provides for deduction of 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" to mean 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,
Section 438 specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would been titled to deduction under section 438 and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act.
Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43Bon employee contribution as well. There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds.
Accordingly, in order to provide certainty, it is proposed to
(1) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section43B does not apply and deemed to never have been applied for the purposes of determining the due date under this clause; and
(1) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2applies.
These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years,
[Clauses 8 and 9]
In this context, it would be pertinent to bring attention to three case laws of Supreme Court on retrospectively of an amendment. These three cases are co-related, and need to be read in a sequence, as below:–
a. Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR (SC) 733
b. CIT vs. Raman Lal C. Hathi (2008) 217 CTR (SC) 105
c. CIT Vs. Gold Coin Health Food (P) Ltd., (2008) 304 ITR 308 (SC))
In the case of Virtual Soft Systems Ltd. amendment to section 271(1)(c) was held to be prospective by the Apex Court, as the statute categorically stated that it would apply w.e.f. 01.04.2003. On this ground, the Supreme Court held that the amendment cannot be applied to the period prior to 01.04.2003.
However, subsequently while deciding the case of Raman Lal C. Hathi, the Apex Court once again examined the same amendment to section 271(1)(c), and came to the conclusion that the law laid down by the Division Bench in the case of Virtual Soft Systems Ltd. (supra) needed reconsideration.
"6. It would be of some relevance to take note of what this Court said in Virtual's case (supra). Pointing out one of the important tests at para 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The Court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive."
After discussing the issue in detail and referring to various case laws, the Supreme Court in the case of Gold Coin Health Food held that amendment to section 271(1)(c) was retrospective, even though as per the amended statute it came into force w.e.f. 1st April, 2003.
In another important case of CIT vs. Vs. Podar Cement (P) Ltd., 226 ITR 0625 (1997). the Supreme Court placed reliance on the Memorandum explaining provisions in Finance Bill, 1987, and held that amendment to be retrospective. The said amendment was brought in Sec.27 of the Act, by Finance Act
ITAT Delhi 'F' Bench, New Delhi in the case of M/s Vedvan Consultants Pvt Ltd vs DCIT, CPC, Bengaluru in ITA No. 1312/Del/2020 for Assessment Year 2018- 19 has dismissed the appeal of the assessee after discussing the issue in details and after elaborate discussions and after keeping in view the order of the Co-ordinate Bench of the Tribunal in the case of Eagle Shipping & Logistics (India) (P) Ltd vs ACIT in ITA No. 324/Del/2017 order dated 25/07/2019 which relied on the judgment of the Hon'ble High Court of Delhi in the case of CIT vs Bharat Hotels Ltd. (410 ITR 417).
As per the above discussions, it is amply clear that the amended provisions being clarificatory in nature would apply retrospectively.
In view of the above discussions and after finding no illegality or perversity in the impugned order of the Assessing Officer, the appeal filed by the assessee is hereby dismissed.
Therefore, assessee is aggrieved with the order of the learned CIT(A) and has preferred this appeal.
The learned Authorised Representative before us submitted a paper book containing 71 pages. Page 1–3 of the paper book contains the return submission made before the learned CIT(A). At page 70–71 of the paper book assessee submitted the copies of return filed for the year in which the losses were incurred. The main contention was that due date of filing of the return for both these years i.e. on 30th September of the respective assessment year and assessee has filed his return of income on or before the due date prescribed under Section 139 (1) of the Act. He therefore, submitted that this return of income for those years were in time and learned Assessing Officer was incorrect in holding that the return of income was not filed in time. He therefore, submitted that he is entitled to set off of the long term capital losses incurred in these yeas against the income for A.Y. 2017- 18. To support his case, he also submitted a copy of the partnership deed wherein assessee is a working partner and drawing interest in remuneration as per clause no. 18 and 19 of the partnership deed. He also submitted the audited accounts of the partnership firms under Section 44AB of the Act. He also referred to the response filed by assessee before CPC disagreeing with the CPC and giving the response as stated above. He referred to the order of the NFAC and stated that the claim of the assessee was setting off of long term capital losses carried forward from
The learned Departmental Representative supported the order of the lower authorities and submitted that if there is an error in the order of the learned CIT(A) then assessee would have filed an application for rectification of the order.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The admitted fact shows that assessee is an individual, working in a partnership firm, drawing remuneration and interest there from and therefore, due date of filing of the return in such case as per explanation (2)(a)(iii) is 30th September with the respective assessment year. Thus, due date for filing of the return for A.Y. 2012–13 and 2013–14 is 30th September, 2012 and 30th September, 2013 respectively. For A.Y. 2012–13, assessee filed his return of income on 22nd September, 2012 and for A.Y. 2013–14 on 23rd September, 2013. Therefore, for both the assessment years, assessee has filed his return of income on or before the due date prescribed under Section 139(1) of the Act. The assessee has claimed set off of long term capital losses of `1,70,245/– for A.Y. 2012–13 and `61,27,729/– for A.Y. 2013–14. According to the provision of Section 80, the carry forward of the losses and after thereof is denied when the return is not filed by the assessee in these respective years, if they are not filed in time. For the A.Ys. 2012–13 and 2013–14, undisputedly assessee filed its
In the result, ground no.2 of the appeal is allowed.
Ground no.1 of the appeal raised by the assessee before learned NFAC stating that assessee has been denied set off of brought forward of long term capital losses of `62,98,574/–. The NFAC disposed off of the appeal stating that disallowance made by the Central Processing Centre under Section 36(1)(va) of the Act has been correctly made. The learned CIT(A) reproduced section 36 as amended by the Finance Act, 2021, Section 43B, reproduced memorandum explaining the provisions of the Finance Bill, 2021 and thereafter, referred to four decisions of Hon'ble Supreme Court and two decisions of the co–ordinate Benches and two decisions of the Hon'ble Delhi High Court and dismissed the appeal of the assessee. It is also very surprising that at page no. 2 to 5 of the order it extracted the facts of the case correctly, grounds of appeal correctly and also the submissions of the assessee correctly. However, at the time of rendering all the decisions instead of dealing with the issue of carried forward of losses it dealt with deduction of the employees’ contribution to ESI and Provident Fund and dismissed the appeal of the assessee.
We are really pained and astonished in the way NFAC has passed this order. To demonstrate its careless approach
We are of the view that this issue needs a greater attention of the higher authority in restoring the faith of the tax payer in the appellate proceedings before NFAC. The order in appeal before us shocks our judicial conscience and deserves highest admonition. We are constrained to stop at this stage in further expressing our anguish. In the result, ground no. 1 of the appeal is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 27.06.2022.
Sd/- Sd/- (GAGAN GOYAL) (SHRI AMIT SHUKLA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai, Dated: 27.06.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5.
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai