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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B. R. BASKARAN
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER ITA No.723/Bang/2021 Assessment Year : 2019-20 M/s. Enphase Solar Energy Private Limited, Vs. The Assistant Director of Income 259, 2nd Main, 6th Cross, 2nd Floor, Tax, Indiranagar, Stage 1, Central Processing Centre, Bengaluru – 560 038. Bengaluru. PAN : AAECE 7259 C APPELLANT RESPONDENT Assessee by : Shri. Suresh Muthukrishnan, Advocate Revenue by : Shri. Sankar Ganesh K, JCIT(DR)(ITAT), Bengaluru. Date of hearing : 08.02.2022 Date of Pronouncement : 08.02.2022 O R D E R Per N. V. Vasudevan, Vice President :
This is an appeal filed by the assessee against order dated18.11.2021 of CIT(A), National Faceless Appeal Centre (NFAC), Delhi, relating to Assessment Year 2019-20.
The assessee is a Private Limited company, engaged in the business to carry on all or any of the business of development, marketing, advertising, and promotional activities for solar power modules, related components, including solar photovoltaic (PV) modules, solar power storage batteries, invertors, micro inverters and high quality solar modules and other related components. For the year under appeal, the appellant had filed return of income on 29/11/2019 declaring a total Income Rs. 8,20,52,1901.
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The return of the assessee came to be processed by the AO/CPC has passed order u/s. 143(1) vide DIN No. CPC/1920/A6/2003047023 dated 29/07/2020, wherein the Assistant Director of Income Tax, CPC made the following additions to the income of the appellant being "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return": a. Rs. 1,20,58,223 U/S. 43B of the Act b. RS. 1,30,500 U/s. 40 of the Act c. Rs. 18,99,162/- U/s. 36(1)(va) of the Act
The assessee filed appeal before CIT(A) against the Order dated 29.07.2020. As regards the disallowance made u/s. 43B of the Act of Rs.1,20,58,223, it is submitted that the same has already been disallowed u/s 40 by the assessee in the computation of income, and the disallowance made by the A.0 now amounts to a double disallowance since he has disallowed the same twice u/s 40 and U/s 43B of the Act. The relevant extract of the tax audit report at Serial number 26(1)(8)(b) in Page no 7 is as below:
26 not paid on or before the aforesaid date (i) (B) (b)
Nature of S. No. Section Amount liability
Provision for Sec43B(f) leave 5 leave 1,20,58,223 encashment encashment
It was therefore submitted that the action of the learned AO in disallowing the same is contrary to the basic principles of law and taxation and
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needs to be deleted in as much as the Appellant has already disallowed the same voluntarily in the Computation of Income and the disallowance made by the AO again u/s. 43B of the Act would amount to double disallowance of the same expenditure and hence the same needs to be deleted. It was prayed accordingly. Similar submissions was made with regard to disallowance of Rs.1,30,500/- which had already been disallowed by the AO in the computation of total income. 6. As regards the disallowance made u/s. 36(1)(a) of the Act of Rs. 18,90,162/-, it is submitted that the AO has made the same on account of the delay in deposit of the Employees contributions of Provident Fund beyond the due date specified under the Provident Fund Act. It was submitted that the AO has disallowed a sum Rs. 18,90,1627- being the Provident Fund contributions remitted after the due date, by coming to the conclusion that the same need to be disallowed in terms of Section 36(1)(va) of the Act. The details of the contributions collected from the Employees and the actual date of remittance to the government was given as per the following details: Nature of Due date for Date of Delay in Amount in Rs. Fund payment actual payment days Provident Fund 15-05-2018 11-06-2018 27 2,157 28 3,148 Provident Fund 15-06-2018 13-07-2018 32 55,944 Provident Fund 15-07-2018 16-08-2018 1 8, 1 7, 036 Provident Fund 15-08-2018 16-08-2018 28 2,323 Provident Fund 15-08-2018 12-09-2018 31 5,590 Provident Fund 15-08-2018 16-10-2018 1 9,92,465 Provident Fund 15-10-2018 16-10-2018 30 7,593 Provident Fund 15-12-2018 14-01-2019 28 2,864 Provident Fund 15-02-2019 15-03-2019 25 1,042 Provident Fund 15-04-2019 10-05-2019 Total 18,90,162
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It was submitted that the AO has erred in not appreciating that the meaning of ‘DUE DATE” in terms of Section 36(1)(va) ought to be recknoned as the DUE DATE for filing of the Return of Income under section 139(1) of the Act and not the “DUE DATE” for payment of the amounts. The assessee invited CIT(A)’s attention to the decision of the Jurisdictional High Court (Hon'ble High Court of Karnataka) in the case of Sabari Enterprises, reported in 298 ITR 141 (Kar), wherein their Lordships have held as under: "After hearing learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including the definitions of section 2(24)(x) and section 36(1)(va) and 438(b) which read thus : 'Section 2(24) Income' includes (x) any sum received by the assessee from his employees as contribution to any PF or Superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees. 36(1) The deductions provided for in the following clauses shall be allowed in respect of matters dealt therein, in computing the income referred to in section 28- (va) 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.-For the purposes of this clause, "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 thereunder or under any standing order, award, contract of service or otherwise." 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 requied 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 438(b) was inserted by the Finance Act, 1983, which came into force with effect from April 1, 1984. Therefore, again the provision of section 438(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including section 36(1) 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,
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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. A copy of the said decision is being enclosed herein as ANNEXURE 2 for your Honour's ready reference. We also beg to submit that the aforesaid decision has also been affirmed by the Apex Court in the decision of Alom Extrusions Limited reported in 227 CTR 417 (SC).
It was further submitted that the same view was also reaffirmed once again by the Hon'ble High Court of Karnataka in the case of Spectrum Consultants India(P) Ltd reported in 12014] 49 taxmann.com 29(Kar).
The CIT(A), however, did not agree with the contentions put forth by the assessee and he proceeded to decide the issue as if the additions were in respect of contribution to ESI and PF paid beyond the due date under the relevant law relating to payment of ESI and PF, but paid before the due date for filing the return of income under section 139(1) of the Act.
The CIT(A), thereafter held that the amendment to section 36(1)(va) by insertion of explanation 2 and the amendment to section 43B by insertion to explanation 5 by the Finance Bill 2021 was only declaratory / clarificatory in nature and there therefore was applicable with retrospective effect by necessary intendment of deeming nature expressly stated therein. The CIT(A) upheld the addition made by the AO.
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Aggrieved by the order of the CIT(A), assessee is in appeal before us. We have heard the rival submissions. As far as the ground No.3 raised by the assessee is concerned, the same reads as follows:
The authorities below are not justified in making/sustaining an addition of Rs.1,20,58,223/- u/s.43B of the Act under the facts and in the circumstances of the appellant's case in as much as the same has been voluntarily disallowed by the Appellant in it's Computation of total income.
On the aforesaid ground of appeal, We find that in the computation of total income which is at page 27 of the assessee’s Paper Book, the assessee has reduced from the profit as per the P & L A/c, provision for leave encashment of Rs.1,74,58,995/- which includes the sum of Rs.1,20,58,223/- set out in ground No.3 above.
Similarly, in respect of ground No.4 ,the same reads as follows,
The authorities below are not justified in making an addition of Rs.1,30,500/-u/s.40 of the Act under the facts and in the circumstances of the appellant's case in as much as the same has been voluntarily disallowed by the Appellant in it's Computation of total income.
On ground No.4, we find that the assessee has himself disallowed under section 40, a sum of Rs.1,30,500/-. It is ony after the aforesaid 2 reductions from the profit as per the P & L A/c, the assessee has arrived at a taxable income of Rs.8,20,52,187/- .
In the Order of Assessment, the AO has computed the total income of the assessee as per the return of income at a sum of Rs.8,20,52,187/-. It is therefore clear that the disputed sums in ground Nos.3 and 4 above have already been disallowed by the AO in the computation of total income and therefore the
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addition made in the intimation under section 143(1) of the Act by the CPC amounts to a double addition and on this ground, the aforesaid 2 additions are liable to be deleted.
Ground No.5 reads as follows:
The authorities below are not justified in making an addition of Rs.18,90,162/- u/s.36(1)(va) of the Act being the belated remittance of EPF Contributions under the facts and in the circumstances of the appellant’s case.
As far as this aforesaid ground of appeal is concerned, the issue is whether the belated payment of EPF contribution under the EPF Act where the payments have however been made on or due date for filing the return of income under section 139(1) of the Act.
We find that identical issue has been considered in the following decisions:
M/s Mahadev Cold Storage vs Jurisdictional AO - ITA.No.41 & 42/Agra/2021 M/s Essae Teraoka (P.) Ltd vs DCIT - [2014] 43 taxmann.com 33 (Karnataka) Anand Kumar Jain vs ITO - ITA NO 4192/MUM/2012 ValueMomentum Software Services Private Limited vs. DCIT I.T.A. No. 2197/HYD/2017 [Assessment Year: 2013-14] dated19.05.2021 Mohan Ram Chaudhary vs. ITO ITA No. 51&54-55/Jodh/2021 [Assessment Year: 2018-19} dated 28.09.2021
The Hon’ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd., (supra) has taken the view that employee’s contribution under section
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36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee’s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon’ble Karnataka High Court. In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing return of income for AY 2017-18 u/s.139(1) of the Act. The next aspect to be considered is whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act, deserves to be deleted. Ground No.5 is accordingly allowed.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (B. R. BASKARAN) (N. V. VASUDEVAN) Accountant Member Vice President Bangalore. Dated: 08.02.2022. /NS/*
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Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.