M/S. ENPHASE SOLAR ENERGY PRIVATE LIMITED,BANGALORE vs. ASSISTANT DIRECTOR OF INCOME TAX, CPC, BANGALORE

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.

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:

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

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,

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.

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:

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 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.

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:

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 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.