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Income Tax Appellate Tribunal, BANGALORE BENCHES “C”, BANGALORE
Before: Shri George George K, JM & Ms.Padmavathy S, AM
O R D E R
Per Padmavathy S, AM :
This appeal at the instance of the assessee is directed against the CIT(A)’s order dated 27.08.2021. The relevant assessment year is 2019-2020.
2. The grounds raised
read as follows:-
1. It is submitted, its well settled in law that that section 43B of Income Tax Act'1961 supersedes over section 36(1)(va) of the said Act. Further the word payable is not defined anywhere in the Act. It is as per the binding policy of the accounting principle that any unpaid amount recorded at the end of year in balance sheet would be considered payable. Thus there should be no confusion about the word used in section 43B(b) "any sum payable by the assessee as an employer by way of contribution to any provident fund ... " represent both contribution, employee as well as employer otherwise this section should be read as " any sum payable by the assessee as an employer by way of his contribution ..." Further is section 2(c) of the THE EMPLOYEES" PRO IDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952 define the word "contribution" means a contribution payable in respect of a member under a Scheme 4 [or the contribution . M/s.Icon Engineering Works. payable in respect of an employee to whom the Insurance Scheme applies];. Further as per Rule 26A of The Employees' Provident Funds Scheme, 1952, the contribution shall be payable to the Fund in respect of both by the employer. Rule 29 of the scheme describes about the amount of contribution employer as well as employee Further Rule 30 of the Scheme provides that the employer shall, in the first instance, pay both the contribution payable by himself (employer as well as employee). Thus there should be no confusion about the interpretation in favour of the assessee with regard to the contributions made to the respective funds of ESI and PF on or before the due dates mentioned U / s 139(1) as mandated U/s 43B. Accordingly, these additions made under these heads needs to be deleted.
It is also submitted that as per the jurisdiction High Court of Karnataka in the case : COMMISSIONER OF INCOME- TAX Vs SABARI ENTERPRISES, KARNATAKP HIGH COURT: [2008] 298 ITR 141 (Karn) July 3, 2007, wherein its held that section 36(1)(va) clear that amounts actually paid on or before the due date of filing return u/s 139 are allowable deductions – so contributions by assessee to P.F. & Employees State Insurance are deductible even if made beyond period prescribed under 36(1)(va) but before the due date for furnishing return is also submitted that as per the jurisdiction High Court of Karnataka in the case of 1/S ESSAE TERAOKA PVT LTD Vs DEPUTY COMMISSIONER OF INCOME-TAX ARNATAKA HIGH COURT: February 4, 2014 [2014] 366 ITR 408 (Kar) The Division Bench judgment, it is been held that Contribution" used in Section 43-B(b) of the IT Act leans the contribution of the employer and the employee. That being so, contribution Lade on or before the due date under section 139(1) the employer is entitled for deduction. Further it had also observed that “ ……The question up for consideration was, "together Tribunal was justified in affirming finding of Assessing Officer and denying Assessee I s claim of deduction of employees contribution to PF/ESI alleging that the payment was not made by appellant in accordance with the provisions of Section 36(1)(va) of Act 1961.” The Appellant counsel relied on earlier judgment of ours in CIT v. Spectrum Consultants (P.) Ltd. [2014] 49 taxmann.com 29/227 Taxman 164 (Mag.) whereas for Revenue attempted to pursue to take a different view following decision of Gujrat High Court. Gujarat State Road Transport Corpn (Supra).
. M/s.Icon Engineering Works. But, if the contribution of employees fund is deposited within due date the Assessee is straightaway entitled for deduction under Section 36(1)(va). However Section 43B provides for certain deductions allowable only on actual payment. It gives an extension to the employer to make payment of contribution to provident fund or any other fund, till due date applicable for furnishing of Return under Section 139(1) of Act 1961, in respect of previous year in which liability to pay such sum was incurred, and evidence of such payment is furnished by Assessee along with such Return. Court then said: “In short, this provision states, notwithstanding anything contained in any other provision contained in this Act, a deduction otherwise allowable in this Act in respect of any sum payable by the assessee as an employer by way of contribution to any fund such as provident fund shall be allowed if it is paid on or before the due date as contemplated under Section 139(1) of the In come- Tax Act. This provision has nothing to do with the consequences, provided for under the PF Act/PF Scheme/ESI Act, for not depositing the "contribution" on or before the due dates therein.” Further in the same judgement It also said that the word "contribution" used in clause (b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribution is deposited on or before due date for furnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is entitled for deduction. (emphasis applied.) 4. It is also further submitted that, as per the ratio of THE COMMISSIONER OF INCOME TAX Vs. GHATGE PATIL TRANSPORTS LTD. BOMBAY HIGH COURT (2014) 368 ITR 749 (Bom.): October 14, 2014, its been held that the employer assessee would be entitled to deduction only if the contribution to the employee’s welfare fund stood credited on or before the due date and not otherwise – following the decision in Commissioner of Income Tax v. Alom Extrusions Ltd. (Supreme Court)- both employees’ and employer’s contributions are covered under the amendment to Section 43B of I.T.Act – the Tribunal was right in holding that payments are subject to benefits of Section 43B.
It is further submitted that in the latest ITAT of Agra Bench allowing the such deduction of the appellant had observation in the case of M/ s Mahadev Cold Storage Vs ITO 1 (2) -Aligarh [ITA No: 41& 42/ Apr/2021dated 14.06.2021 had observed in para 37 of order that “……..In our view this as a serious issue which requires immediate redressal by the Board, as it is resulting in filling of . M/s.Icon Engineering Works. unnecessary litigation by the assessee. There is yet to another reason to deprecate the practice of the revenue, as the NFAC, in the case of Rajbir(supra) had granted the similar relief wide order dated 9th March 2021, thereby breaching the principle of consistency. This is a wakeup call. A good intentioned and well thought notification issued by the Board for NFA C, is not yielding the desired result on account of incorrect application of law. As notified by the board in the notification it would be using the artificial intelligence and data analytic for the smooth functioning of NFAC, in our view this should be used in all aspects. Further we expect the Board to take appropriate remedial measures at the earliest forrecalling such kind of orders, by issuing comprehensive guidelines for NFAC and give relief to the honest assessee.
In the light of the above said discussion, Judgments of SC and HCs, We hold that NFAC, is bound by the binding decision of the Jurisdictional Allahabad High Court, as the assessing officer is situated, within the territorial and subjective jurisdiction of High court. Hence, we allow the appeal of the assessee by respectfully following the decision of jurisdictional High Court ..... (emphasis applied) 6. It is further submitted that, the appeal was rejected on the sole ground that these jurisprudence were not applicable since the Finance Act 2021 has amended section 36 (l)(va), by insertion of explanation -2 and for section 43(b) by insertion of explanation-5 to the existing provisions of law. Whereas these amendments were prospective in nature and can not be applied retrospectively. The said amendment is applicable only for assessment year 2022-23 onwards not the present case which is for the Asst. year 2019-20. Hence the opinion formed and judgement based on such opinion by the Ld. JCCT Appeals is grossly bad in law and not legally enforceable.
7. It is further submitted that the said insertion of explanation is prospective in nature and it cannot be retrospective It cannot have the retrospective effect. As per the well settled prudent jurisprudence when the provision is inserted it assumes only the prospective effect not the retrospective effect unless it is explicitly provides as such. Whereas in the explanations to 36(1)(va) and 43B is silent on retrospective effect and it doesn't provide an thing to presume retrospective applicability. Same view has been expressed in the case of Gopalakrishna Ashwini Kumar Vs ACIT, CPC, ITA o. 359/Bang/2021 the honourable bench has opined that . M/s.Icon Engineering Works. “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 01.04.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act in both the Assessment Years deserves to be deleted. Prayer: Considering all the above grounds as well as the jurisdictional jurisprudence which are binding in nature, its prayed before the lordship to delete the addition made to income for delay in depositing the employee contribution to the respective FSI and PF Funds.”
Brief facts of the case are as follows: For the assessment year 2019-2020, the return of income was filed on 24.10.2019, declaring income of Rs.58,62,540. The assessee was served with an intimation u/s 143(1) of the I.T.Act by assessing a sum of Rs.84,90,836. The reason for the difference between the returned income and the assessed income u/s 143(1) of the I.T.Act was on account of disallowance of sum of Rs.26,28,302 being late remittance of employees’ contribution to PF and ESI under the respective Acts. The assessee filed a rectification application u/s 154 of the I.T.Act to CPC. The CPC rejected the rectification application vide order dated 06.03.2020.
Aggrieved by the order of CPC rejecting the rectification application, the assessee preferred an appeal before the first appellate authority. It was stated that the assessee had paid . M/s.Icon Engineering Works. the employees’ contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) of the I.T.Act. Therefore, it was submitted that the assessee is entitled to deduction of employees’ contribution to PF and ESI having regard to the provisions of section 43B of the I.T.Act. In this context, the assessee relied on the judgment of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT, reported in 366 ITR 408 (Kar.). The CIT(A), however, rejected the appeal of the assessee. The CIT(A) held that the issue involved in the appeal is debatable and hence appeal cannot be entertained from an order u/s 154 of the I.T.Act. It was further held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and has got retrospective operation.
5. Aggrieved, assessee has filed this appeal before the Tribunal. The learned AR submitted that an identical issue was decided in favour of the assessee by the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DICT in (order dated 21.10.2021).
The learned Departmental Representative supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on 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 . M/s.Icon Engineering Works. Teraoka Pvt. Ltd Vs. DCIT (supra)¸ 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 Essae Teraoka (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 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?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under . M/s.Icon Engineering Works. sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.
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.
With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013.
In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution to ESI, if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36[1][va] and 43B of the Actby Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. (ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal.
. M/s.Icon Engineering Works. (iii) Indian Geotechnical Services v. ACIT in 2018 (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment by Finance Act, 2021 to Sec.36[1][va] and 43B of the Act will not have application to relevant assessment year, namely A.Y. 2019- 2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.” 7.1 Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years 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 this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted.
In the result, the appeal filed by the assessee is allowed.