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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-14 dated 29.07.2021 and pertains to assessment year 2017-18.
Grounds of appeal read as under:-
Intimation under section 143(1) beyond jurisdiction 1. Erred in upholding action of AO by confirming that adjustment made by the learned Deputy Commissioner of Income tax, CPC ('the AO') are within the purview of section 143(1)(a) of the Income-tax Act, 1961 (the Act). 2. Failed to appreciate that the issue is debatable in view of contrary views of different High courts and hence no adjustment under section 143(1)(a) is warranted.
Ground No.2 : Disallowance u/s 36(1 )(va) of the Act 3. Erred in confirming the action of the AO in disallowing 16,32,527/- under section 36(1 )(va) of Act on the basis that there has been delay in depositing of employees' contribution towards Provident Fund (PF) as reported in the Tax Audit Report.
4. Failed to appreciate that the payment was either made with the extended period by the respective PF authorities or could not be made within prescribed due date due to technical glitches and non-functioning of the portal.
5. Without prejudice to the above, failed to appreciate the fact that the payment of employees' contribution towards PF was made before the due date of filing the return of Income, accordingly such payment cannot be disallowed under section 36(1 )(va) or even under section 43B.
Brief facts of the case are that 143(1) adjustment done by the CPC in this case for addition of Rs. 16,32,527/- regarding late payment of employees contribution to ESI/PF by assessee which was deposited before due date of the filing of the return. The ld.CIT(A) in his adjudication noted that on this issue there are several decision of High Court in favour of revenue as well as appellant. The ld.CIT(A) has observed inter-alia as under:-
“Despite the above judicial pronouncements, the ambiguity continued due to difference in decisions of the various High Courts. Now, Finance Act, 2021 has rationalized the above provision. The Memorandum of Finance Bill 2021 says that there is a distinction between employer contribution and employees' contribution towards welfare fund. It may be noted that employees contribution towards welfare funds is a mechanism to ensure the compliance by the employer of the labor 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. Employee's contribution is employees' own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Accordingly, in order to provide certainty and rationalize the above provision, following insertions have been made in the Act: 1. Explanation 2 to section 36(1 )(va) has been added to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the "due date"-under this clause; and 2. Explanation 5 to section 43B has been inserted to clarify that 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 2 applies.
Therefore, after the above insertion of explanations, it has been clarified that in order to claim deduction of the employee's contribution by the employer, the same has to be deposited before the due date as mentioned in the PF and ESI Act. It is also observed that the above insertions are clarificatory in nature. Therefore in all pending cases, late payment of employees' contribution cannot be allowed as deduction. Appellant had tried to show that the word--'contributi6n' in section 43B covered both employer's as well as employees' contribution. This view has been negated by various case laws in para 6.7 of this order. Also Finance Act 2021 has clarified the position completely on this issue. Appellant has further submitted that disallowance of employee's contribution to PF/ESIC is not covered u/s 143(1). Appellant has taken recourse to memorandum relating to Finance Bill 2016. Appellant states that auditor never indicates disallowance on account of late payment of employees' contribution to PF. Since auditor has not pointed out, adjustment u/s 143(1) cannot be made. This view is not acceptable. By furnishing the dates of payment of employees' contribution to PF, auditor has clearly submitted the figure to be disallowed. Thereafter the disallowance figure is determined automatically. The case laws cited by the appellant do not help as they speak about the fact that only non-debatable prima facie adjustments can be made u/s 143(1). Details furnished by the auditor regarding non-payment of employees' contribution to PF are prima facie not allowable and the issue not debatable. I do not agree with the appellant's view. In view of the above, it is held that the CPC has correctly made disallowance of Rs. 16,32,527/- u/s. 36(1)(va) of the Act on account of delayed payment of PF &ESIC etc. being employees contribution and therefore the same is confirmed. Thus the ground of the appeal No.1 and 2 are dismissed.”
Against the above order assessee is in appeal before the ITAT.
I have heard the both the parties and perused the record. I find that the ld.CIT(A) is himself admitting that on the impugned issue, there were decisions both in favour of assessee and against the revenue. He has also noted that because of the ambiguity in this regard, Finance Act, 2021 has provided an explanation in this regard. Once the above facts are taken into account by no stretch of imagination it can said that the above said adjustment can fall under the category of 143(1) prima-facie adjustment. Hence, I hold that CPC has no jurisdiction of adjustment u/s. 143(1) on this issue where admittedly there were decisions in favour of the assessee from the Hon’ble High Courts and moreover, legislature has brought in an explanation by Finance Act, 2021 in this regard. Moreover, as regards, merits of the case the aforesaid explanation was added by Finance Act, 2021 andthe said explanation by no stretch of imagination can be said to be retrospective. The assessment year during the present case is AY 2017-18 and is prior to the said amendment/insertion. Hence, on merits also, the issue is covered in favour of the assessee as before the amendment, there were catena of decisions of Hon’ble Bombay High Court in favor of assessee on the said issue.
In the result, the appeal by the assessee is allowed and the orders of the authorities below is set aside.