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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL
ORDER PER GAGAN GOYAL, A.M: These appeals by the assessee are directed against the orders of Commissioner of Income Tax (Appeals)-34, Mumbai [hereinafter referred to as ‘the CIT (A)’] vide different orders dated 22.08.2019 & 22.02.2020 respectively for the Assessment Years (AY) 2018-19 & 2019-20. The assessee has raised the identical grounds except variation of amounts in both the AYs. In for AY 2018-19 and ITA No. 1688/Mum/2021 for AY 2019-20. The assessee has raised the following grounds of appeal for both the years:
(A.Y. 2018-19) (A.Y. 2019-20) “1) The learned Commissioner of Income-tax (Appeals), NFAC [‘CIT(A)’] erred in confirming the action of the Assessing Officer in determining total assessable income at Rs 4,13,98,670 as against the income declared by Appellant in its return of income of Rs 4,06,25,060. 2) The learned CIT(A) erred in confirming the action of the Assessing Officer of making adjustment under Section 143(1) of the Income-tax Act, 1961 (‘the Act’) without providing opportunity to the Appellant and hence such order is void, invalid and bad in law. 3) The learned CIT (A) erred in confirming the action of the Assessing Officer of making adjustment (employees’ contribution towards provident fund) to the total income of the Appellant under Section 143(1), of the Act. 4) The learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of Rs 7,73,607 being payment made towards employee’s contribution to Provident Fund and Other Welfare Fund by invoking the provisions of Section 36(1)(va) r. w. Section 2(24)(x) of the Act.”
Facts and grounds being identical we take appeal no. ITA No. 1687 / Mum / 2021 (A.Y. 2018-19) as lead case and ratio will be applied for both the years.
Ground No. 1, 2 & 3 are not pressed by the assessee, hence, our decision is limited in scope with reference to ground no.4.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of manufacturing and export of readymade garments. It has factories at Umargam and Dadra & Nagar Haveli. The Appellant's return of income for the assessment years (AYs) 2018-19 and 2019-20 were processed under section 143(1) of the Act by the Deputy Commissioner of Income Tax, CPC, (hereinafter referred to as ‘CPC’). The only adjustment made by the CPC was disallowance of employee's contribution to provident fund (‘PF’) and other welfare fund as such (A.Y. 2018-19) (A.Y. 2019-20) contribution was deposited after the due date specified under the respective Acts. The amount of disallowance / adjustment made by the CPC is Rs 7,73,607 for AY 2018-19 and Rs 9,64,104 for AY 2019-20.
On first appeal, the Ld CIT (A) confirmed the disallowance / adjustment made by the CPC mainly on the following two grounds. a. Relying on decision of Hon'ble High Court of Gujarat in the case of CIT v Gujarat State Road Corporation [(2014) 366 ITR 170] and PCIT v Suzlon Energy Ltd [(2020) 115 taxmann.com 340]. b. Amendment made to Section 36(1) (va) and Section 43B is clarificatory in nature hence such amendment has to be applied retrospectively.
During the year under consideration, the Appellant has paid PF and other welfare fund aggregating to Rs. 7,73,607/- within due date of filing ITR under section 139(1) and therefore, did not disallow while computing the total income, although the same been paid after the due date specified in the respective act. The details are as under: Sr. Name of fund Month/Peri Employee’s Due date Date of No. od contribution payment 1 Provident Fund May 20 17 1,14,434 15-Jun-2017 02-Jul-2017 2 Provident Fund May 20 17 495 15-Jun-2017 02-Jul-2017 3 Provident Fund Aug 20 17 1,33,159 15-Sep-2017 10-Oct-2017 4 Provident Fund September 1,30,889 15-Oct-2017 19-Oct-2017 20 17 5 Provident Fund October 20 1,24,552 15-Nov-2017 17-Nov-2017 17 6 Provident Fund December 1,30,117 15-Jan-2018 16-Jan-2018
(A.Y. 2018-19) (A.Y. 2019-20) 20 17 7 Provident Fund March 2018 1,39,049 15-Apr-2018 16-Apr-2018 (inadvertentl y Reported as 15-04-2019 In Tax Audit Report) 8 Any other April 2017 To 384 IS-Jul-2017 OI-Feb-2018 Welfare Fund June 2017 (inadvertentl (inadvertentl y y Reported as Reported as Rs. 525 in 30-12-2017 Tax Audit In Tax Audit Report) Report) 9 Any other July 2017 to 528 15-Jan-2018 20-Jan-2018 Welfare fund December (inadvertentl (inadvertentl 2017 y y Reported as Reported as Rs. 384 in 30-06-2017 Tax Audit In Tax Audit Report) Report) Total 7,73,607
Ld. CIT (A) observed as under in his order:
(A.Y. 2018-19) (A.Y. 2019-20) 8. In this regard, it is pertinent to mention that clause (24) of section 2 of the income Tax Act provides an inclusive definition of income. Sub-clause (x) to the said clause provides that income will include any sum received by an 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 other deductions. Sub-section (1) of Section 36 provides for various deductions allowed while computing income under the head “Profits and gains of business or profession". Clause (va) of Section 36 provides for deduction of any sum received by an 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 Section 36(va) provides that, 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 there under or under any standing order, award, contract of service or otherwise.
Section 43B 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 section 43B. 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 be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover (A.Y. 2018-19) (A.Y. 2019-20) employee’s 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, several courts have applied the provisions of section 43B in respect of employee's contribution as well. In this context, it is pertinent to mention that there is a distinction between employer's contribution and employee's contribution towards welfare fund. It may be noted that employee‘s contribution towards welfare fund is a mechanism to ensure the compliance of the labour welfare laws by the employers. 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 an employee’s own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee's contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub- section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measure to curb mis-utilization of employee's contributions by the employers.
Assessee in its submissions strongly relies on the jurisdictional High Court decision in the case of CIT .v. Ghatge Patil Transports Ltd [2015] 53 taxmann.com 141 (pages 9 to 17) wherein the Hon'ble High Court has held that: “15. In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, and cess and fee on the one hand with contributions to various Employees ‘Welfare Funds on the other. All this came up for consideration before the #Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). The Tribunal in the case at hand relied upon the said judgment. There is no (A.Y. 2018-19) (A.Y. 2019-20) reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. (supra) applies to employees; contribution as well as employers contribution. Question Nos. 2, 3 & 4 are accordingly answered in favour of the assessee and against the revenue.” (Emphasis applied) 13. The Assessee further relies on the following cases wherein the jurisdictional High Court / Tribunal have taken a view which is favourable to the Assessee on this issue: a. Hindustan Organics Chemicals Ltd (Bombay HC) (48 taxmann.com 421) (Pg 18-26) b. TML Business Services Ltd (Mumbai ITAT) (ITA No 931/Mum/2021) (Pg 1- 5) c. Tilda Riceland Pvt Ltd (Mumbai ITAT) (ITA No 1888/Mum/2014) (Pg 6-8) d. (ML Ltd (Mumbai ITAT) (88 taxmann.com 717) (Pg 27-47) 14. As regards the reliance of the Ld CIT (A) on the decisions of the Hon'ble Gujarat High Court (and other High Courts) in the cases of Gujarat State Road Transport Corporation and Suzion Energy Ltd, it is respectfully submitted that the Ld CIT (A) has ignored the decisions of the jurisdictional High Court / Tribunal on the issue and has also not provided any appropriate reasons for not having considered the decisions of jurisdictional High Court which are in favour of the Assessee. Hence, the reliance pieced by the Ld CIT(A) on the decisions of Gujarat High Court and other Courts ignoring the decisions of jurisdictional High Court is totally misplaced and contrary to law.
(A.Y. 2018-19) (A.Y. 2019-20) Chart of cases which have held that amendment to Sections 36(1)(va)/43B made by the Finance Act, 2021 shall be applicable prospectively i.e. w.e.f. 01-04-2021 SN High Court /ITAT Favour Citations of 1 Chennai Tribunal Assessee Adyar Ananda Bhavan Sweets India (P) Ltd (2022) 134 taxmann.com 56 2 Chandigarh Tribunal Assessee Global Precision Industries Pvt Ltd and Others nbunal (2022) and 116/ Chd/ 2021 M/s. Deep Nursing Home & Children Hospital (2022) ITA No. 353/Chd/2021 3 Kolkata Tribunal Assessee Desana Poly Plastic Industries (2022) ITA No. 452 / Kol / 2021 Genesis Intellectuals Pvt Ltd (2022) ITA No. 26/Kol/2022 4 Bangalore Tribunal Assessee M/s. Hi Q Design and Detailing Pvt Ltd (2022) ITA No. 674&675 / Bang / 2021 M/s. Shand Pipe Industry Pvt Ltd (2021) ITA No. 412/Bang/2021 5 Allahabad Tribunal Assessee M/s. Commercial Auto Sales (2022) ITA No. 15/Alld./2021 6 Amritsar Tribunal Assessee Vinko Auto Industries Ltd (2021) ITA No. 63864 / ASR/2021 7 Delhi Tribunal Assessee Aroon Facilitation Management Services Pvt Ltd (2021) ITA No. 1824/Del/2020 8 Hyderabad Tribunal Assessee BSCPL Infrastructure Limited (2021) ITA No. 708/Hyd/2020 9 Jaipur Tribunal Assessee Dhabriya Polywood Limited (2021) ITA No. 53/JP/2021 (A.Y. 2018-19) ITA No. 1688/Mum/2021 (A.Y. 2019-20) 10 Jabalpur Tribunal Assessee Bromide Chemical industries (2021) 135 taxmann.com 79
We have gone through the order of ld. CIT(A), contentions of the assessee raised before the ld. CIT(A) and arguments taken before us. We have considered the citations considered by ld. CIT(A) as well as the pronouncements of Hon’ble Jurisdictional High Court and Co-ordinate Bench of Mumbai Tribunal.
In this regard, we respectfully follow the decision of the jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. (2015) 53 taxmann.com 141 17. With respect to the employees contribution, undisputed facts shows that though such contribution is deposited after the due date prescribed under the respective law, but before filing of the return of income. We find that identical issue has been decided by the Hon’ble Bombay High Court which is the jurisdictional High Court wherein it has been held that both employees and employer’s contribution are covered under the amendment to section 43B of the Act relying on the decision of the Hon’ble Supreme Court in CIT vs Alom Extrusions Ltd 319 ITR 306 (SC) and therefore, if such payments are made on or before the due date of filing of the return of income, same are not disallowable. We find that instead of following the decision of jurisdictional High Court, the learned CIT (A) has followed the decision of non jurisdictional High Court, that is, Gujarat High Court. As the jurisdictional High Court decision squarely covers the issue in favour of the assessee. 18. Even otherwise, we fail to understand how this deduction could have been disallowed to the Assessee. Admittedly, the Assessment Year in question 2018-19 (A.Y. 2018-19) (A.Y. 2019-20) and 2019-20. The second proviso to section 43B quoted above was deleted with effect from 1st April 2004 and simultaneously the first proviso was also amended bringing about a uniformity in deductions claimed towards tax, duty, cess and fee on the one hand and contribution to the employees’ provident fund, superannuation fund and other welfare funds on the other. These deductions being claimed in the return of income filed for the Assessment Year 2018-19 and 2019-20, the amendments to Section 43B which came into force with effect from 1st April 2004 would have clearly applied to the Assessee’s case. 19. In the result, appeal of the assessee for AY 2018-19 & 2019-20 are allowed and addition made by CPC and confirmed by CIT (A) is directed to be deleted. Order pronounced in the open court on 16th day of March, 2022.