ACIT NON CORPORATE CIRCLE 1, CHENNAI vs. NALLI TRUST, CHENNAI

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ITA 2208/CHNY/2019Status: DisposedITAT Chennai24 August 2022AY 2014-155 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that employee contributions to PF and ESI, if paid before the due date of filing the return of income under Section 139(1), are allowable deductions. The amendment to Section 36(1)(va) by the Finance Act, 2021, was held to be not retrospective.

What were the facts?

The Revenue appealed against the CIT(A)'s order allowing deduction for delayed payments of employee contributions to PF and ESI. The AO had disallowed the deduction as the payments were made after the due dates specified in the respective acts but before the due date for filing the return of income.

What were the issues?

Whether delayed payment of employee contributions to PF and ESI, made before the due date of filing the return of income, is allowable as a deduction under Section 36(1)(va) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 36(1)(va),Section 2(24)(x),Section 139(1)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI MAHAVIR SINGH & DR. DIPAK P. RIPOTE

Hearing: 17.08.2022Pronounced: 24.08.2022

आदेश / O R D E R

PER DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER:

1.

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-2, Chennai, dated 24.05.2019, pertains to assessment year 2014-15.

2.

The Revenue has raised the following grounds of appeal:

1.

The Ld.CIT(A) erred in in holding that delayed payments of Provident Fund and Employees State Insurance dues being the employees contributions under the relevant statutes but remitted before the due date for filing of return of income under the Income tax Act are allowable as deduction under section 36(1)(va) of the Income tax Act?

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2. The Ld. CIT(A) erred allowing deduction under section 36(1)(va) on delayed payments of Provident Fund and Employees State Insurance dues being the employees contributions under the relevant statutes considering that application of Section 36(1)(va) read with Section 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va).

3.

The Ld. CIT(A) erred in allowing the deduction under section 36(1)(va) in view of the decision of the Hon'ble High Court of Madras in WP No.5264 of 2018 dated 23.10.2018, which has held the issue favourable to revenue and treated it as income under section 2(24)(x) of the Act? 3. We have heard both the parties, perused the materials available on record. The only issue involved in this appeal is allowability of deduction u/s.36(1)(va) of the Act, on delayed payments of PF & ESI being employees’ contributions. Earlier, vide order dated 22.08.2019, was dismissed by this Tribunal on the ground that low tax effect. However, the Revenue filed a Miscellaneous Application.

The said Miscellaneous Application was decided vide order dated 13.05.2022 in MP No.326/Chny/2019. ITAT agreed with the Revenue’s stand that the said appeal falls under exception clause of CBDT Circular No.3/2018. Therefore, order passed in was recalled and fixed for regular hearing. Accordingly, this appeal came up for hearing today. In the assessment order, the AO has disallowed a sum of Rs.67,57,319/-, which was employees’ contributions towards ESI & PF.

The employees’ contributions towards ESI & PF were deposited after 20th of the relevant month. Therefore, the AO held that the assessee has deposited employees’ contributions towards ESI & PF beyond the time allotted in the respective acts. Therefore, the AO disallowed the said amount and added back.

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4.

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) allowed assessee’s claim by following the decision of jurisdictional High Court in the case of CIT v.

Industrial Security & Intelligence India Pvt. Ltd., in TCA No.585 & 586 of 2015 dated 24.07.2015.

5.

We heard both the parties and perused the records. We find that the said issue is decided in favour of the assessee by various Hon’ble High Courts. Recently, the Hon’ble Delhi High Court in the case of Pr.CIT v. TV Today Network Ltd., in dated 27.07.2022 wherein, it has been held as under:

“……..37. It is therefore evident that the enunciation of law by this court on the issue of 'due date' in case of delay by the assessee in depositing the employee contribution under section 36(1)(va) of the Act is to be reckoned as the date for filing the return under Section 139 (1) of the Act and not the due date of the relevant Labour statute. This law has been settled by this Court in CIT vs. P.M. Electronics Ltd (supra), AIMIL Ltd. (supra), CIT vs. SPL Industries Ltd and PR. Commissioner of Income Tax- 7 vs. PROInteractive Service (India) Pvt. Ltd. (supra) and consistently followed thereafter…...”. 5.1 The Hon’ble Rajasthan High Court in the case of Rajasthan State Beverages Corpn. Ltd vide order dated 4/8/216 has held as under :

“This court in the aforesaid case has also allowed the claim of the assessee, in so far as payment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank of Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com” The SLP filed against the said decision has been dismissed by Hon’ble SC.

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5.2 The Hon’ble Delhi High Court (supra) further held that amendment brought to Sec.36(1)(va) of the Act, by Finance Act, 2021, is not retrospective. Therefore, respectfully following the proposition of law laid down by the Hon’ble High Courts, it is held that employees’ contributions towards ESI & PF, if paid before the due date of filling return of income u/s.139(1) of the Act, is allowable deduction u/s.36(1)(va) of the Act.

Accordingly, in the present case, it has been submitted by the Ld.AR that employees’ contributions were paid before the due date of filing of return of income. The AO is directed to verify and allow the deduction if employees’ contributions towards ESI & PF were paid before the due date mentioned u/s.139(1) of the Act for filling the Return of Income.

6.

In the result, Ground Nos.1 & 2 of the Revenue are dismissed.

7.

In Ground No.3, Revenue has relied on the decision of Hon’ble Madras High Courts in the case of M/s.Unifac Management Services (India) Pvt. Ltd. V. DCIT in WP No.5264 of 2018 dated 23.10.2018.

7.1. In this context, it is observed that in the said WP No.5264 of 2018 Hon’ble Madras High Court had decided the issue on merits in favour of revenue. However, the Hon’ble Madras High Court’s Divisional Bench vide order dated 09.01.2019 in the case of M/s.Unifac Management Services (India) Pvt. Ltd. v. DCIT has held as under:

“9. Considering these facts, we grant permission to the appellant to withdraw the said writ petition namely WP No.5264 of 2018 as well as this appeal namely

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W.A.No.2854 of 2018. We also grant liberty to the appeallant to file the appeal before the CIT(A) having jurisdiction over the matter”. Thus the order of the single member Hon’ble Jurisdictional High Court on which revenue has relied is no more applicable ,due to the subsequent observation of the Divisional bench of the Hon’ble jurisdictional High Court (supra). Therefore, the Ground No.3 of the revenue is dismissed.

8.

In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 24th day of August, 2022, in Chennai.

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