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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI B. R. BASKARAN & SMT. BEENA PILLAI
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the order dated 02.3.2021 passed by Ld. CIT(A), National Faceless Appeal Centre and it relates to the assessment year 2018-19. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the disallowance of Rs.35.06 lakhs made u/s 36(i)(va) of the Income-tax Act,1961 ['the Act' for short] relating to employees contribution to PF while processing return u/s 143(1)of the Act.
The facts relating to the above said issue are stated in brief. During the year under consideration, the assessee remitted employees contribution of ESI amounting to Rs.35,06,231/- beyond
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Page 2 of 6 the due date prescribed under the ESI Act. However, it was paid before the due date for filing return of income u/s 139(1) of the Act. Hence, the assessee did not make any disallowance u/s 36(1)(va) of the Act. While processing return of income filed by the assessee, the CPC disallowed the above said amount. Aggrieved, the assessee filed the appeal before the Ld. CIT(A).
Before Ld. CIT(A), the assessee placed reliance on the decision rendered by Hon’ble Karnataka High Court in the case of CIT Vs. Spectrum Consultants India Pvt. Ltd. (2014) 2 TMI 127 dated 9.12.2013), wherein it was held that the contributions, if paid before the due date prescribed u/s 139(1) of the Act, the same is allowable u/s 36(1)(va) of the Act since the provisions of section 43B of the Act override section 36(1)(va) of the Act. The Ld. CIT(A), by placing reliance on the decision rendered by Hon’ble Gujarat High Court in the case of State Road Transport Corporation (366 ITR 170), upheld the disallowance. Aggrieved the assessee has filed this appeal before us.
We heard the parties and perused the record. We notice that the decision rendered by Hon’ble jurisdictional Karnataka High Court in the case of M/s. Spectrum Consultants India Pvt. Ltd. (supra) and also in the case of M/s. EssaeTeroka Pvt. Ltd. Vs. DCIT 366 ITR 408 supports the case of the assessee. There should not be any dispute that the decision rendered by the jurisdictional High Court is binding on all authorities below it. Hence, the Ld CIT(A) was not justified in placing reliance on the decision rendered by non-jurisdictional High Court, when there is a decision of jurisdictional High Court on the very same issue.
We notice that the coordinate bench has considered an identical issue in the case of Nirmal Enviro Solutions Pvt. Ltd. Vs.
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Page 3 of 6 CIT (ITA No.315/Bang/2021 dated 12.10.2021) relating to assessment year 2018-19, wherein the Tribunal following the decision rendered by another coordinate bench in the case of the Continental Restaurant & Café Company Vs. ITO (ITA No.388/Bang/2021 dated 11.10.2021) has held that disallowance u/s 36(1)(va) r.w.s. 43B of the Act cannot be made for assessment year 2018-19. For the sake of convenience, we extract below the operative portion of the order passed by the coordinate bench in the case of Nirmal Enviro Solutions Pvt. Ltd. (supra). “7. We have heard rival submissions and perused the material on record. An identical issue was considered by the Tribunal in the case of The Continental Restaurant & Café Co. v. ITO (supra). The relevant finding of the Tribunal reads as follows:-
“7. I have heard rival submissions and perused the material on record. Admittedly, the assessee has not remitted the employees’ contribution of PF of Rs.1,06,190 and ESI of Rs.16,055 totaling to Rs.1,22,245 before the due date specified under the respective Act. However, the assessee had paid the same before the due date of filing of the return u/s 139(1) of the I.T.Act. The Hon’ble jurisdictional High Court in the case of EssaeTeraoka (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 PF and 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.). In holding so, 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
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Page 4 of 6 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 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 I.T.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 EssaeTeraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees’ contribution of PF and 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
Focus Consultancy Services, Bengaluru Page 5 of 6 of the I.T.Act by Finance Act, 2021 is only prospective in nature and not retrospective. (i) DhabriyaPolywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in (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 to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 will not have application for the relevant assessment year, namely A.Y. 2019- 2020. Accordingly, I direct the A.O. to grant deduction in respect of employees’ contribution to PF and 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.
In the result, the appeal filed by the assessee is allowed.” 7.1 In view of the judicial pronouncements cited supra, we hold that the amendment to section 36(1)(va) and 43B of the I.T.Act will not have application for the relevant assessment year, namely assessment year 2018-2019. Accordingly, we direct the A.O. to grant deduction in respect of employees’ contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) of the I.T.Act. It is ordered accordingly.”
Consistent with the view taken in the above said cases, we set aside the order passed by L. CIT(A) and direct the A.O. to delete the impugned disallowance.