RAKSHA TECHNOLOGIES PRIVATE LIMITED,CHENNAI vs. ADIT,CPC, BENGALURU

Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of the order of learned Commissioner of Income Tax (Appeals), NFAC, Delhi [CIT(A)] dated 24-11-2021 in the matter of intimation issued by Centralized Processing Center (CPC), Bengaluru 2 - u/s 143(1) in response to return of income filed by the assessee. In this appeal, the assessee is aggrieved by confirmation of certain additions u/s 36(1)(va) r.w.s. 2(24)(x).

The Ld. AR submitted that the dues have been paid well before due date of return of income u/s 139(1) and the deduction of the same is allowable to the assessee. The Ld. AR also submitted that the correct figures as given in revised Tax Audit Report have not been considered by Ld. CIT(A). The Ld. Sr. DR supported the impugned order. Having heard rival submissions, our adjudication would be as under. 3. We find that the assessee filed return of income on 28.09.2018. The same was processed u/s 143(1) by CPC, Bengaluru on 06.01.2020 wherein the business income was enhanced by Rs.13,42,176/-. This was due to the fact that there was delay in deposit of employees’ contribution to PF and ESI for Rs.2,22,414/-. The remaining amount of Rs.11,19,762/- represent provision of gratuity made but not paid before the due date of return of income u/s 139(1). The assessee preferred further appeal against the same and submitted that the dues were deposited well before due date of filing of return of income u/s 139(1). It was also submitted that the amount of Rs.11,19,762/- was inadvertently shown in Tax Audit Report. However, Ld. CIT(A) upheld the addition in terms of amendment brought in by Finance Act, 2021 in Sec. 36 as well as in Sec. 43B. Reliance was placed on various judicial decisions to support the same. Aggrieved, the assessee is in further appeal before us. 4. We find that this issue stood squarely covered in assessee’s favor by our decision in lead order titled as M/s Benco Thermal Technologies Private Ltd. V/s Asstt. Director of Income Tax (ITA 3 - No.281/Chny/2021 on 23.02.2022), the operative portion of which read as under: - Our findings and Adjudication 4. We find that as per the provisions of clause (b) of Sec.43B of the Act, any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund and gratuity fund or any other fund for the welfare of employees would be allowed as deductions only on actual payment. However, the proviso to Sec. 43B provides that if the said sum is paid on or before due date for furnishing of return of income u/s. 139(1) of the Act, the deduction would still be available to the assessee. The term ‘Income’ as defined in Sec.2(24)(x) include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (ESI) or any other fund for the welfare of such employees. In other words, the contribution received by the assessee from its employees towards specified welfare funds is always treated as income of the assessee. However, the provisions of Sec. 36(1)(va) of the Act provides that any sum received by the assessee in terms of Sec. 2(24)(x) of the Act shall be allowed as deduction, if such sum is credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date. The term ‘due date’ as per Explanation would mean the date by which the assessee is required as an employer to credit employees’ contribution to the employees’ account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract or service or otherwise. Thus, the contribution received by the assessee from its employees’ towards welfare funds, though treated as income u/s 2(24)(x), would be allowed as deduction u/s 36(1)(va) provided the same is remitted to the concerned funds before due date as specified in statute governing those funds. Any payment made beyond that date would result into denial of deduction to the assessee.

One of such case is the decision of Hon’ble Karnataka High Court in the case of Essae Teraoka (P.) Ltd. (43 Taxmann.com 33: 04.02.2014). In this decision, the Hon’ble Court distinguished the case law of Hon’ble Gujarat High Court in the case of CIT V/s Gujarat State Road Transport Corpn. (41 Taxmann.com 100; 26.12.2013) and held that employees’ contribution so paid by the assessee before due date of filing of return of income u/s 139(1) would be an allowable deduction. The same was on the reasoning that the provisions of Sec.43B provide an extension to the employer to make payment of welfare funds by 'due date' applicable for furnishing the return of income u/s 139(1). It was held that the provisions of Sec.43B start with non-obstante clause and provide that notwithstanding anything contained 4 - 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 welfare fund, shall be allowed if it is paid on or before the due date as contemplated under Section 139(1). 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 as specified therein. It was examined that the expression 'contribution' as defined in Section 2(c) under the PF Act would mean a contribution payable in respect of a member under the scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies. If this definition is read with sub-para (1) of paragraph 29 in Chapter-V of the PF Scheme, it would mean that the contributions payable by the employer under the scheme shall be at a particular rate and the contribution payable by the employee shall be equal to the contribution payable by the employer. The Paragraph 30 of the PF scheme provides for payment of contributions. Sub-para (1) of paragraph 30 states that the employer shall, in the first instance, pay both the contribution payable by himself (in this scheme referred to as the employer's contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this scheme referred to as the member's contribution). From bare perusal of sub-para (1) of paragraph 30, it is clear that the word 'contribution' is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly. The 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 means the contribution of the employer as well as the contribution of the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income u/s 139(1), the employer is entitled for deduction.

In the light of aforesaid judicial precedents especially the decision of Hon’ble High Court of Madras in CIT v. Industrial Security & Intelligence India (P.) Ltd. (supra) and keeping in view the fact the Special Leave Petition (SLP) filed by the revenue against the decision of Hon’ble Rajasthan High Court favoring assessee has already been dismissed by Hon’ble Supreme Court (para-8), we are inclined to take a view favoring the assessee. Accordingly, we would hold that the provisions of Sec.43B would override the provisions of Sec.36(1)(va) and accordingly, the employees’ contribution as paid by the assessee before due date of filing of return u/s 139(1) would still be an allowable deduction notwithstanding the fact that the payment was made beyond due date as specified in the relevant statute governing those welfare funds.

So far as the effect of amendment brought in by Finance Act, 2021 is concerned, we find that Finance Act, 2021 has proposed amendment to Sec.36(1)(va) and Sec.43B to clarify the position that Sec.43B would never apply to such contributions. For the same, an explanation-2 has been inserted in Sec. 36(1)(va) which state that Section 43B would not apply and is presumed never to have been applied to establish the due date under this sub-section. Similarly, Explanation-5 has been inserted to Section 43B to explain that the rules of that section do not apply and are never regarded to have applied to any funds received by the assessee from employees. The controversy as to the date of applicability of amendment arises in view of the fact that both the Memorandum as well as the Finance Bill state that relevant amendment will take effect on 01/04/2021 and apply to Assessment Year 2021-22 and subsequent assessment years. The submissions of the revenue would be that the amendment is merely clarificatory in nature and would have retrospective operation. However, the assessee would maintain that the provisions would have prospective operations only and the pre-amended period would be largely guided by the ratio of judicial pronouncements favoring the assessee.

We find that this issue has already been settled by co-ordinate bench of this Tribunal in Adyar Anand Bhawan Sweets India Pvt. Ltd. V/s ACIT (134 Taxmann.com 56; 08.12.2021). In the said decision, it has already been held by the 7 - coordinate bench that the amendment to Sec.36(1)(va) by way of insertion of explanation-2 would operate prospectively only. This view has been taken by the bench considering the ratio of decision of Hon’ble Supreme Court in the case of CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC) and it was finally held that the amendment brought in by Finance Act, 2021 to the provisions of Section 36(1)(va) as well as to the provisions of Sec.43B would have prospective application only. The pertinent observations of the bench were as under: - 6.7 We noted from the judgment of Hon'ble Supreme Court in Vatika Township (P.) Ltd. (supra), that there cannot be imposition of any tax without the authority of law and such law has to be unambiguous and should prescribe the liability to pay taxes in clear terms. In present case before us, as noted by CIT(A) that their exists divergent judgments of various High Courts. The CIT(A) has noted the case laws in favour of Revenue: 1. Popular Vehicles & Services (P.) Ltd. v. CIT [2018] 96 taxmann.com 13/257 Taxman 120/406 ITR 150 (Ker.) 2. CIT v. Gujarat Road Transport Corpn. [2014] 41 taxmann.com 100/223 Taxman 398/366 ITR 170 (Guj.) 3. CIT v. Merchem Ltd. [2015] 61 taxmann.com 119/235 Taxman 291/378 ITR 443 (Ker.) The CIT(A) himself noted the ambiguity in para 7.4 of his order, which reads as under: 7.4 While rendering above decisions the Hon'ble High Courts had the occasion to examine and distinguish a catena of judgements which are usually relied upon by appellants to advance the proposition that the provisions of section 43B encompass within its scope the employees' Contribution as well and therefore any such contribution though not remitted by the employer within due date specified by the PF/ESI Acts, will still be permissible deduction if the same is actually paid in pursuance of sec. 43B. The CIT(A) further noted the decisions in favour of assessee in para 7.7, and the same are as under: 1. CIT v. Alom Extrusions Ltd. [2009] 185 Taxman 416/319 ITR 306 (SC) 2. Aimil Ltd. (supra) 3. CIT v. Nispo Polyfabriks [2013] 350 ITR 327/213 Taxman 376/30 taxmann.com 90 (HP); 4. CIT v. Alembic Glass Industries Ltd. [2015] 279 ITR 331/149 Taxman 15 (Guj.); 5. CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar); 6. CIT v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bom.); 7. Spectrum Consultants India (P.) Ltd. v. CIT [2013] 34 taxmann.com 20/215 Taxman 597 (Kar.); 8. CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 (Raj.) and 9. CIT v. Hemla Embroidery Mills (P.) Ltd. [2013] 37 taxmann.com 160/217 Taxman 207 (Mag.)/[2014] 366 ITR 167 (Punj. & Har.). 6.8 In the present case also, before insertion of Explanation 2 to section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees' contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return 8 - of income of the assessee. As noted by Hon'ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 1-4-2021 i.e. for and from assessment year 2021-22 of Explanation 2 to s. 36(1)(va) of the Act and not retrospectively. 6.9 Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee's appeal is allowed.

So far as the argument of the Ld. DR that the employees’ interest would be adversely impacted, is concerned, we find that the respective Acts governing welfare funds would take care of those eventualities. In case of belated payment or non-payment, the employer not only pays interest on delayed payment but can incur penalties also for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the consequences are already provided under those acts which would take care of the employees’ interest. However, we are concerned with a case wherein the contributions have already been deposited by the assessee before due date of furnishing of return of income u/s 139(1) and the assessee is claiming deduction of the expenditure under the scheme of the Act. Therefore, this argument of Ld. DR though may carry weightage from morality point of view but it would not be of much relevance to decide the issue as to whether the assessee is eligible to claim the expenditure keeping in view the scheme of the act.

Finally, the assessee’s appeal succeeds on merits. The revenue is directed to grant the deduction so claimed by the assessee and re-compute assessee’s income.

The appeal stands allowed in terms of our above order.

Facts being pari-materia the same, we direct revenue authorities to allow the deduction of Employees’ Contribution to welfare funds like PF / ESI for Rs.2,22,414/- as claimed by the assessee in the return of income. The ground thus raised stand allowed on merits. Considering the submissions of Ld. Sr. DR, a liberty is given to revenue to seek rectification of this order in accordance with law for any valid reasons or in case the dues are found to have been deposited by the assessee beyond due date of furnishing of return of income u/s 139(1).

The appeal stand partly allowed in terms of our above order. Order pronounced on 11th April, 2022.