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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI MANISH BORAD & SRI SONJOY SARMA
order
: June 22nd, 2022 ORDER
Per Manish Borad, Accountant Member:
The captioned appeals filed by the assessee pertaining to the Assessment Years (in short “AY”) 2012-13 & 2013-14 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short ld. “CIT(A)”].
The assessee is in appeal before the Tribunal raising the following grounds:
Assessment Year 2012-13: .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. “1. Under the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in law as well as in facts in confirming the disallowance and addition of claim of bad debts of Rs. 84,53,517/-.
2. Under the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in law as well as in facts in confirming the disallowance and addition of claim of bad debt of Rs. 84,53,517/- without appreciating the ratio of the Judgement of the Hon’ble Supreme Court that, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.
3. The appellant craves leave to amend, add, alter, modify and withdraw any or all of the above grounds at any time before or at the time of disposal of the appeal.” Assessment Year 2013-14:
“1. Under the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in law as well as in facts in confirming the disallowance and addition of Rs. 59,01,363/- on account of deposit of Provident Fund (PF) and Employees State Insurance (ESI) beyond the due dates under the respective Acts, without appreciating the fact that though the PF and ESI were deposited beyond the due dates under the respective Acts but were deposited before the due date of filing the Return of Income under Section 139(1) of the Income-tax Act, 1961.
2. Under the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in law as well as in facts in confirming the disallowance and addition of Rs. 59,01,363/- on account of deposit of Provident Fund (PF) and Employees State Insurance (ESI) beyond the due dates under the respective Acts, without appreciating the facts that the amendments in Section 36(1)(va) and Section 43B of the Income-tax Act, 1961 have been made effective from 01.04.2021, i.e. made applicable from the Assessment Year 2021-2022.
The appellant craves leave to amend, add, alter, modify and withdraw any or all of the above grounds at any time before oy at the time of disposal of the appeal.” .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited.
3. We will first take ITA No. 209/Kol/2022. The only issue in this appeal relates to the disallowance of claim of bad debts of Rs. 84,53,517/- which was made by the ld. Assessing Officer (in short ld. “AO”) denying the claim and the same being confirmed by ld. CIT(A).
We have heard rival contentions and perused the records placed before us. We notice that the assessee is a limited company. Income of Rs. 28,37,35,921/- has been declared in the e-return of file on 28.09.2012. During the course of assessment proceedings carried out after being selected for scrutiny on the basis of CASS and duly serving of notices u/s 143(2) & 142(1) of the Act, ld. AO noticed that the assessee has claimed bad debts of Rs. 84,53,517/- . This amount was worked out on the basis of short realisation from the debtors. The list is available at page 3 to 4 of the assessment order and as per this list, debtors’ closing balance as on 31.03.2011 is 2,88,00,809/- during Financial Year (in short “FY”) 2011-12 a sum of Rs. 1,85,15,126/- was realised, Rs. 18,32,166/- was shown as due to be realised and the remaining amount of Rs. 84,53,517/- is claimed as bad debts. Ld. AO disregarded this claim with observation that the assessee has shown almost 30% of the total amount of debtors as short receipt but it is not feasible for a business concern to realise the amount within one year with short receipt of 30%. Similar view was also taken by the ld. CIT(A).
We, after going through the records including the paper book running into 62 pages filed on 14.06.2022 and another paper book running into 29 pages also filed on 14.06.2022, find that the Page 3 of 9 .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. assessee is a limited company. In the course of carrying business it has booked bad debts of Rs. 84,53,517/- in its books of account. It is not in dispute that the alleged amount has been shown as sales by the assessee in the past and this fact remains uncontroverted by ld. D/R and the lower authorities.
In view of the ratio laid down by the Hon’ble Apex Court in the case of T.R.F. Limited vs. CIT reported in [2010] 323 ITR 0397 (SC) holding that after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee. Examining the facts in the instant case, we find that the assessee has rightly claimed the bad debts in its books of account and claimed it as deduction as bad debts at Rs. 84,53,517/- as it has been shown as irrecoverable by the assessee and duly written off in the books of accounts. We, therefore, reverse the finding of the ld. CIT(A) and delete the disallowance of bad debts of Rs. 84,53,517/- and allow ground nos. 1 & 2 raised by the assessee for AY 2012-13.
Ground no. 3 is general in nature which need no adjudication.
In the result, the appeal filed by the assessee for AY 2012-13 is allowed.
Now, we take up AY 2013-14.
The sole ground involved in this appeal of assessee is against the action of the ld. CIT(A) in confirming the disallowance made in respect of PF & ESI in respect of employees’ contribution u/s. Page 4 of 9 I.T.A. Nos.: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. 36(1)(va) r.w.s. 2(24)(x) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs. 59,01,363/-. At the outset, the ld. Counsel for the assessee submitted that under the given facts, issue raised is covered in favour of the assessee by the decision of this Tribunal in the case of Lumino Industries Ltd. vs. ACIT, Circle- 5(1), Kolkata in for AY 2015-16 order dated 17.11.2021.
Per contra, ld. D/R supported the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us. According to the authorities below, since the assessee has not remitted the employees’ contribution on the due date as prescribed by the PF & ESI Act, the contribution made belatedly cannot be allowed. However, according to the ld. Counsel for the assessee since the assessee has undisputedly made the remittance in respect of alleged employees’ contribution of PF as well as ESI before filing of the return of income u/s 139(1) of the Act, no disallowance is warranted. According to the ld. A/R, ld. CIT(A) erred in referring to the Amendment brought in by Finance Act 2021 w.e.f. 01.04.2021 which inserted an Explanation to section 36(1)(va) and section 43B of the Act and erred in holding it as clarificatory and so, retrospective in nature.
Whereas according to ld. A/R, it is only prospective in nature and cannot disturb the binding judicial precedents in favour of assessee. According to the ld. A/R, this issue is no longer res- integra as held by this Tribunal in the case of Lumino Industries Ltd. vs. ACIT, Circle-5(1), Kolkata in I.T.A. No.365/Kol/2021 for AY Page 5 of 9 .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. 2015-16 order dated 17.11.2021, wherein assessee’s favour view was taken by the Tribunal after holding that the amendment brought in by Finance Act, 2021 w.e.f 01.04.2021, is prospective in operation and so will be in force from AY 2021-22 onwards and not retrospective. The relevant portions of the decision reads as under: “17. Have heard both the parties. We note that the Finance Bill, 2021 has brought in an amendment which disallows the employees’ contribution made in PF and ESI if not made within the due date as prescribed by the respective statutes (PF and ESI Act). So after the amendment has been inserted according to Shri Miraj D Shah takes effect from 1st April, 2021 i.e. AY 2021-22 and subsequent assessment year and if the remittance of PF/ESI Employees’ Contribution is not made within the time prescribed by the PF/ESI Act then the remittance cannot be allowed as a deduction which is prospective in operation. Whereas according to Ld. CIT(A), the amendment brought in is clarificatory in nature so, retrospective in operation. So we have to adjudicate this issue whether the amendment brought in by Finance Act, 2021 is prospective or retrospective in operation. We note that before this amendment has been inserted by Finance Bill, 2021, the Hon’ble Jurisdictional Calcutta High Court in the case of Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra) has held that the payment of employees’ contribution if made by an assessee before the due date of filing of return of income u/s 139(1) of the Act, is allowable as a deduction. We note that by Finance Act, 2021, the provision of Section 36(1)(va) as well as Section 43B has been amended to this extend by inserting the Explanation 2 whereby it is clarified that the provision of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the due date under this clause. For ready reference, we reproduce the Explanation-2 to Section 36(1)(va) as under: “Section 36(1)(va) Explanation-2 - For the removal of doubts, it is hereby clarified that the provisions of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the ‘due date* under this clause.”
We find that this amendment has been brought in the Act to provide certainty about the applicability of Section 43B in respect of belated payment of employees’ contribution. In order to test whether Page 6 of 9 .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. the amendment brought in later is retrospective or not one has to apply the test as laid by the Hon’ble Supreme Court in the case of M/s Snowtex Investment Ltd. (supra) wherein the Hon’ble Supreme court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. and held that the intent of the Parliament/legislature need to be looked into for ascertaining whether the amendment should be retrospective or not. In Vatika Township Ltd. (supra) the Hon’ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislative intent; because it has to be borne in mind that Parliament/legislature is aware of three concepts before an amendment is brought in, which can be discerned from reading of the “Notes on Clauses” to the Bill which are (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. So when we adjudicate whether the view of Ld CIT(A) that the explanation 2 brought in by Finance Act, 2021 is retrospective, let us look at the “Notes on Clauses and the relevant clauses 8 & 9 of the Finance Bill, 2021 (supra) pertaining to the issue in hand which in clear and unambiguous terms spells out the intention of Parliament that the amendment shall take effect from 1st April, 2021 and therefore will accordingly apply to Assessment Year 2021-22 and subsequent years. So since the legislative intent is clear, the amendment brought in by Finance Act, 2021 on this issue as discussed is prospective and Ld. CIT(A) erred in holding otherwise. So till AY 2021-22, the Jurisdictional High Court’s view in favor of assessee will hold good and is binding on us. As discussed the decision of the Hon’ble Delhi High Court in Bharat Hotels Ltd. (supra) which was in favor of revenue has not considered the decision of the Co-ordinate Division Bench decision in M/s Aimil Ltd. (supra) which is in favour of assessee. So we note that later decision of the Delhi/Hyderabad Tribunal have followed the decision favouring assessee in the light of the Hon’ble Supreme Court decision in M/s Vegetable Products (supra). In the light of the aforesaid decision and relying on the ratio of the Hon’ble Supreme Court in the case of Vatika Township Pvt. Ltd. (supra) and M/s Snowtex Investment Ltd. (supra) and also taking note of the binding decision of the Hon’ble Jurisdictional Calcutta High Court on this issue before us in Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra), we set aside the impugned order of Ld CIT(A) and direct the AO to allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s 139(1) of the Act. Therefore the appeal of assessee succeeds and so, it is allowed in favor of assessee.”
The ld. A/R brought to our notice the contents of the impugned order of ld. CIT(A) wherein it is noticed that the ld. CIT(A) Page 7 of 9 .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. has acknowledged that the assessee had made the remittance/payment of employees’ contribution towards PF & ESI before the due date of filing of return of income u/s 139(1) of the Act. Therefore, in the light of the above judicial precedents (supra), which is squarely applicable on the issue raised before us in the instant appeal, we are inclined to allow the appeal of the assessee and direct the A.O. to delete the addition and hold that the Amendment brought in Finance Act 2021 w.e.f. 01.04.2021 by inserting an Explanation to section 36(1)(va) and section 43B of the Act is prospective in nature and would apply from AY 2021-22 onwards and, therefore, the Amendment is not applicable to the assessment year under consideration. Substantive ground nos. 1 & 2 raised by the assessee on the issue of disallowance of employees’ contribution towards PF & ESI are allowed. Other grounds are general in nature which need no adjudication.
In the result, both the appeals filed by the assessee for AYs 2012-13 & 2013-14 are allowed. Kolkata, the 22nd June, 2022. Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 22.06.2022 Bidhan (P.S.) .: 209 & 210/Kol/2022 Assessment Year: 2012-13 & 2013-14 Mackintosh Burn Limited. Copy of the order forwarded to:
1. 1. Mackintosh Burn Limited, MBL House, DD-18/8, Sector-I, Salt Lake City, Kolkata-700 064.
2. DCIT, Circle-11(2), Kolkata 3. CIT(A)- National Faceless Appeal Centre (NFAC), Delhi.
4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.