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Income Tax Appellate Tribunal, “SMC” BENCH, KOLKATA
Before: Shri A. T. Varkey, JM]
ORDER This is an appeal preferred by the assessee against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 26.08.2021 for AY 2018-19.
The assessee has preferred this appeal against the adjustment made by the Centralized Processing Centre (CPC), Bangalore while processing the return of the assessee. The assessee is aggrieved by the two adjustments made by CPC viz., (i) regarding club expenses to the tune of Rs.1,52,323/- and (ii) regarding disallowance of PF & ESI to the tune of Rs.2,15,136/-.
According to the Ld. AR Shri Anup Biswas, the assessee company is engaged into the manufacture of fire fighting foam and is a regular income tax assessee. According to Ld. AR, till date the club expenses claimed by the assessee have not been disallowed by the department. According to the Ld. AR, the facts permeating in the earlier years as far as this issue is concerned is identical/similar and there was no occasion to change the stand of the department to disallow in this assessment year. According to Ld. AR, the CPC while processing the return had confronted the assessee to the limited question as to whether the disallowance of the club expenses may be made or not, for which the assessee replied that the club expenses were incurred for the purpose of business and, therefore, is an allowable expenditure as done in the earlier years. However, when the order u/s. 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) was passed to the astonishment
Integrated Fire Protection Pvt. Ltd., AY: 2018-19 of the assessee, it came to know that the club expenses to the tune of Rs.1,52,323/- has been disallowed. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed it by stating that the club expenses were of personal nature and not allowable u/s. 37(1) of the Act. And while doing so the Ld. CIT(A) took note of the fact that when the AO confronted the assessee on this issue, the assessee had submitted that these expenses were incurred for entertaining the guest of the assessee company for promoting the business. However, the Ld. CIT(A) did not accept the contention of the assessee and was pleased to confirm the order of the CPC. Aggrieved, the assessee is in appeal before this Tribunal.
Heard the rival submissions and gone through the facts and circumstances of the case. It is noted that the assessee is engaged into the manufacture of fire fighting foam and is a regular income tax assessee. It is noted that the club expenses claimed by the assessee for the earlier years were never disallowed. According to me, even though ‘res judicata’ is not applicable to the income tax proceedings, but the rule of consistency has to be followed as held by the Hon’ble Supreme Court in the case of Radhasoami Satsang Vs CIT (193 ITR 321). Therefore, on this count itself this issue is tilted in favour of assessee. Anyway, it is also noted that the Hon’ble Supreme Court in the case of CIT Vs. United Glass Manufacturing Co. Ltd. 28 taxmann.com 429 (SC) as well as in a plethora of decisions by Hon’ble High Courts have held that the club expenses incurred by an assessee for the purpose of promoting its business by entertaining guest is an allowable expenditure u/s. 37 of the Act. Therefore, the CPC/Ld. CIT(A)’s action of ignoring the earlier claim of assessee on this issue and the department allowing the same as well as in the light of the judicial precedents cited (supra), I am inclined to allow the appeal of the assessee and direct deletion of addition of Rs.1,52,323/-. Therefore, this ground of appeal of assessee is allowed.
5. Coming to the next issue which is in respect of disallowance on account of PF & ESI remittance to the tune of Rs.2,15,136/-. It is noted that this issue is no longer res integra. It is noted that the assessee has remitted the employee’s contribution to PF & ESI within the due date of filing of return of income as is evident from the Tax Audit Report. In the light of this undisputed fact, I relying on 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, allow the claim of assessee. it is noted in Lumino Industries (supra) Tribunal has taken a favourable view in assessee’s favour after holding that the Integrated Fire Protection Pvt. Ltd., AY: 2018-19 amendment brought in by Finance Act, 2021 is w.e.f 01.04.2021 and so is prospective in operation and so will be in force from AY 2021-22 onwards and not retrospective. The relevant portions of 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’ 18. 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 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 LdCIT(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
Integrated Fire Protection Pvt. Ltd., AY: 2018-19 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 ShriVijayshree 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 favour of assessee.
In the light of the aforesaid ratio of the decision in Lumino Industries Ltd. (supra) and taking into consideration the fact that the assessee has remitted the PF & ESI contribution of employees’ before the due date of filing of the return of income, the disallowance made by the CPC/Ld. CIT(A) was not warranted and is directed to be deleted.
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court.