TRULY PEST SOLUTION PVT LTD,KOLKATA vs. DCIT, CPC, BANGALORE

This is an appeal preferred by the assessee against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 28.06.2021 for AY 2018-19.

The first ground involved in this appeal of the assessee is against the action of the ld. CIT(A) in confirming the disallowance made in respect of PF & ESI in respect employees’ contribution u/s. 36(1)(va) r.w.s. 2(24)(x) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs.2,79,864/-. 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. 3. Per contra, ld. Sr. D/R supported the orders of both the lower authorities. 4. We have heard rival contentions and perused the records placed before us. According to the authorities below, since the assessee has not 2 I.T.A. No.: 217/Kol/2021 Assessment Year: 2018-19 Truly Pest Solution Pvt. Ltd. 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 employer’s/employees’ contribution of PF as well as ESI before filing of the return of income u/s 139 of the Act, no disallowance is warranted. According to the ld. A/R, the 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, any way 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 for AY 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 decision which reads as under:-

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 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) 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. 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 4 I.T.A. No.: 217/Kol/2021 Assessment Year: 2018-19 Truly Pest Solution Pvt. Ltd. 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 in nature and would apply from AY 2021- 22 onwards and, therefore, the Amendment is not applicable to this assessment years (Assessment Year 2018-19) under consideration. Therefore, the first ground raised by the assessee on the issue of disallowance of employees’ contribution towards PF & ESI is allowed.

Ground no. 2 is against the action of the ld. CIT(A) in confirming the disallowance made by the AO in respect of Bonus paid to the employees. Briefly stated the facts as observed by the ld. CIT(A) are that the AO/CPC has made disallowance u/s. 43B for Rs.9,56,599/- on the ground that those payments were not made by relying on the Tax Audit Report (TAR). According to assessee, employee’s bonus was paid within the time limit prescribed u/s. 139(1) of the Act and accordingly contended that the same is allowable as deduction and is not hit by the section 43B of the Act. However, the ld. CIT(A) dismissed this ground of appeal of assessee by holding that assessee failed to make the payment within the prescribed time limit, therefore, he confirmed the disallowance.

We have heard rival submissions and gone through the facts and circumstances of the case. We find that the assessee has challenged the action of the ld. CIT(A) confirming the disallowance made by the AO in respect of bonus paid to the employees because in the TAR the same have not been reflected to have been paid before the due date of filing of the return of income. According to ld. AR, the assessee had in fact made the payment of bonus to the employees on 10.10.2018 which was after date of Tax Audit Report but before the due date of filing of return of income (24.10.2018) and he drew our attention to page 217 of the paper book which proves the payment of bonus before the due date of filing of the return of income. We note that the auditor had audited the accounts of assessee on 08.10.2018 i.e. before the date of filing of the return of income, therefore he obviously did not mention about the fact of payment of bonus which event took place obviously after the TAR was prepared by the auditor, which fact 5 I.T.A. No.: 217/Kol/2021 Assessment Year: 2018-19 Truly Pest Solution Pvt. Ltd. led the CPC to disallow the claim of deduction on this issue. However, though the aforesaid facts were in fact brought to the notice of ld. CIT(A), he ignored the same and confirmed the disallowance, which action of Ld. CIT(A) cannot be countenanced. Therefore, since the assessee had already made payment of bonus before the due date of filing of return of income, so in the light of the aforesaid fact the AO/CIT(A) erred in disallowing the same. Therefore, we allow this ground no. 2 of the assessee. In the result, the appeal of the assessee is allowed.

Kolkata, the 04th March, 2022.