Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE “A” BENCH, PUNE
Before: HON’BLE SHRI S. S. GODARA & SHRI G. D. PADMAHSHALI
॥ आयकर अपीलीय न्यायाधिकरण, पुणे “ए” न्यायपीठ, पुणे में॥ IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “A” BENCH, PUNE BEFORE HON’BLE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER Asstt. Assessee’s Departmental Sr ITA No Appellant Respondent Representative Representative Yr. M/s Kothari ADIT, CPC, Shri Piyush Shri Ramnath Agritech Pvt. Bangalore Bafna & Murkunde Ltd. Aakash Parakh 3rd Floor, Sun Plaza,8516/11, 1 320/PUN/2022 Subhash Ck, 2019-20 Murarji Peth, Solapur- 413101 PAN: AADCK8017H Dwarkadhish ADIT, CPC, None Shri Ramnath Sakhar Bangalore Murkunde Karkhana Ltd. 19, Garden 2 321/PUN/2022 Home Society, 2019-20 Gangapur Rd, Nashik 422002 PAN: AABCD0742N Govind Singh ADIT, CPC, Shri Pramod Shri Ramnath Balrajsingh Bangalore Shingte Murkunde Jadoun-9, Bhagyalaxmi, Vanvihar, 3 355/PUN/2022 2018-19 Parijatnagar, Nashik– 422005 PAN: ADGPJ8180K Globeflex DCIT, Circle Shri Manish Shri Ramnath Research India 1(1), Pune Oza Murkunde Pvt. Ltd., ADIT, CPC, 22, Senapati Bangalore 4 372/PUN/2022 Bapat Road, 2019-20 Mangalwadi, Pune–411016 PAN: AAFCG7927E ITAT-Pune Page 1 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others Hilary Vaz DCIT, CPC, None Shri Ramnath F/3, Tucker Bangalore Murkunde Vihar AWHO Housing Society, 5 402/PUN/2022 Gondhale 2018-19 Nagar, Hadapsar, Pune – 411028 PAN: AAMPV8765H Madan ADIT, CPC, None Shri Ramnath Sitaram Bangalore Murkunde Karande Gat No.884/892, Near Janata 407/PUN/2022 Spinning Mills, 6 2018-19 Opp Sawali Society, Shahpur, Ichalkaranji – 416115 PAN: ABIPK8872F Clover DCIT, CPC, Shri P D Kudva Shri Ramnath Infotech Pvt. Bangalore Murkunde Ltd. Clover Centrum, 245, Boat Club 7 412/PUN/2022 2017-18 Road No.5, Galaxy Society, Pune – 411001 PAN: AABCC7544B Harishchandra ADIT, CPC, None Shri Ramnath Dharamnath Bangalore Murkunde Pandey R H No.03, Sai 429/PUN/2022 Vaibhav Row 8 430/PUN/2022 Houses, Near to 2018-19 Vikhe Patil 9 School, DGP Nagar, Nashik – 422010 PAN: ALFPP1001Q ITAT-Pune Page 2 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others Allied DCIT, CPC, Shri Divyesh Shri Ramnath Resource Bangalore Tripathi Murkunde Management Services Aspire Pvt. Ltd., Office No.27 to 36, Second 10 443/PUN/2022 2018-19 Floor, Sai Venkata, Pune Nashik Highway, Bhosari – 411039 PAN: AAMCA9491Q Allied ADIT, CPC, Shri Divyesh Shri Ramnath Resource Bangalore Tripathi Murkunde Management Services Aspire Pvt. Ltd., Office No.27 to 36, Second 11 444/PUN/2022 2019-20 Floor, Sai Venkata, Pune Nashik Highway, Bhosari – 411039 PAN: AAMCA9491Q सुनवाई की तारीख / Date of conclusive Hearing : 28/11/2022 घोषणा की तारीख / Date of Pronouncement : 28/11/2022 आदेश / ORDER Per G. D. Padmahshali, AM; These appeals by different appellant are assailed against order of National Faceless Appeal Centre, i.e. first appellate authority [for short “FAA” or “NFAC”] passed u/s 250 of the Income Tax Act, 1961 [for short
ITAT-Pune Page 3 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others “the Act”] confirming the disallowance carried out u/s 36(1)(va) of Act by the Asstt. Director of Income Tax, Central Processing Centre, Bengaluru [for short “CPC”] u/s 143(1) of the Act or thereafter its confirmation in the respective rectification orders for the impugned assessment year [for short “AY”] as tabulated herein before.
Since the solitary issue involved in all these appeals is identical, with the agreement of both the parties; the matter for the sake of expediency is heard together for a disposal by a consolidated order, resultantly the adjudication in lead case ITA No. 320/PUN/2022 positioned in succeeding paragraphs, shall mutatis mutandis apply to serial number 2 to 11.
Briefly stated, the facts of the lead case are; 3.1 That the appellant for AY2019-20 filed its return of income [for short “ITR”] on 13/03/2020, which was e-processed u/s 143(1) of the Act on 14/07/2020 with a disallowance of ₹13,36,215/- u/s 36(1)(va) of the Act for the reason that the amount received by ITAT-Pune Page 4 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others the assessee from its employees as contribution to the Employees Provident Fund (EPF) / Employees State Insurance Corporation (ESIC) etc., [for short “the relevant funds”] was not credited to the employees’ accounts on or on or before the due date as prescribed under the respective Acts.
3.2 In the event of unsuccessful attempt before the tax authorities below [for short “TAB”] including the Ld. FAA/NFAC, the assessee brought up the matter in appeal before the Tribunal against the confirmation of said disallowance.
It is an undisputed fact that, the audit report filed by the assessee indicated the prescribed due dates of payment to the relevant funds under the respective Acts relating to employee’s share and the said amounts were deposited by the assessee beyond such prescribed due dates but before the filing of the return u/s 139(1) of the Act. The case of the assessee before the Ld. TAB was that such payments made on or before the due date as per section 139(1) of the Act ITAT-Pune Page 5 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others amounts to sufficient compliance of the provisions in terms of section 43B of the Act, and hence not calling for any disallowance. Per contra, the Revenue has set up a case that the disallowance is warranted and inevitable because delayed deposit of the employees’ share beyond the prescribed due date under the respective Act is unsheltered by section 43B of the Act.
Before proceeding further, it would be apt to take note of two statutory provision viz; section 2(24)(x) and section 36(1)(va) of the Act; 5.1 Firstly, Section 2(24) provides that `income’ includes: `(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees’. Thus, contribution by employees to the relevant funds becomes income of the employer. Instantly, there is no dispute as to the taxability of such income in the hands of the assessee. ITAT-Pune Page 6 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others
5.2 Once such an sum becomes an income of the employer-assessee, then section 36(1)(va) comes into play for providing the deduction thereagainst on payment basis if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the prescribed due date.’
5.3 The term `due date’ for the purposes of this clause has been defined in Explanation 1 to this provision to mean: `the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.’ Thus, it is axiomatic that deposit of the employees’ share of the relevant funds before the prescribed due date under the respective Acts is sine qua non for claiming the deduction. Au Contraire, if the contribution of the employees to the relevant funds is not deposited by the employer-assessee before ITAT-Pune Page 7 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others such prescribed due date under the respective act etc., then the deduction u/s 36(1)(va) is lost irrespective the fact that the share of the employees had already crystallized as income of the employer- assessee in terms of provisions of section 2(24)(x) of the Act.
Adverting to the facts of the lead case, it is seen that the appellant claimed the deduction for the employees’ share for depositing the same in the relevant funds beyond the due date as given in Explanation 1 to section 36(1)(va) on the strength of section 43B of the Act. The later section unwraps with a non-obstante clause and provides that a deduction otherwise allowable in respect of: `(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees’ shall be allowed only in that previous year in which such sum is actually paid. The first proviso to section 43B states that: `nothing contained in this section shall apply in relation to any sum which ITAT-Pune Page 8 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others is actually paid by the assessee on or on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.’ The main provision of section 43B, providing for the deduction only on actual payment basis, has been relaxed by the proviso so as to enable the deduction even if the payment is made on or before the due date of furnishing the return u/s 139(1) of the Act for that year.
The claim of the assessee is that the deduction becomes u/s 36(1)(va) r.w.s. 43B of the Act as soon the employees’ share in the relevant funds is deposited on or before the due date u/s 139(1) of the Act. This position was earlier accepted by various Hon’ble High Courts across the county, holding that the deduction is allowed even if the assessee deposits the employees’ share in the relevant funds before the date of filing of return u/s 139(1) of the Act on the ITAT-Pune Page 9 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others analogy of treating the employee’s share as having the same character as that of the employer’s share, becoming deductible u/s 36(1)(iv) read in the hue of section 43B(b) of the Act.
Lately, the Hon’ble Supreme Court of India in “Checkmate Services P. Ltd. & Ors. Vs CIT & Ors” reported in 448 ITR 518 has threadbare considered this issue and drawn a distinction between the parameters for allowing deduction of employer’s share and employees’ share in the relevant funds. By the said judgement, the Hon’ble Lordships have now categorically held that, the contribution by the employees to the relevant funds is the employer’s income u/s 2(24)(x), but the deduction for the same can be allowed only if such amount is deposited in the employee’s account in the relevant fund before the date stipulated under the respective Acts. The hitherto view taken by various Hon’ble High Courts across the county in allowing deduction even where the amount was deposited in the employee’s account before the time allowed u/s 139(1) is now ITAT-Pune Page 10 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others overturned by the aforestated judgement of Hon’ble Apex Court.
The net effect of this Hon’ble Apex Court’s judgment is that, the deduction u/s 36(1)(va) w.r.t income referred u/s 2(24)(x) can be allowed only if the employees’ share in the relevant funds is deposited by the employer-assessee on or before the due date stipulated in respective Acts and further that the due date u/s 139(1) of the Act is alien for this purpose. There is no quarrel that, the enunciation of law by the Hon’ble Supreme Court is always declaratory having the effect and application ab initio, being, the date of insertion of the provision, unless a judgment is categorically made prospectively applicable.
The Ld. AR candidly admitted that, this judgment will equally apply to the disallowance u/s 36(1)(va) obliging to all earlier years as well for the assessments completed u/s 143(3) of the Act, however, accentuated the fact that the instant batch of appeals involves the disallowance made u/s 143(1) ITAT-Pune Page 11 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others of the Act. It was argued that no prima facie adjustment can be made in the Intimation issued u/s 143(1) of the Act unless a case is covered within the specific four corners of the provision. It was stressed that the action of the Ld. AO in making the extant disallowance does not fall in any of the clauses of section 143(1).
We, prima-facie see substance in the proposition bolstered by the Ld. AR that, the adjustment to the total income or loss can be made only in the terms indicated specifically u/s 143(1) of the Act. Now, we proceed to examine if the case falls under any of the clauses. The rival parties are consensus ad idem that the case can be considered as falling either under clause (ii) or (iv) of section 143(1), for the purpose we reproduce the text in verbatim as under; ‘143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— ITAT-Pune Page 12 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others (a) the total income or loss shall be computed after making the following adjustments, namely:— (i). . . . . . . (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii). . . . . . . (iv) disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return’ (v). . . . . . . . (vi) . . . . . . .”
Nota bene, sub-section (1) of section 143 states that a return shall be processed to compute total income by making six types of `adjustments’ as set out in sub-clauses (i) to (vi). As noted supra, we are concerned only with the examination of two sub- clauses, viz., (ii) and (iv). Sub-clause (ii) talks of ‘an incorrect claim, if such incorrect claim is apparent from any information in the return”. The expression “an incorrect claim apparent from any information in the return” has not been generally used in the provision.
ITAT-Pune Page 13 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others Rather, it has been specifically defined in Explanation (a) to section 143(1) as under: `Explanation.—For the purposes of this sub- section,— (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;’ 13. Evincibly, clause (i) of Explanation (a) refers to a situation in which there is a claim of income or expenditure at two places in the return of income and there is inconsistency in them. For example, if deduction is claimed under a specific section for a sum of ₹1000/- in the Profit and Loss Account [for short “P&L A/c”] accompanying the return, but in the ITAT-Pune Page 14 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others computation of income, the amount has been taken as Rs.1100/-, leading to inconsistency, requiring an adjustment. Clause (ii) of Explanation (a) covers a situation in which claim is made, say, for a deduction u/s 80IA for which audit report is required to be furnished, but such report has not been furnished along with the return. Clause (iii) contemplates a situation in which deduction exceeds specified statutory limit. For example, section 24(a) provides for a standard deduction for a sum equal to 30% of the annual value, but the assessee has claimed deduction at 50%, these illustrated situations warrant an adjustment. It is obvious that none of the three clauses of Explanation (a), defining an incorrect claim apparent from any information in the return, gets magnetized to the facts of the present case.
Now we turn to clause (iv) of section 143(1)(a) which provides for `disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return’. The words “or increase in income” in ITAT-Pune Page 15 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others the above provision were inserted by the Finance Act, 2021 w.e.f. 01-04-2021. As such, this part of the provision cannot be considered for application during the years under consideration, which are anterior to the amendment. We are left with ascertaining if the disallowance made u/s 36(1)(va) in the Intimation under section 143(1)(a) can be construed as a `disallowance of expenditure indicated in the audit report not taken into account in computing the total income in the return’. From the point 20(b) of the audit report in Form No 3CD it is clearly manifests that, the as against the due date of payment of the employees’ share in the relevant fund for deduction u/s 36(1)(va), the actual payment is delayed beyond the stipulated due dates under the respective acts. The legislature, for the disallowance under s/clause (iv) of section 143(1)(a), has used the expression `indicated in the audit report’. The word `indicated’ is wider in amplitude than the word `reported’, which shawls both the direct and indirect reporting. Even if there is some indication of disallowance in the audit
ITAT-Pune Page 16 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others report, which is short of direct reporting of the disallowance, the case gets covered within the purview of the provision warranting the disallowance. However, the indication must be clear and not vague. If the indication in the audit report gives a clear image of violation of a particular provision, there can be no escape from disallowance.
Coming back to the case in hand, it is clear from the mandate of section 36(1)(va) that the employees’ share in the relevant funds must be deposited on or before the prescribed due date under the respective Acts. If the audit report mentions the due date of payment and also the actual date of payment with specific reference in column no. 20(b) having heading: `Details of contributions received from employees for various funds as referred to in section 36(1)(va)’, it is an apparent indication of the disallowance of expenditure u/s 36(1)(va) in the audit report in a case where the actual date of payment is beyond the due date. Though the audit report clearly indicated that there was a delay in the deposit of the ITAT-Pune Page 17 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others employees’ share in the relevant funds, which was in contravention of the prescription of u/s 36(1)(va), the assessee chosen not to offer the disallowance in computing the total income in the return, which rightly called for the disallowance in terms of section 143(1)(a) of the Act by the Ld. TAB.
The Ld. AR vehemently argued that it was a case of “increase in income” which has been enshrined in clause (iv) of section 143(1)(a) w.e.f. 01-04-2021 and hence cannot be take note of for the year under consideration. In our considered opinion, the contention is ill-founded. We have noted above that clause (iv) of section 143(1)(a) talks of two different limbs, namely, `disallowance of expenditure’ and `increase in income’ by means of indication in the audit report, and both the limbs are independent of each other. The indication in the audit report for `Increase of income’ should be qua some item of income and not increase of income because of the `disallowance of expenditure’. Every disallowance of expenditure leads to increase of income. If the ITAT-Pune Page 18 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others contention of the Ld. AR is taken to a logical conclusion, then second expression `or increase in income’ inserted by the Finance Act, 2021 would be rendered a redundant piece of legislation.
It is trite interpretation has to be given to the statutory provisions in such a manner that no part of the Act is rendered nugatory. Distinction in the scope of the two aspects can be understood with the help of the present context only. We have noted that point no. 20(b) of the audit report, dealing with section 36(1)(va), has columns, inter alia, (i) `Sum received from employees’; (ii) `Due date for payment’; and (iii) `The actual date of payment to the concerned authorities’. The column (i) having details of the amounts received from employees indicates about the `increase in income’ as per sub-clause (iv) of section 143(1)(a) if the assessee does not take this sum in computing total income. The columns (ii) and (iii) having details of due date for payment and the actual date of payment indicate about `disallowance of expenditure’ if the assessee does not make suo moto ITAT-Pune Page 19 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others disallowance in computing total income. Right now, there is no case of `increase in income’ because the AO did not make adjustment for non-offering of income of the `Sums received from employees’, but made the adjustment for `disallowance of expenditure’ with the remarks that: `Amounts debited to the profit and loss account, to the extent disallowance under section 36 due to non-fulfilment of conditions specified in relevant clauses’, thus, it is evident that it is a case of `disallowance of expenditure’ and not `increase of income’.
Further, the entire challenge by the appellant throughout has been to the disallowance of expenditure and set up a case before the Ld. TAB taking shelter of section 43B of the Act by arguing that the disallowance cannot be made because such payment was made on or before the due date u/s 139(1) of the Act. As such, the contention of adjustment u/s 143(1)(a)(iv) due to `increase in income’ is discarded.
ITAT-Pune Page 20 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others 19. Another argument put forth during the course of hearing that, the appellant did not claim any deduction in the P&L A/c account of the amount under consideration and hence no disallowance should have been made, this argument is again bereft of any force. The assessee claimed deduction for salary on gross basis, inclusive of the employees’ share to the relevant funds, to put it simply, if gross salary is of ₹1000, out of which a sum of ₹120 has been deducted as contribution to relevant fund, then the salary debit of ₹1000 to P&L A/c account means deduction has already been claimed inclusive of ₹120 as well. Ex consequenti, if deduction of ₹120 is not allowed u/s 36(1)(va) for late deposit of the amount on or before the due date under the respective Act, it would mean that the claim of ₹120 included in ₹1000 is not allowed deduction.
At the nounoutermost edge, the Ld. AR adverting to section 5 of the Payment of Wages Act, 1936, contend that, the deduction made from an employee’s salary for the month of October should suffer disallowance ITAT-Pune Page 21 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others only if it is not paid by 15th December, this argument was premised on the language of section 5, which says that the wages of every person employed upon or in any railway, factory or industrial or other establishment upon or in which less than one thousand persons are employed, shall be paid before expiry of the seventh day, after the last day of the wage-period in respect of which the wages are payable. It was contended that salary for the month of October, 2022 will be paid before the 7th of November, which will result into income of the employer only at the time of payment, making the due date of payment into relevant fund as on or before 15th December and not 15th November, we see is no merit in the contention of linking the date of deposit of the employees’ share in the relevant funds with the date of payment of wages. Section 5 of the Payment of Wages Act simply deals with the ‘Time of payment of wages’. It does not stipulate any time limit for deposit of the employees share in the relevant funds. For that purpose, the relevant Acts give a window for
ITAT-Pune Page 22 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others depositing the contribution within 15 days of the last month's salary. Thus, contribution to the relevant fund towards the salary for the month of October-ending should be deposited before 15th November.
In view of the foregoing discussion, we are heedful to hold that the Ld. FAA was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made by Ld. CPC in these cases of delayed deposit of employees’ share to the relevant funds beyond the prescribed due dates under the respective Acts.
Both the parties to appeals are solidified that the facts and circumstances of all the appeals are similar, we, ergo, countenance the disallowance.
Resultantly, all the appeals of the appellant assessee are DISMISSED in above terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Monday 28th day of November, 2022.
-S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 30th day of November, 2022. ITAT-Pune Page 23 of 24
M/s Kothari Agritech Pvt. Ltd & Others ITA No. 320/PUN/2022 & Others आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Concerned CIT 4. The Concerned CIT(A) 5. DR, ITAT, Pune Bench ‘A’, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune.
ITAT-Pune Page 24 of 24