M/S DAULATARAM ENGINEERING SERVICES P.LTD,MANDIDEEP vs. THE ADIT/CPC , BANGALORE

आदेश/ O R D E R

Per B.M. Biyani, AM:

Feeling aggrieved by order of first appeal dated 25.04.2023 passed by

learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of intimation of assessment dated 07.05.2020 passed by learned ADIT, CPC, Bangalore [“AO”] u/s 143(1) of Income-tax Act, 1961

[“the Act”] for Assessment-Year [“AY”] 2019-20, the assessee has filed this appeal on following grounds:

“1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred and not justified in disallowing the

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expenditure of Rs. 38,70,983/- u/s 43B of the IT Act and therefore be kindly allowed. 2. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred and not justified in disallowing the expenditure of Rs. 51,07,903/- u/s 36(1)(va) and hence be kindly allowed. 3. That on the facts and in the circumstances of the case and in law the said disallowance do not fall under the purview of 143(1) of the IT Act and therefore be allowed. 4. That on the facts and in the circumstances of the case and in law, that the levy of interest u/s 234A, 234B and 234C is unlawful and, therefore, the said levy be kindly deleted.” Ground No. 1 and 2:

38,70,983/- (+) Rs. 51,07,903/- made by AO on account of employees’

contributions received by assessee towards Provident Fund / Employees

State Insurance Fund (PF/ESI) by way of deduction from salaries but not

paid to relevant funds upto the due dates prescribed under PF/ESI laws.

assessee in Checkmate Services (P) Ltd. Vs. CIT (2022) 143

taxmann.com 178 (SC) wherein the Hon’ble Apex Court has upheld the

disallowance u/s 36(1)(va) r.w.s. 2(24)(x) of the Act. In view of such a

confession, Ground No. 1 and 2 do not have any merit and are dismissed.

Ground No. 3:

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no authority to make the impugned disallowances in the intimation passed

u/s 143(1).

issue raised in this ground has already been decided by Hon’ble High Courts

in following cases against assessee and in favour of revenue:

(i) Rohan Korgaonkar Vs. DCIT (2024) 159 taxmann.com 321

(Bombay HC):

“2. This is an appeal under section 260A of the Income Tax Act, 1961 (IT Act) to challenge the orders made by the Assessing Officer, CIT (Appeals) and the ITAT, disallowing an adjustment under section 143(1)(a)(iv) read with section 36(1)(va) of the IT Act in respect of delayed remittance of employees' contributions to Employee State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018- 2019. 3. The ITAT, in this case, has noted that the Assessee failed to deposit contributions to ESI and PF in the employees' accounts for the relevant assessment year before the due date under the PF/ESI Acts. However, such contributions were deposited before the Assessee filed returns under Section 139(1) of the IT Act. The ITAT relying upon the decision of the Hon'ble Supreme Court in Checkmate Services (P) Ltd. v. CIT [2022] 143 taxmann.com 178 / [2023] 290 Taxman 19 / 448 ITR 518 (SC) held that based upon such delayed deposits, no adjustments or deductions could be claimed. 4. In Checkmate Services (P.) Ltd. (supra), the Hon'ble Supreme Court considered the conflicting decisions on the subject and finally held that deductions or adjustments could be claimed only when the Assessee deposits the contribution before the due date provided under the Employees Provident Fund/Employee State Insurance Act. If the employees' contributions are deposited after the due date set out under the said Act, there is no question of deduction or adjustment on the ground that such contributions were deposited before the filing of returns under section 139(1) of the IT Act. 5. The ITAT has relied upon Chekmate Services (P.) Ltd. (Supra), and its reasoning is entirely consistent with the law laid down in Checkmate Services

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(P) Ltd. (supra). Therefore, no case is made to interfere with the AO, CIT (appeals), and ITAT decisions. 6. However, Ms Kamat submitted that Checkmate Services (P) Ltd. (Supra)was a matter where the assessment was made under section 143(3) of the IT Act and not under section 143(1)(a) as in the present case. She also relied upon P.R. Packaging Service v. Asstt. CIT [2023] 148 taxmann.com 153 / 199 ITD 724 (Mum. Trib) ITA No. 2376/MUM/2022, decided by the ITAT 07/12/2022 to support her contention. 7. Though the decision cited was that of the ITAT, we have considered the same. In our judgment, however, the fact that the assessment order in Checkmate Services (P) Ltd. (supra) was incidentally under section 143(3) and the assessment order in the present case is under section 143(1)(a) of the IT Act, makes no difference to the principle involved in this matter. The ITAT decision does not discuss why this circumstance constitutes a distinguishing feature based on which the ratio of Checkmate Services (P) Ltd. (supra) could be departed from. 8. Checkmate Services (P) Ltd. (Supra) holds that the deductions can be claimed or adjustments can be made under section 143(1)(a)(iv), read with section 36(1)(va) only when the employer deposits the contributions in the employees accounts on or before the due date prescribed under the Employees Provident Fund Employees State Insurance Act. In this case, admittedly, the contributions were deposited in the employees' accounts beyond the due date. The circumstance that the assessment order was made under section 143(1)(a) of the IT Act can make no difference. 9. Therefore, in our judgment, no substantial questions of law as proposed arise in this appeal. The concurrent decisions of the three authorities call for no interference. 10. This appeal is, accordingly, liable to be dismissed and is, hereby, dismissed with no order as to costs.” (ii) Synergies Castings Ltd. Vs. Assistant Commissioner of Income-

tax, 173 taxmann.com 503 (Telangana HC):

“3. This appeal under Section 260A of the Income Tax Act, 1961 (for short the 'Act') has been filed against order dated 13.03.2024, passed by the Income Tax Appellate Tribunal, Hyderabad 'A' Bench, Hyderabad (for short 'the Tribunal'). 4. The subject matter of the appeal pertains to the assessment year 2019- 2020.

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earning. On the application of the original principles of law, it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the desperate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the stature) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand, it brought into the fold of "income" amounts that were receipts or deductions from employees' income, at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out- goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc., or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure." 11. The relevant portion of Para 54 is extracted below for the facility of reference: "In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified." 12. Thus, from a perusal of the aforesaid relevant extracts of the decision of the Supreme Court in Checkmate Services (P) Ltd.(supra), it is evident that the

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assessee has to make payment of the contribution to PF and ESI before the statutory dates in order to claim the amount as deduction. Admittedly, the assessee has not paid the aforesaid amount on or before the statutory dates. The findings of fact has been recorded by the assessing officer, CIT(A) as well as by the Tribunal. The aforesaid finding of fact cannot, by any stretch of imagination, be said to be perverse. 13. It is not the case of the assessee that the aforesaid finding of fact is perverse. It is well settled in law that this Court, in exercise of powers under Section 260A of the Act, cannot interfere with the finding of fact until and unless the same is demonstrated to be perverse. (see Syeda Rahimunnisa vs. Malan Bi by LRs (2016) 10 SCC 315 and Principal Commissioner of Income Tax, Bangalore vs. Softbrands India Private Limited (2018) 94 taxmann.com 426 / 406 ITR 513 (Karnataka). 14. In view of the preceding analysis, no substantial question of law arises for consideration in this appeal. The same fails and is, hereby, dismissed. No costs.” (iii) Diversified Services Vs. Income-tax Officer, 50 taxmann.com 384

(Gujrat HC):

“2.1 The appellant has framed and proposed following questions of law as substantial questions of law for this Appeal, urging to admit the Appeal for consideration of the said questions, reproduced below, "(a) Whether the Income Tax Appellate Tribunal erred in law and in facts in not appreciating that payment of C/TAXAP/1/2023 ORDER DATED: 28/03/2023 employee's contribution to PF/ESI having already been done by the appellant before due date of filing of return, the same ought to have been allowed as deduction under Section 36(1)(va) read with Section 43B of the IT Act? (b) Whether the Income Tax Appellate Tribunal erred in law and in facts in not appreciating that jurisdiction under Section 143(1)(a) of the IT Act is limited in nature and when different High Courts have taken different view on allowance of deduction under Section 36(1)(va) read with Section 43B of the IT Act with respect to payment of employee's contribution to PF/ESI having already been done by the appellant before due date of filing of return, the same cannot be termed as apparently incorrect claims from the information in the return? (c) Whether the Income Tax Appellate Tribunal erred in law and in facts in holding that amendment made Section 36(1)(va)and Section 43B of the Income Tax Act vide Finance Act, 2021 (No.13 of 2021) is applicable retrospectively?

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5.1. The Supreme Court analysed the relevant provisions in Para.30 to 34 and after noticing the attendant decisions, proceeded to observe, thus, "When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B- was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court). Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned." (Para.52) 5.1.1 It was further stated, "... Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time- by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution Section 36(1)(iv)) and employees' contribution required to be deposited by the employer Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure." (Para.52)

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5.1.2 The distinction between employers' contribution and liability to deposit the amount issued by it was explained as under: "The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B." (Para.53) 5.1.3 The Supreme Court finally held, "In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non- obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. (Para.54) 5.1.4 It was added to observe, "They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that

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such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction." (Para.54) 6. In view of the law emerging from the decision of the Supreme Court in Checkmate Services (P) Ltd. (Supra), the contentions and the questions raised by the appellant could be said to be no longer res integra. The law as holding the field operates against the appellant. 6.1 Thus, no question of law much less any substantial question of law arises for consideration in this Appeal. 7. The Appeal is liable to be dismissed. It is accordingly dismissed summarily.” 6. On a query by bench to the learned Representatives as to whether

there is any contrary decision of any High Court holding in favour assessee,

the learned Representatives replied in negative.

Courts against assessee. Since the ITAT is a lower-level appellate forum to

High Court, we are inclined to follow the view taken by Hon’ble Courts in

above cases. Respectfully following same, we uphold the impugned

disallowances made by AO in the intimation passed u/s 143(1). Accordingly,

Ground No. 3 is also dismissed.

Ground No. 4:

and 234C levied by AO. During hearing, this ground remains un-pleaded.

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Further, the levy of interest is statutory and as per provisions of law.

Therefore, Ground No. 4 does not have any merit and is dismissed.

Order pronounced in open court on 08/05/2025

Sd/- sd/-

(PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Indore िदनांक/Dated : 08/05/2025 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore

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