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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
Date of hearing : 05-05-2022 Date of pronouncement : 17-05-2022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi in DIN & Order no. ITBA/NFAC/S/250/2021-22/1037551650(1) vide order dated 07/12/2021 passed for the assessment year 2019-20.
Page No. 2 Diversified Services vs. ITO
The assessee has raised following grounds of appeal:-
1. That the NFAC erred in confirming the order of the CPC in disallowing Rs. 8,85, 284/- by way of prima facie adjustment u/s 143(1) of the act which is beyond its scope.
2. That the NFAC erred in confirming, the order of the CPC in disallowing Rs. 8,85,284/- being employee's contribution u/s 36(l)(v) of the act being.
3. That the NFAC erred in confirming the order of the CPC in relying on the amendment of the Finance Act, 2021 which is not applicable to the year under appeal retrospectively.”
2.1 At the outset, we note that the appeal is time barred by 16 days. The Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji 1987 taxmann.com 1072, analyzed the provisions of law qua limitation Act and held that the expression 'sufficient cause' employed by the legislature in the Limitation Act is adequately elastic to enable the Courts to apply the law in a meaningful manner which sub-serves the ends of justice- that being the life purpose for the existence of the institution of Courts. It was further observed that a liberal approach is requires to be adopted on principle as ordinarily a litigant does not stand to benefit by lodging an appeal late. Further refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. The Apex Court further held that when substantial justice and technical considerations are pitted against each other, cause of Page No. 3 Diversified Services vs. ITO substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. Therefore, considering the period of delay in filing of appeal (which is just 16 in the instant case) and relying on the decision of Collector, Land Acquisition v. Mst. Katiji 1987 taxmann.com 1072 referred to above, in the interests of justice, we are hereby condoning the delay of 16 days in filing the appeal.
Now on merits, the brief facts of the case are that the assessee firm is engaged in providing manpower to different clients. The assessee filed its income tax return for assessment year 2019-20 under section 139(1) electronically declaring the total income of � 56,640/-. The return was processed under section 143(1) by CPC on 06.03.2020 wherein addition was made on account of delay deposit of employee’s contribution of the Provident Fund and ESI amounting to � 8,85,284/-. Aggrieved by this, the assessee filed appeal before Commissioner of Income Tax (Appeals). The Ld. CIT(Appeals) dismissed the assessee’s appeal with the below observations:
“5.19 Detailed reference to the genesis of this debate as discussed in these judgements would help in putting the issues in right perspective and help in understanding the legislative intent and interpretation of law. 5.20 In the case of Commissioner of Income Tax II Vs Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100/ 366 ITR 170/223 the Gujarat High Court had considered the decision in the Page No. 4 Diversified Services vs. ITO case of Alom Extrusions Ltd rendered by the Supreme Court in detail and the difference between employees' contribution and employers' contribution and held that tribunal had erred in deleting disallowances being employees' contribution to PF Account / ESI Account made by AO as, as such, such sums were not credited by the respective, assessee to the employees' accounts in the relevant funds on or before the due date as per the explanation to section 36(1)(va) of the Act. This view was affirmed by Kerala High Court in the case of CIT v. Merchem Ltd. [2015] 61 taxmann.com 119. The High Court of Kerala in the case of Popular Vehicles & Services (P.) Ltd. v. Commissioner of Income-tax, Ernakulam [2018] 96 taxmann.com 13 (Kerala) has dealt with in detail as to how employee's contribution which is regulated by clause (x) of section 2(24) and sub-clause (va) of section 36(1) would not be affected by section 43B, in particular the effect of non-obstante clause. In the most recent of the decisions, Madras High Court in Unifac Management Services (India) (P.) Ltd. vs. DCIT in 409 ITR 225 held that the scope of section 43B and section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedly paid towards such contribution,
5.21 Despite this clear legal position that section 43B of the Act covers only employer's contribution and does not cover employees' contribution, many courts have applied the provision of section 43B on employees' contribution as well and allowed the deduction to employer even if the employees' contribution is deposited by the due of filing Income Tax Return (ITR) as mentioned under section 139(1). It is in this backdrop that vide Finance Bill 2021, the Government further proposed to amend the law to bring certainty in the issue by adding another Explanation to section 36(1)(va) clarifying that provision of section 43B does not apply and deemed to never have been applied for the purpose of determining the 'due date" under this clause; and amend Section 43B, by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of 2(24)(x) applies.
Page No. 5 Diversified Services vs. ITO
5.22 The rational of the amendment was explained by the Memorandum to the Finance Bill, 2021 as below: "There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of subsection (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measure of penalizing employers who mis-utilize employee's
5.23 The Finance Bill 2021 has since been passed by the Parliament and granted assent by the Hon’ble President, duly notified. Now, the amendments to the relevant sections as per the Finance, 2021 (No.13 of 2021) reads as under:
9. Amendment of section 36. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbehred as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:— '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 purposes of determining the due date" under this clause;'.
Amendment of section 43B.
In section 43B of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely:— "Explanation 5.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and Page No. 6 Diversified Services vs. ITO shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.".
5.24 From the above amendment, it is evident that the law is, and has always been very clear i.e., employees' contribution to specified fund will not be allowed as deduction u/s.36(1)(va) if there is delay in deposit even by a single day as per the due dates mentioned in the respective legislation. It is also clear that the amendments are only declaratory/clarificatory in nature and are therefore applicable with retrospective effect by necessary intendment of deeming nature expressly stated therein. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
5.29 From the above judicial decisions and also the unambiguous wording of the now amended provisions of section 36(1) and 43B, it is clear that the employee's contribution can be allowed, as a deduction only if it had been paid within the prescribed due dates under the relevant welfare funds and this position of law is and has always been the case and the clarifications brought about by the amendment clearly apply retrospectively. The case laws relied on by the appellant which were rendered prior to the clarificatory amendments, therefore are not applicable to the present case.
5.30 It is therefore, held that the disallowance made by the CPC u/s 143(1) of the I.T. Act on account of appellant's failure to pay the employee's contribution of PF/ESI of Rs.8,85,284/- within the prescribed due dates as per section 36(1)(va) is strictly in accordance with law. The order is therefore, confirmed fully. Appellant's Ground on the issue fails.”
Before us, the counsel for the assessee submitted that adjustment under section 143(1)(a) is prima facie and adjustment under the said section can be made only with respect to issues on which there is no ambiguity or Page No. 7 Diversified Services vs. ITO dispute. However, so far as disallowance in respect of delay in deposit of Employees Provident Fund contribution is concerned, the courts have been divided on this issue and it was submitted that this is not the case which falls within the purview of subject matter of section 143(1)(a) of the Act. He submitted that in instant facts, the assessee had deposited the employees Provident fund contribution before the due date of filing of return and hence, though admittedly, the jurisdictional Gujarat High Court in the case of Commissioner of Income Tax II Vs Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100/ 366 ITR 170/223 has taken a position against the assessee, still, the present issue being a highly litigious one, cannot be the subject matter of prima facia adjustments under section 143(1)(a) of the Act. The assessee submitted that this certainly is an issue on which two views are possible and hence falls outside the purview of section 143(1)(a) of the Act. The counsel for the assessee for the submitted that the Explanation 2 to section 36(1)(va) of the Act (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 purposes of determining the "due date" under this clause -Ins. by the Act No. 13 of 2021, w.e.f. 1-4-2021) is prospective and would not apply to be impugned assessment year. The counsel for the assessee placed reliance on several Tribunal Rulings which have held that the aforesaid Explanation 2 to section 36(1)(va) of the Act is prospective and would not apply to prior years. Therefore, for the assessment year under consideration, the Ld. CIT(Appeals) erred in fact and law in confirming the addition made to the return income by CPC under section 143(1)(a) of the Act. In response, the Ld. DR placed reliance on the observations of Ld. CIT(Appeals) in the Page No. 8 Diversified Services vs. ITO appeal order and drew our attention to para 5.2 of the CIT(Appeals) order (reproduced in the earlier part of the judgement).
We have heard the rival contentions and perused the material on record. The Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd[2008] 173 Taxman 322 (SC) has held that non- consideration of a decision of Jurisdictional High Court or of Supreme Court can be said to be a 'mistake apparent from record' which can be rectified under section 254(2) of the Act. Again, the Delhi ITAT in the case of Vijay Sachdev Vs JCIT (ITAT Delhi) in and 5345/Del/2016 has held that it is well settled law that non-consideration of decision of Jurisdictional High Court is mistake apparent from record. Further, the Bombay HC in the case of Khatau Junkar Ltd.[1992] 61 Taxman 157 (Bom.) observed as below:
“Further, as the illustration list in CBDT Circular No. 549 dated 31- 10-1989 shows that only adjustments which are, on the basis of the return and documents accompanying it, allowable or disallowable, can be adjusted. Further, the Board's Circular No. 581 dated 28-9- 1990 makes it clear that the Board itself has viewed the power to make adjustments as co-terminus with the power to rectify mistake apparent from the record under section 154. In the absence of any specific provision in the Act, which disallows a deduction because a specific document specified in that section is not annexed to the return, the ITO cannot, under clause (iii) of the proviso to section 143(1)(a), disallow a claim or a deduction because, in his view, Page No. 9 Diversified Services vs. ITO adequate evidence in support of such a claim or deduction is not before him. He can disallow a claim for deduction only if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction”
Thus, from the above decision, it evident that CBDT Circular No. 581 dated 28-9-1990 makes it clear that the Board has viewed the scope of the powers to make prima facie adjustments under section 143(1)(a) as co-terminus with the power to rectify a mistake apparent from the record under section 154.
In view of the above discussion, we are of the considered view that in the instance of the facts the Ld. CIT(A) has not erred in facts and law in confirming the disallowance of late deposit of employees Provident fund contribution under section 36(1)(va) of the Act. The Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd[2008] 173 Taxman 322 (SC) has held that not following decision of the Supreme Court or the jurisdictional High Court would constitute a mistake apparent from record. Since, admittedly the jurisdictional High Court in case of Gujarat State Road Transport Corporation supra has directly ruled on this issue against the assessee and has held that employees' contribution to specified fund will not be allowed as deduction u/s.36(1)(va) if there is delay in deposit as per the due dates mentioned in the respective legislation, in our view, the Department is bound to follow the decision of the jurisdictional High Court. Perhaps, it would have been a different factual situation in case the jurisdictional High Court had decided the issue on late deposit of employee’s Provident fund in favour of the assessee or there would have Page No. 10 Diversified Services vs. ITO been no jurisdictional High Court decision on this issue, in which case, in our view, the issue could have been debatable. However so far as the present facts are concerned, in our considered view, Ld. CIT(A) has not erred in facts and law in coming to the conclusion that disallowance made by the CPC u/s 143(1) of the I.T. Act on account of appellant's failure to pay the employee's contribution of PF/ESI of Rs.8,85,284/- within the prescribed due dates as per section 36(1)(va) is strictly in accordance with law.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 17-05-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 17/05/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद