DCIT, NEW DELHI vs. M/S. DEWAN SUGAR LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’, NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No.5784/Del/2013 Assessment Year: 2008-09 DCIT, Vs. M/s. Dewan Sugar Ltd., Circle-10(1), New Delhi Surya Plaza, 1st Floor, K- 185, Sarai Jullena, New Friends Colony, New Delhi PAN :AAACD3465H (Appellant) (Respondent)

Appellant by Ms. Ashima Neb, Sr.DR Respondent by Sh. Sanjay Sud, CA Date of hearing 27.11.2018 Date of pronouncement 28.11.2018 ORDER PER O.P. KANT, AM: This appeal has been field by the Revenue against the order dated 24.08.2013 passed by the learned Commissioner of Income Tax (Appeals)-XVII, New Delhi, [in short ‘the CIT(A)’] for assessment year 2008-09, raising the following grounds:

2 ITA No.5784/Del/2013 29,82,870/- made by the AO on account of provision for liability outstanding? 3. Whether, on the facts and circumstances of the case, the Ld CIT(A) is correct in deleting the addition of Rs. 17,34,336/- pertaining to the late payments of the employees contribution to Provident Fund & ESI ? 4. Whether on the facts and circumstances of the case, Ld CIT(A) has erred in law in not considering that the late deposit of employees contribution towards provident fund is not allowable as deduction under the provisions of section 2(24) (x) read with section 36(l)(va) of the Income Tax Act, 1961? 5. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.

3 ITA No.5784/Del/2013 by the Assessing Officer in assessment year 2007-08, has been deleted by the Ld. CIT(A). He submitted that in the year under consideration, the Ld. CIT(A) following the finding of the Ld. CIT(A) in the earlier year and CBDT circular No. 578 dated 1/02/1990, held that Cane development expenses as revenue expenditure and thus same expenses incurred during the year under consideration are also allowable. 3.1 We have heard the rival submissions on the issue in dispute and perused the relevant material on record. We note from the submission of the assessee before the Ld. CIT(A) that the assessee has incurred sugarcane development expenses for improvement of sugarcane variety, educating the farmers of the area, fertility of land etc in respect of the command area in the vicinity of 8 to 10 kms. of the factory of the assessee. The assessee has also submitted that above expenses are incurred on the direction of the Cane Commissioner, Uttar Pradesh, who fixes the target for every year. The assessee submitted before the Ld. CIT(A) that in following assessment years, the Cane development expenses have been fully allowed by the Assessing Officer:

A.Y. Sales(in Crores) Cane %age Development Expenses (Rs.) 2001-02 5.87/- 9,93,612/- 1.69 2002-03 41.14/- 2,30,415/- 0.06 2003-04 51.87 72,88,071/- 1.40 2004-05 85.13/- 49,10,303/- 0.58 2005-06 76.07/- 48,21,872/- 0.63 2006-07 100.36/- 72,89,737/- 0.73

4 ITA No.5784/Del/2013 3.2 The assessee also submitted before the Ld. CIT(A) that the addition made towards Cane development expenses in assessment year 2007-08 has been deleted by the Ld. CIT(A) –V, New Delhi, vide order dated 13/07/2012. 3.3 Before us, the Ld. DR could not controvert the above facts that no disallowance has been made on this issue in earlier years In respect of the assessment year 2007-08 also. We have seen that appeal filed by the Revenue before the ITAT has been dismissed in ITA No.5180/Del/2012 observing as under:

“6. After considering the submissions of the Ld. DR and the findings given in the impugned order, we find that the Assessing Officer in a very summarily manner has disallowed the expenses on the ground that it is relatable to agricultural income shown by the assessee at Rs. 3,33,752/-. On the other hand the facts which has been discussed by the Learned CIT(Appeals), it is seen that the ‘cane development expenses’ has nothing to do with the agricultural income shown by the assessee from its agricultural land, albeit it is an expenditure incurred for the development of the farmers of the command area allotted to the assessee company by the State Government for procurement of the sugar cane produced by the farmers on their own land which are in the vicinity of 10 to 15 kilo meters of radius of the assessee factory. These include payments on account of seeds, fertilizer, transport subsidy to farmers, seed survey expenses, salary to staff engaged on the said cane development activities, irrigational equipments, computers and software with a view to educate farmers etc. These expenses have to be incurred by the assessee as per the direction or mandate of the State Government; and have been debited as cane development expenses in the profit and loss account which is part of the assessee’s main activity of manufacturing of sugar crystals. The cane development expenses debited to the profit & loss account and the agricultural income are completely unrelated and therefore, to say that it is directly related to assessee’s agricultural income from its own land is sans any material Apart from that as noted above, the similar claim of expenses have always been allowed by the Assessing Officer m the scrutiny assessments right from the assessment year 2001 02 to 2006-07. The Learned CIT (Appeals) has referred to CBDT’s circular No. 578 dated 15.2.1990, wherein CBDT has clarified and upheld that the expenditure incurred by the sugar factory on cane development programmes is eligible for deduction u/s 37(1). Accordingly, we do not find any infirmity in the

5 ITA No.5784/Del/2013 order of the Learned CIT (Appeals) while deleting the said disallowance and the same is affirmed. Thus, grounds raised by the revenue are dismissed.”

3.4 The Ld. DR also could not controvert the fact that expenses incurred on sugarcane development activities during the year under consideration are identical to the expenses incurred on sugarcane development activities in earlier years. In view of the facts, following the rule of consistency the Revenue cannot disallow the expenses unless material facts on the issue in dispute are different from earlier years. The Ld. CIT(A) has deleted the addition in dispute observing as under:

“4.3 The issue of cane development expenses has been considered by several judicial authorities and the issue has been ruled in favour of the appellant. The appellant has also quoted circular No. 578 dated 01.02.1990 by which the expenses have been considered as revenue expenses. In view of this, the appellant is allowed deduction on account of cane development expenses. The addition of Rs.89,79,165/- is deleted.”

3.4 We note that the Ld. CIT(A) has allowed the expenses in dispute following the circular of the CBDT, which is reproduced as under:

CIRCULAR NO. 578 DT. 12TH SEPTEMBER, 1990 Allowability of expenditure incurred by Sugar Factories in cane development programmes—Effect of withdrawal of Agricultural Development Allowance under s. 35C of the IT Act, 1961, by the Finance Act, 1984 12/09/1990

6 ITA No.5784/Del/2013 BUSINESS EXPENDITURE SECTION 35C,, SECTION 37(1) Under the provisions of s. 35C of the IT Act, 1961, a company or a co-operative society, which uses any product of agriculture, animal husbandry or dairy or poultry-farming as raw material or processes such products, was eligible for a deduction of the amount of expenditure incurred, whether directly or through an approved association or body, for the provision of agricultural inputs and extension services to cultivators, growers or producers of such products. 2. This deduction was withdrawn by the Finance Act, 1984 in respect of expenditure incurred on or after 1st March, 1984. 3. Sec. 37(1) of the IT Act, 1961, however, provides that any expenditure, not being in the nature of capital expenditure of personal expenses of the taxpayers, laid out or expended wholly and exclusively for the purposes of his business, is to be allowed as deduction in computing the income chargeable under the head "Profits and gains of business or profession". Hence, any expenditure incurred by a sugar factory on cane development programmes would be eligible for deduction in computing the taxable profits if, having regard to the facts and circumstances of the case, the Assessing Officer is satisfied that the conditions laid down in s. 37(1) of the Act are fulfilled. The withdrawal of the tax concession under s. 35C would not affect this position.

3.5 In view of the aforesaid discussion, in our opinion, the order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same, accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed. 4. The ground No. 2 relates to disallowance of Rs.29,82,870/- on account of provision for outstanding liability. 4.1 The Ld. DR fairly admitted that issue in dispute is covered against the Revenue by the order of the Tribunal in assessment year 2006-07. The Ld. counsel of the assessee also concurred and submitted that the Ld. CIT(A) has deleted the addition in dispute following the order of the Tribunal in ITA No. 1901/Del/2011 for assessment year 2006-07. 4.2 We have heard the submission of the parties on the issue in dispute. Before the Assessing Officer, the assessee submitted that liability of Rs.29,82,867/- was booked for material procured for

7 ITA No.5784/Del/2013 its electrical store and spares, chemicals and consumables, printing and stationary etc. The assessee submitted that purchase bills were received in the year under consideration but were cleared on later dates and paid in subsequent year. Thus according to the assessee, the liability was ascertained and allowable. However, according to the Assessing Officer the liability was provisional and thus not allowable. The Ld. CIT(A) noted that identical issue of alleged provisional liability was allowed by the Tribunal on the principle of consistency and deleted the addition made by the Assessing Officer. The finding of the Tribunal in ITA No. 1901/Del/2011 for assessment year 2006-07 is reproduced as under: “6. The first issue is regarding the deletion of an addition of Rs.40,81,730/- being provisional liability for expenses outstanding. The Ld.AO dealt with the issue at page 2, para 3 of his order in the following words. “3. In the details of creditors, the assessee company has claimed provisional liability of Rs.40,81,730.60. In the explanation submitted by the assessee 3 company, it has been submitted that the liability has been booked for the material procured by the company for its sales commission, electric stores purchased and expenditure on Repairs& Maintenance. The purchase bills were received but cleared on later dates and paid on subsequent year. The liability was booked in view of giving the true and fair picture of the balance sheet. Therefore the same should not be disallowed. As the assessee company has itself admitted of having not made payment of this provisional liability, this amount of Rs.40.81 lacs cannot be allowed and is accordingly added to the total income of the assessee company.” 7. The Ld. Commissioner of Income Tax (Appeals) followed the decision of his predecessor for the Assessment Year 2004-05 and deleted the addition made. Before us the Ld. D.R. submits that the Ld. Commissioner of Income Tax (Appeals) has not applied the law to the facts of the case. She submits that there is no finding that the expenditure in question crystallized during the year. The Ld. Counsel for the assessee on the other hand points out that the decision of the Ld. Commissioner of Income Tax (Appeals) on the very same issue

8 ITA No.5784/Del/2013 for the Assessment Year 2004-05 was accepted by the Revenue. He submits that this is ascertained liability. 8. The Ld. Commissioner of Income Tax (Appeals) while adjudicating this issue for the Assessment Year 2004-05, came to a conclusion that the liability in question is ascertained liability and hence allowable under the mercantile system of accounting. The Ld. Counsel for the assessee made a statement at the Bar that these liabilities were discharged in the immediately succeeding Assessment Year. This is a timing issue i.e. the year of allowability of the expenses is in dispute. On the principle of consistency, we are of the 4 considered opinion that the order of the First Appellate Authority has to be upheld as in the earlier Assessment Year the finding of the Ld. Commissioner of Income Tax (Appeals) on the year of allowability has not been challenged by the Revenue. In the result this ground of the Revenue is dismissed.”

4.3 On perusal of the finding of the Tribunal (supra), we find that identical liability was raised in respect of electrical stores and other expenditure in assessment year 2006-07. Thus, we do not find any error in the order of the Ld. CIT(A) in following the order of the Tribunal (supra) for assessment years 2006-07. Accordingly, we uphold the same. The ground of the appeal is accordingly dismissed. 5. In grounds No. 3 and 4, the Revenue has contested that late payment of the employees contribution to Provident Fund and ESI amounting to Rs.17,34,336/- is not allowable to the assessee. 5.1 Before us, the Ld. Sr. DR submitted that Hon’ble Gujarat High Court in tax appeal No. 637 of 2013 and others has held that late payment of employees contribution to provident fund and ESI is not allowable as deduction under the provisions of the Act. 5.2 On the contrary, the Ld. counsel of the assessee submitted that issue in dispute is covered in favour of the assessee by the decision of the Jurisdictional High Court in the case of CIT Vs. AIMIL (2010) 1 taxmen 73 (Delhi).

9 ITA No.5784/Del/2013 5.3 We have heard the rival submissions and perused the relevant material on record. In the instant case the amount of Rs.17,34,336/- related to employees’ contribution to the provident fund and ESI was paid by the assessee subsequent to the due date prescribed under the relevant PF and ESI Act. The contention of the Revenue is that in terms of section 36(1)(va), employees contribution paid after the due date in the given fund under the relevant Act is not allowable as deduction and thus it has to be treated as income of the assessee under section 2(24)(x) of the Act. The Hon’ble Gujarat High Court in the Tax Appeal No. 637 of 2013 with other appeals has made a detailed analysis of the provisions and judicial precedents and decided the issue as under:

“7.01 Short question which is posed for consideration of this Court is with respect to the disallowance of the amount being employee’s contribution to PF Account/ESI Contribution which admittedly which the concerned assessee did not deposit with the PF Department / DSI Department within due date under the PF Act and/or ESI Act. 7.02. To answer the above controversy, the relevant provisions of Income Tax Act, 1961 are required to be referred to. 7.03. "Income" has been defined under section 2(24) of the Act. Under section 2(24)(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 Employees' State Insurance Act, 1948, or any other fund for welfare of such employees, constitute income. Section 2(24)(x) reads as under "Section 2(24)(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 Employees' State Insurance Act, 1948, or any other fund for welfare of such employees."

10 ITA No.5784/Del/2013 7.04. Section 36 of the Act provides for deduction in computing the income referred to in section 28. The relevant provisions applicable to the present cases would be Section 36(l)(va). As per sub-section 36(l)(va), assessee shall be entitled to the deduction in computing the income referred to in section 28 with respect to any sum received by the assessee from his employees to which the provisions of sub- clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employees' accounts in the relevant fund or funds on or before the "Due Date". As per explanation to section 36(l)(va) for the purpose of the said clause, "Due Date" means the date by which the assessee is required as an employer to credit the employees' contribution to the employees account in the relevant fund under the Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. Section 36(l)(va) reads as under: "Section 36(1) : The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- Section 36(1) (va) : any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation for the purpose of this clause, "due date" means 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 or service or otherwise." 7.05. Another provision which is required to be considered while considering the above controversy would be Section 43B of the Act, which stood prior to the amendment of section 43B of the Act vide Finance Act, 2003 and after the amendment to Section 43B of the Act by Finance Act, 2003. Section 43B of the Act prior to the amendment of Section 43B of the Act vide Finance Act, 2003 reads as under: "Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) or clause (e) or clause (f), which is actually paid by the assessee on or before the due date applicable in his case for

11 ITA No.5784/Del/2013 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 th assessee along with such return: Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of subsection (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."

By the Finance Act, 2003, Second Proviso to section 43B of the Act came to be deleted and even the first proviso to section 43B of the Act came to be amended. The first proviso to section 43B of the Act, after its amendment by the Finance Act, 2003 reads as under :- "Provided that nothing contained in this section apply in relation to any sum which is actually paid by the assessee 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." 7.06. Considering the aforesaid provisions of the Act, as per section 2(24)(x), any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees shall be treated as an 'Income'. Section 36 of the Act deals with the deductions in computing the income referred to in section 28 and as per section 36(l)(va) such sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 apply, the assessee shall be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the "due date" i.e. date by which the assessee is required as an employer to credit the employee's contribution to the employee's account in the relevant fund, in the present case, the provident fund and ESI Fund under the Provident Fund Act and ESI Act. Section 43B is with respect to certain deductions only on actual payment. It provides that notwithstanding

12 ITA No.5784/Del/2013 anything contained in any other provisions of the Act, a deduction otherwise liable under the Act 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 the employees in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. It appears that prior to the amendment of section 43B of the Act vide Finance Act, 2003, an assessee was entitled to deductions with respect to the sum paid 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 the employees (employer's contribution) provided such sum - employer's contribution is actually paid by the assessee on or before the due date applicable in his case for furnishing 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 and the evidence of such payment is furnished by the assessee along with such return. It also further provided that no deduction shall, in respect of any sum referred to in clause (B) i.e. with respect to the employer's contribution, be allowed unless such sum is actually been paid in cash or by issue of cheque or draft or by any other mode on or before the due date as defined in explanation below clause (va) of sub-section (1) of section 36 and where such sum has been made otherwise that in cash, the sum has been realised within 15 days from the due date. By the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted and First Proviso to section 43B has also been amended which is reproduced hereinabove. Therefore, with respect to employer's contribution as mentioned in clause (b) of section 43(B), if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B on actual payment and such deduction would be admissible for the accounting year. Flowever, it is required to be noted that as such there is no corresponding amendment in section 36(1) (va). Deletion of Second Proviso to section 43B vide Finance Act 2003 would be with respect to section 43B and with respect to any sum mentioned in section 43(B) (a to f) and in the present case, employer's contribution as mentioned in section 43B(b). Therefore, deletion of Second Proviso to section 43B and amendment in first proviso to section 43B by Finance Act, 2003 is required to be confined to section 43B alone and deletion of second proviso to section 43B vide amendment pursuant to the Finance Act, 2003 cannot be made applicable with respect to section 36(l)(va) of the Act. Therefore, any sum with respect to the employees' contribution as mentioned in section 36(l)(va), assessee shall be entitled to the deduction of such sum towards the employee's contribution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as

13 ITA No.5784/Del/2013 Provident Fund, ESI Contribution Fund, etc. provided the said sum is credited by the assessee to the employees' accounts in the relevant fund or funds on or before the 'due date' under the Provident Fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. It is required to be noted that as such there is no amendment in section 36(1) (va) and even explanation to section 36(l)(va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to employer's contribution Second Proviso to section 43B which provided that even with respect to employers' contribution [(section 43(B)b], assessee was required to credit amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that section 36(l)(va) is also amended and/or explanation to section 36(l)(va) has been deleted and/or amended. It is also required to be noted at this stage that as per the definition of "income" as per section 2(24)(x), any sum received by the assessee from his employees as contribution to any Provident Fund or Superannuation Fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of the such employees is to be treated as income and on fulfilling the condition as mentioned under section 36(1) (va), the assessee shall be entitled to deduction with respect to such employees' contribution. Section 2(24)(x) refers to any sum received by the assessee from his employees as contribution and does not refer to employer's contribution. Under the circumstances and so long as and with respect to any sum received by the assessee from any of his employees to which provisions of sub-clause (x) of sub-section 24 of section 2 applies, assessee shall not be entitled to deduction of such sum in computing the income referred to in section 28 unless and until such sum is credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as mentioned in explanation to section 36(l)(va). Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees' account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1) (va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in section 28 of the Act. 7.07. Now so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra), by the learned ITAT as well as learned advocates appearing on behalf of the assessee in support of their submission that in view of amendment in section 43B pursuant to Finance Act, 2003, by which the second proviso to section 43B has been deleted and therefore even with respect to employees contribution despite section 36(l)(va), and explanation to section 36(l)(va), if the employees' contribution is

14 ITA No.5784/Del/2013 credited after the due date mentioned in the particular Act but credited on or before the due date by filing return under section 139 of the Act, assessee shall be entitled to the deduction of such amount, is concerned, on considering the controversy before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra), the said decision would not be applicable to the facts of the present case. In the said case before Alom Extrusions Ltd., the controversy was whether the amendment in section 43B of the Act, vide Finance Act, 2003 would operate retrospectively w.e.f. 1/4/1988 or not. It is also required to be noted that in the case before the Hon'ble Supreme Court, the controversy was with respect to employers' contribution as per section 43(B)(b) of the Act and not with respect to employees' contribution under section 36(l)(va). Before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra) the Hon'ble Supreme Court had no occasion to consider deduction under section 36(l)(va) of the Act and with respect to employees' contribution. As stated above, the only controversy before the Hon'ble Supreme Court was with respect to amendment (deletion) of the Second Proviso to section 43(B) of the Income Tax Act, 1961 by the Finance Act, 1963 operates w.e.f. 1/4/2004 or whether it operates retrospectively w.e.f. 1/4/1988. Under the circumstances, the learned tribunal has committed an error in relying upon the decision of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra) while passing the impugned judgement and order and deleting disallowance of the respective sums being employees' contribution to PF Account / ESI Account, which were made by the AO while considering the proviso to section section 36(1) (va) of the Income Tax Act. 7.08. Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of Alembic Glass Industries Ltd. (supra) is concerned, on facts and considering the provisions of section section 36(l)(va) of the Act as is stands, the said decision would not be applicable to the facts of the case on hand and the controversy in question.

7.09. Now, so far as the reliance placed upon the decision of the Karnataka High Court in the case of Sabari Enterprises (supra) is concerned, on facts and controversy raised in the present appeals, the said decision would not be any assistance to the assessee. In the case before the Karnataka High Court, the dispute was with respect to the employer's contribution and the controversy was whether the amendment to section 43B of the Act would be retrospective in nature or not. In the aforesaid case before the Karnataka High court, there was no dispute with respect to employees' contribution as is there in the present case. 7.10. Similarly, the decision of the Bombay High Court in the case of Pamwi Tissues Ltd. (supra) also would not be applicable to the facts

15 ITA No.5784/Del/2013 of the case on hand. In the case before the Hon'ble Bombay High Court, the dispute was whether deletion of Second Proviso to section 43B would be applicable retrospectively or not and in that case the dispute was also with respect to employer's contribution. 7.11. Now, so far as the reliance placed upon the decision of the Himachal Pradesh High Court in the case of Nipso Polyfabriks Ltd. (supra); decision of the Karnataka High Court in the case of Spectrum Consultants India (P) Ltd. (supra); decision of the Rajasthan High Court in the case of Udaipur Dugdh Utpadak Sahakari Sandh Ltd. (supra) and decision of the Punjab and Haryana High Court in the case of Hernia Embroidery Mills (P) Ltd. (supra) taking view that where the assessee deposited employees' contribution to ESI and Provident Fund before the due date of filing the return under section 139(1) of the Act, the same would be allowable as deduction, are concerned, With respect and for the reasons stated hereinabove, we are not in agreement with the view taken by the aforementioned High courts. As discussed hereinabove, as there is no amendment in Section section 36(l)(va) of the Income Tax Act and considering section 36(1) (va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as per explanation to section 36(l)(va) of the Act. Merely because Second Proviso to Section 43B of the Act in which there was a reference to due date as defined in explanation below clause (va) of sub-section (1) of section 36, it cannot be held that even section 36(l)(va) is amended and/or even explanation below clause (va) of sub-section (1) of section 36 is also deleted. It can be said that there was a reference to explanation below clause (va) of sub-section (1) of section 36 in second proviso of section 43B (which has been deleted by Finance Act, 2003), only for the purpose of defining due date as per explanation below clause (va) of sub-section (1) of section 36. Therefore, by deleting Second Proviso to section 43B by Finance Act, 2003, it cannot be said that Section 36(1) (va) is amended and/or explanation below clause (va) of subsection (1) of section 36 is deleted, which is with respect to employees' contribution. Under the circumstances, we are not in agreement with the view expressed by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove. 7.12. Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Sarabhai Sons Ltd. (supra), by the learned counsel appearing on behalf of the assessee and his submission that if two views are possible and different High Courts have taken a particular view, this Court may not take a different view, is concerned, we are of the opinion that in the present case,

16 ITA No.5784/Del/2013 and as discussed hereinabove, only one view is possible as canvassed on behalf of the revenue and as observed by under section hereinabove and we are not in agreement with the view taken by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove, and therefore, the submission made on behalf of the assessee to follow the decisions of the different High Courts refereed to hereinabove and/or not to take a contrary view cannot be accepted. 8.00. In view of the above and for the reasons stated above, and considering section 36(l)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on or before the "due date” mentioned in explanation to section 36(l)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(l)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. The questions raised in present appeal are answered in favour of the revenue. With this, all these appeals are allowed.”

5.4 However, we note that the Hon’ble Jurisdictional Delhi High Court in the case of CIT Vs AIMIL (supra) held that the assessee can get benefit of section 36(1)(va), if the actual payment towards the PF/CSI contributions is made before the return is filed. The relevant finding of the Hon’ble High Court is reproduced as under:

17 ITA No.5784/Del/2013

“11. Before we delve into this discussion, we may take note of some more provisions of the Act. Sec. 2(24) of the Act enumerates different components of income. It, inter alia, stipulates that income includes 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’. It is clear from the above that as soon as employees’ contribution towards PF or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as ‘income’ at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with PF/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of s. 36(1)(va) of the Act. Sec. 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees’ contribution is concerned. It is in this backdrop we have to determine as to at what point of time this payment is to be actually made. 12. Since the Tribunal while holding that the amount would qualify for deduction even if paid after the due dates prescribed under the PF/ESI Act but before the filing of the IT returns by placing reliance upon the Supreme Court judgment in Vinay Cement (supra), at this juncture we take note of the discussion of Tribunal on this aspect : "11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order learned AO has categorically stated that what the amount due was for which month in respect of EPF, family pension, PF inspection charges and ESI deposits and what were the due dates for these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. The latest payment is made on 23rd April, 2002 and assessee being limited company had filed its return on 20th Oct., 2002 which is a date not beyond the due date of filing of the return. Thus, it is clear beyond doubt that all the payments which have been disallowed were made much earlier to the due date of filing of the return. The disallowance is not made by the AO on the ground that there is no proof of making such payment but disallowance is made only on the ground that these payments have been made beyond the due dates of making these payments under the respective statute. Thus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a factual aspect then according to latest

18 ITA No.5784/Del/2013 position of law clarified by Hon’ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268 that no disallowance could be made if the payments are made before the due date of filing the return of income. This issue came before Hon’ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. (supra) which was a special leave petition filed by the Department against the High Court order of 26th June, 2006 in IT Appeal No. 2 of 2005 and IT Appeal No. 56 of 2003 and IT Appeal No. 80 of 2003 of the High Court of Guwahati, Assam and it is order dt. 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under : ‘In the present case we are concerned with the law as it stood prior to the amendment of s. 43B. In the circumstances the assessee was entitled to claim the benefit in s. 43B for that period particularly in view of the fact that he has contributed to PF before filing of the return. The special leave petition is dismissed’." 13. It is clear from the above that in Vinay Cement (supra), the SLP preferred by the Revenue against the judgment of the Guwahati High Court was dismissed making the aforequoted observations. The reasons are given and, thus, it amounts to affirmation of the view taken by the High Court of Guwahati. 14. When we keep that proposition in mind and also take into consideration various judgments where Vinay Cement (supra) is applied and followed, it will not be possible to accept the contention of the Revenue. 15. In CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del), this Court specifically dealt with this issue and relying upon the aforesaid judgment of the Guwahati High Court, as affirmed by the Supreme Court in Vinay Cement (supra), the appeal of the Revenue was dismissed. More detailed discussion is contained in another judgment of this Court in CIT vs. P.M. Electronics Ltd. (IT Appeal No. 475 of 2007 decided on 3rd Nov., 2008) [reported at (2008) 220 CTR (Del) 635 : (2008) 15 DTR (Del) 258—Ed]. Specific questions of law which were proposed by the Revenue in that case were as under : "(a) Whether amounts paid on account of PF/ESI after due date are allowable in view of s. 43B, r/w s. 36(1)(va) of the Act ? (b) Whether the deletion of the 2nd proviso to s. 43B by way of amendment by the Finance Act, 2003 is retrospective in nature ?" 16. These questions were answered by the Division Bench in the following manner :

19 ITA No.5784/Del/2013 "7. Having heard the learned counsel for the Revenue, as well as, the assessee, we are of the view that the view taken by the Tribunal deserves to be sustained as it is no longer res integra in view of the decision of the Supreme Court in the case of CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268 which has been followed by a Division Bench of this Court in the case of CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del). 8. Despite the aforesaid judgments, the learned counsel for the Tribunal (sic—Revenue) has contended that in view of the judgment of the Division Bench of the Madras High Court in the case of CIT vs. Synergy Financial Exchange Ltd. (2006) 205 CTR (Mad) 481 : (2007) 288 ITR 366 (Mad) and that of the Division Bench of the Bombay High Court in the case of CIT vs. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 : (2008) 3 DTR (Bom) 66 : (2008) Taxindiaonline.com 104 (TIOL) the issue requires consideration. According to us, in view of the dismissal of the SLP in the case of Vinay Cement (supra) by the Supreme Court by a speaking order, the submission of the learned counsel for the Revenue has to be rejected at the very threshold. The reason for the same is as follows : 9. The Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. (2006) 284 ITR 619 (Gau) dealt with the very same issue. In the said judgment the Division Bench of the Gauhati High Court noted a contrary view taken by the Kerala High Court in the case of CIT vs. South India Corporation Ltd. (1999) 157 CTR (Ker) 422 : (2000) 242 ITR 114 (Ker). After noting the said judgment the fact that the amendments had been made to the provisions of s. 43B of the Act by virtue of Finance Act, 2003 w.e.f 1st April, 2004 it agreed with the submission of the learned counsel for the assessee that by virtue of the omission of the second proviso and the omission of cls. (a), (c), (d), (e) and (f) without any saving clause would mean that the provisions were never in existence. For this purpose, in the said case the assessee had placed reliance on the judgment of a Constitution Bench of the Supreme Court in the case of Kolhapur Canesugar Works Ltd vs. Union of India (2000) 2 SCC 536 and Rayala Corporation (P) Ltd vs. Director of Enforcement (1969) 2 SCC 412 and General Finance Co. & Anr. vs. Asstt. CIT (2002) 176 CTR (SC) 569 : (2002) 257 ITR 338 (SC). The said submissions found favour with the Division Bench of the Guahati High Court and relying on earlier decisions of its own Court in CIT vs. Assam Tribune (2002) 253 ITR 93 (Gau) and CIT vs. Bharat Bamboo & Timber Suppliers (1998) 146 CTR (Gau) 487 : (1996) 219 ITR 212 (Gau) the Division Bench dismissed the appeal of the Revenue. It transpires that the aforesaid matter was taken up in appeal along with other matters including Vinay Cement (supra). The order in Vinay Cement (supra) was passed by the Supreme Court on 7th March, 2007 wherein it observed as follows :

20 ITA No.5784/Del/2013 ‘Delay condoned. In the present case we are concerned with the law as it stood prior to the amendment of s. 43B. In the circumstances, the assessee was entitled to claim the benefit in s. 43B for that period particularly in view of the fact that he has contributed to PF before filing of the return. SLP is dismissed.’ 10. In view of the above, it is quite evident that the SLP was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertain to a period prior to the amendment brought about in s. 43B of the Act. The aforesaid position as regards the State of the law for a period prior to the amendment to s. 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra). Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 18th Aug., 2008 passed in Tax Case (Appeal) No. 1192 of 2008 [reported at (2008) 219 CTR (Mad) 54 : (2008) 12 DTR (Mad) 77—Ed] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors. vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97 : 119 STC 505 at p. 526 in para 40 and noted the following observations : ‘If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Art. 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting SLP or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.’ 11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay

21 ITA No.5784/Del/2013 Cement (supra) would bind the High Court as it was non declared by the Supreme Court under Art. 141 of the Constitution. 12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra). 13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra). 14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed." It also becomes clear that deletion of the second proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso. 17. We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Acts permit the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the IT Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra). 18. We, thus, answer the question in favour of the assessee and against the Revenue. As a consequence, the appeals filed by the assessees stand allowed and those filed by the Revenue are dismissed.” 5.5 We find that on the issue in dispute the Ld. CIT(A) has followed the finding of the Hon’ble jurisdictional High Court, which is binding on the Tribunal or the CIT(A) functioning under the jurisdiction of the Hon’ble Delhi High Court. In view of the above, we do not find any error in the order of the Ld. CIT(A) and accordingly, we uphold the same. The grounds No. 3 & 4 of the appeal of the Revenue are dismissed.

22 ITA No.5784/Del/2013 5.6 Ground No. 5 of the appeal, being general in nature, we are not required to adjudicate upon the same. 6. In the result, the appeal of the Revenue is dismissed.

Order is pronounced in the open court on 28th November, 2018.

Sd/- Sd/- H.S. SIDHU O.P. KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28th November, 2018. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi