HINDUSTAN APPAREL INDUSTRIES,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 21(3), MUMBAI

O R D E R

PER RAMIT KOCHAR, Accountant Member:

2. First , we shall take up appeal of the assessee in ITA no. 214/Mum/2018 for AY 2013-14 . The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) , read as under:- “The learned Assessment Officer erred in making addition of Rs. 10,82,098/- on account of delay in payment of employees contribution of PF and ESIC.”

3. The brief facts of the case are that the assessee is manufacturer and exporter of readymade garments. The assessee deposited Employees Contribution to Provident Fund as well as Employee‟s Contribution to ESIC beyond the time stipulated for payment prescribed under the relevant statute‟s governing Provident Fund and ESIC. But admittedly said employees contribution towards PF and ESIC was duly deposited with relevant authorities before the due date as prescribed for filing of return of income u/s 139(1) of the 1961 Act. The said relevant details of receipt of Employee‟s Contribution towards Provident Fund and ESIC by assessee and deposit thereof to the relevant authorities for the relevant period , wherein delay took place in deposit beyond the time prescribed under the Relevant Statutes governing PF/ESI are re-produced here under:- PROVIDENT FUND - EMPLOYEES CONTRIBUTION STATEMENT OF PAYMENT OF PROVIDENT FUND (MUMBAI) Month Date of Due date Actual Date Total Collection of payment of payment Amount paid Oct2012 10/11/2012 15/11/2012 24/11/2012 26,704 TOTAL 26,704 I.T.A. No.214 & 215/Mum/2018 STATEMENT OF PAYMENT OF PROVIDENT FUND (HYDERABAD) Month •Date of Due date of Actual Date of Total Amount Collection payment paid payment May, 2012 04/06/2012 15/06/2012 29/06/2012 93.111 Jul. 2012 22/08/2012 15/08/2012 31/08/2012 1,32,118 Sep. 2012 04/10/2012 15/10/2012 18/10/2012 1,17,702 Oct 2012 05/11/2012 15/11/2012 04/12/2012 1.17,401 Dec. 2012 08/01/2013 15/01/2013 30/01/2013 1,13,668 Jan. 2013 04/02/2013 15/02/2013 27/02/2013 1,27.162 Mar. 2013 31/03/2013 15/04/2013 26/04/2013 1,28,021 TOTAL 8,29,183 ESIC EMPLOYEES CONTRIBUTION (MUMBAI) Month Amount to be considered as Date of Due date of Actual date of Amount collection payment payment Paid income u/s.2(24)(x) r.w. sec. 36(1 )(va) Aug. 2012 12/09/2012 21/09/2012 21/09/2012 2,953 TOTAL - 2,953 EMPLOYEES CONTRIBUTION (HYDERABAD) Month Amount Paid Date of Due date of Actual date of Amount to be considered as collection payment payment income u/s.2(24)(x) r.w, sec. 36(1 )(va) Apr. 2012 20/05/2011 21/05/2012 31/05/2012 21,669 May 2012 27/07/201 1 21/06/2012 28/06/2012 20,515 July 2012 21/07/2011 21/08/2012 06/09/2012 27,400 Sep. 2012 14/09/2011 21/10/2012 01/11/2012 28,122 Oct. 2012 19/10/2011 21/11/2012 05/12/2012 27,250 Nov. 2012 17/11/2011 21/12/2012 28/12/2012 25,205 Jan. 2013 20/01/2012 21/02/2013 30/03/2013 37,307 & 215/Mum/2018 Mar. 2013 14/03/2012 21/04/2013 30/04/2013 35,790 2,23,258 TOTAL 3.3. The AO invoked provision of section 2(24)(x) r.w.s. 36(1)(va) of the 1961 Act and made disallowance to the tune of Rs. 10,82,098/- , vide assessment order dated 03.03.2016 passed by the AO u/s 143(3) of the 1961 Act, by holding as under;- “ 3.3 Section 2(24)(x) of the Act refers to any sum received by the taxpayer from his employee as contribution and does not refer to employees contribution. Therefore, with respect to any sum received by the taxpayer from any of his employees to which provision of section 2(24)(x) of the Act applies, the taxpayer shall not be entitled to deduction unless such sum in the relevant fund or funds on or before the due dale specified under section 36(1)(va) of Act. 3.4 further, with respect to the Employee’s contribution to PF and ESIC, the Board vide circular no. 22/2015 has clarified as under: “5. It is clarified that this Circular does not apply to claim of deduction relating to employee’s contribution to welfare funds which are governed by section 36(1)(va) of the I.T Act. 3.5 In view of the above facts and circumstances of the case, disallowance of Rs.10,82,098/- [Rs.26,704/- (Mumbai) and Rs.8,29,183 (Hyderabad) on account of PPF and Rs.2,953/- (Mumbai) and Rs.2,23,258/- (Hyderabad) on account of ESIC] u/s.36(1)(va) is hereby made and added to the total income of the assessee. Penalty proceedings u/s.271(1)(c) are initiated separately for furnishing inaccurate particulars of/ income.”

4. Aggrieved by assessment framed by the AO u/s 143(3) of the 1961 Act vide assessment order dated 03.03.2016, the assessee filed an first appeal before Ld. CIT(A). The said appeal was dismissed by Ld. CIT(A) , vide appellate order dated 23.10.2017 , by holding as under: “8. I have carefully considered the submission of the appellant as reproduced in the preceding paragraph and the facts highlighted by the AO in his order. My observation is as under - 4 I.T.A. No.214 & 215/Mum/2018 8.1 It is observed that the controversy in the present appeal relates to allowance of any sum received by the appellant as an employer from his employees for the purpose of PF and ESIC, if it is paid beyond the due date as mentioned in section 36 (1)(va) of the IT Act. While resolving the issue, the AO has considered the provisions of subsection 36 (1)(va) while the appellant has considered the provisions of section 43B of the IT Act. In this regard, Hon'ble Kerala High Court in the case of CIT v. Merchem Ltd. [2015] 61 taxmann.com 119/235 Taxman 291 (Ker) has held that section 36(1)(va) and section 43B(6) operate in different fields, i.e., former takes care of employee's contribution and later the employer’s contribution. Therefore, an assessee is entitled to get benefit of deduction under section 43B(6) as provided under the proviso thereto only with regard to portion of amount paid by the employer to contributory fund. So far as the employee's contribution is concerned, the assessee is entitled to get deduction of amounts as provided under section 36(1)(va) only if amounts so received from the employee is credited in specified account within due date as provided under relevant statute. 8.2 From the written submission mentioned above, it is clear that the Ld. AR has considered the provisions subsection 43B with respect to employees contribution for PF and ESIC, which is clearly applicable to the employer's contribution. The two provisions are reproduced as under- Section 43B 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this 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 employees, Provided that nothing contained in this section shall 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 & 215/Mum/2018 payment is furnished by the assessee along with such return. Section 36 (1)(va) 36 (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 purposes 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 there under or under any standing order, award, contract of service or otherwise; 8.3 From the provisions of both the sections, it is clear that the "due date" is defined differently under 43B and 36(1)(va). In my considered opinion, the appellant cannot import the due date as mentioned under section 43B to the provisions of section 36(1)(va), when the same is expressed in clear words. As per provisions of section 36(1)(va), the "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 the relevant Act, rule, order or notification issued there under i.e., mentioned in such Act, rule, order or notification. 8.4 It is further observed that Hon'ble Kerala High Court in the case of CIT vs Merchem Ltd. [2015] 61 taxmann.com 119 (Kerala) has held that In case of employee's contribution, an assessee is entitled to get deduction of amount as provided under section 36(1 )(va) only if amount so received from employee is credited in specified account within the due date as provided under relevant statute. The relevant portion of the judgement is reproduced as under:- 19. Therefore, income of the assessee includes any sum received by the assessee from his employee as contribution to any Provident Fund or superannuation fund or funds set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 6 & 215/Mum/2018 1948) or any other fund for the welfare of such employees. According to us, on a reading of Sec. 36(1)(va) along with Sec. 2(24)(x), it is categoric and clear that the contribution received by the assessee from the employee alone was treated as income for the purpose of Sec. 36(1)(va) of the Act and therefore we are of the considered opinion that the assessee was entitled to get deduction for the sum received by the assessee from his employees towards contribution to the fund or funds so mentioned only if, the said amount was credited by the assessee on or before the due date to the employees account in the relevant fund as provided under Explanation 1 to Sec. 36(1)(va) of the Act. According to us, so far as Sec. 43B(b) is concerned, it takes care of only the contribution payable by the employer/assessee to the respective fund. Therefore, in that circumstances, Sec. 36(1)(va) and Sec, 43B(b) operate in different fields i.e. the former takes care of employee's contribution and the latter employer's contribution. The assessee was entitled to get the benefit of deduction under Sec. 43B(b) as provided under the proviso thereto only with regard to the portion of the amount paid by the employer to the contributory fund. Such an understanding of Sec. 43B is further exemplified by the phraseology used in the proviso, which reads thus: "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in it is 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." Further, in Explanation 1 to Sec. 43B also, the phraseology used persuade us to think that Sec. 43B can be applied to the contribution payable by the assessee as an employer, which reads thus: “** & 215/Mum/2018 For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or 'clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him." Therefore, according to us, since the Respondent has admittedly not paid the deduction so made within the due date as provided under Sec. 36(1)(va) the Respondent was not entitled to get deduction of the amounts deducted thereunder for and on behalf of the employees.

20. In view of the reliance placed by various High Courts in Alom Extrusions Ltd. (supra), to arrive at a conclusion that the assessees therein were liable to pay both the employees as well as employer's contribution on or before filing of return under Sec. 139(1) only, we thought that if Alom Extrusions Ltd. (supra) is discussed in detail, the question raised in this case can be made clear. In paragraph 3 of the said judgment, the question considered was formulated as follows: "3. A short question which arises for determination in this batch of civil appeals is whether omission (deletion) of the second proviso to section 43B of the Income-tax Act, 1961, by the Finance Act, 2003, operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988?".

21. Therefore, the question that was considered Alom Extrusions Ltd. case was whether omission of second proviso to Sec. 43B of the Income Tax Act by the Finance Act, 2003, operated with effect from 1st April, 2004 or retrospectively with effect from 1st April, 1988. Therefore, the question raised in this appeal has nothing to do with the question & 215/Mum/2018 considered in the said decision. It is true that Sec. 2(24)(x) as well as Sec. 36(1)(va) were discussed in paragraphs 10 and 11 of the said judgment. But it was for the sole purpose of understanding the scheme of the Income Tax Act, 1961 as it existed prior to 1st April, 1984 and as it stood after 1st April, 1984. After discussing the aforesaid provisions and Sec. 43B, the Apex Court held in paragraph 14 of the judgment as follows: "14. On reading the above provisions, it becomes clear that the assessee(s)- employer(s) would be entitled to deduction only if the contribution stands credited on or before the due date given in the Provident Fund Act. However, the second proviso once again created further difficulties. In many of the companies, financial year ended on 31st March, which did not coincide with the accounting period of R.P.F.C. For example, in many case, the time to make contribution to R.P.F.C. ended after due date for filing of returns. Therefore, the industry once again made representation to the Ministry of Finance and, taking cognizance of this difficulty, the Parliament inserted one more amendment vide Finance Act, 2003, which, as stated above, came into force w.e.f. 1st April, 2004. In other words, after 1st April, 2004, two changes were made, namely, deletion of the second proviso and further amendment in the first proviso, quoted above. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to employees; provident fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force w.e.f. 1st April, 2004.

I.T.A. No.214 & 215/Mum/2018

is dismissed.”

5. Aggrieved by the appellate order dated 23.10.2017 passed by learned CIT(A), the matter is now before tribunal at the behest of the assessee who has filed an second appeal with tribunal. At the outset learned counsel for the assessee submitted that the employee‟s contribution toward PS & ESIC were duly deposited with the relevant authorities within due date as prescribed for filing of return of income u/s. 139(1) of the Act albeit the said employees contribution towards PF/ESIC was deposited beyond the time stipulated for making payment under the relevant statute governing PF & ESIC . The learned counsel for the assessee placed reliance on the decision of Hon‟ble Bombay High Court in the case of CIT v. Ghatge Patil Transport Ltd. in of 2012 and ITA no. 1034 of 2012 , vide judgment dated 14.10.2014. The copy of said judgment is placed in file. 5.2 While on the other hand, reliance is placed by Ld. DR on the appellate order dated 23.10.2017 passed by Ld. CIT(A). The learned DR also relied on the decision of Hon‟ble Kerala High Court in the case of CIT v. Marchem Ltd. in ITA no. 244 of 2014 , vide judgment dated 08.09.2015. The copy of said judgment is placed in file. The learned DR also relied upon CBDT circular no. 22 of 2015 and submitted that employees contribution has to be deposited before the due date as is prescribed under relevant statute concerning PF and ESIC otherwise it I.T.A. No.214 & 215/Mum/2018 will be hit by Section 2(24)(x) read with Section 36(1)(va) of the 1961 Act.

PROVIDENT FUND - EMPLOYEES CONTRIBUTION STATEMENT OF PAYMENT OF PROVIDENT FUND (MUMBAI) Month Date of Due date Actual Date Total Collection of payment of payment Amount paid Oct2012 10/11/2012 15/11/2012 24/11/2012 26,704 TOTAL 26,704 STATEMENT OF PAYMENT OF PROVIDENT FUND (HYDERABAD) Month •Date of Due date of Actual Date of Total Amount Collection payment paid payment May, 2012 04/06/2012 15/06/2012 29/06/2012 93.111 Jul. 2012 22/08/2012 15/08/2012 31/08/2012 1,32,118 Sep. 2012 04/10/2012 15/10/2012 18/10/2012 1,17,702 Oct 2012 05/11/2012 15/11/2012 04/12/2012 1.17,401 Dec. 2012 08/01/2013 15/01/2013 30/01/2013 1,13,668 & 215/Mum/2018 Jan. 2013 04/02/2013 15/02/2013 27/02/2013 1,27.162 Mar. 2013 31/03/2013 15/04/2013 26/04/2013 1,28,021 TOTAL 8,29,183 ESIC EMPLOYEES CONTRIBUTION (MUMBAI) Month Date of Due date of Actual date of Amount Amount to be considered as collection payment payment Paid income u/s.2(24)(x) r.w. sec. 36(1 )(va) Aug. 2012 12/09/2012 21/09/2012 21/09/2012 2,953 TOTAL - 2,953 EMPLOYEES CONTRIBUTION (HYDERABAD) Month Amount Paid Date of Due date of Actual date of Amount to be considered as collection payment payment income u/s.2(24)(x) r.w, sec. 36(1 )(va) Apr. 2012 20/05/2011 21/05/2012 31/05/2012 21,669 May 2012 27/07/201 1 21/06/2012 28/06/2012 20,515 July 2012 21/07/2011 21/08/2012 06/09/2012 27,400 Sep. 2012 14/09/2011 21/10/2012 01/11/2012 28,122 Oct. 2012 19/10/2011 21/11/2012 05/12/2012 27,250 Nov. 2012 17/11/2011 21/12/2012 28/12/2012 25,205 Jan. 2013 20/01/2012 21/02/2013 30/03/2013 37,307 Mar. 2013 14/03/2012 21/04/2013 30/04/2013 35,790 TOTAL 2,23,258 I.T.A. No.214 & 215/Mum/2018 6.2 It is admitted by both the parties that the employees contribution toward PF & ESIC received by the assessee was paid beyond the due date prescribed under relevant statute concerning PF and ESIC , but the said contribution was paid within due date as prescribed u/s. 139(1) of the I.T Act 1961 for filing of return of income. Thus these employees contribution were although paid beyond the time prescribed under the relevant statute governing PF & ESIC but the same were admittedly paid before the due date as prescribed u/s. 139(1) of the Act for filing of return of income. 6.3 However, we have observed on perusal of the above chart of Employees Contribution(Hyderabad) of ESIC , that it appears that there are some typographical errors in column of date of collection in the „year‟ so mentioned in the chart like date of collection in second column against Month „April 2012‟ is mentioned as „20/05/2011‟ while it ought to have been ‟20.05.2012‟ and so on , thus to that extent an error/mistake crept in the aforesaid chart, we direct the assessee to produce correct chart/data with evidences before the AO to substantiate its contentions and the AO is directed to verify the same , so that proposition of law which we are going to apply is made applicable to correct facts duly supported with evidences. Thus for limited extent to correct/verify the mistake which had crept in the assessment order in the said chart reproduced by the AO , we are directing the assessee to produce correct facts of receipt of employee contribution, due date of deposit under relevant statute, date of deposit under relevant statute , the amount paid etc., duly supported with evidences before the AO for verification . The verification of the aforesaid details shall be conducted by the AO so that correct facts are brought on record to apply our decision vide this order. 6.4 We have observed that this issue of deposit of employees contribution towards PF/ESIC late beyond the due date stipulated under the Relevant Statute concerning PF/ESIC but deposited before & 215/Mum/2018 the due date prescribed u/s 139(1) for filing of return of income is covered by the judgment of Hon‟ble Bombay High Court in the case of CIT v. Ghatge Patil Transports Ltd. (2014) 368 ITR 749(Bom.) in favour of the tax-payer , wherein Hon‟ble jurisdictional High Court held as under:

“11. The second proviso resulted in implementation problems and which led to deletion of the second proviso in the Finance Act, 2003 and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds like employees' provident fund, superannuation. Fund and other welfare funds. The first proviso by Finance Act, 2003 was made applicable with effect from April 1, 2004 and the assessee would argue that it was curative in nature, clarificatory and, therefore, applied retrospectively from 1st April, 1988. The department argued that it was clarifactory and, therefore, applied prospectively. The Supreme Court held that Finance Act, 2003 would be applicable retrospectively and defaulter who fails to pay the contribution to the welfare fund right upto April 1, 2004 and who pays the contribution after April 1, 2004, would get the benefit of deduction under section 43B of the I.T. Act. It is held that the Finance Act, 2003 to the extent indicated above would be curative in nature and hence is retrospective. The reason being to be that the employers should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds.

I.T.A. No.214 & 215/Mum/2018 We have also noted that Hon‟ble Bombay High Court in a recent judgment in the case of Geekay Security Services Private Limited v. DCIT vide judgment dated 07.12.2018 reported in (2019) 101 taxmann.com 192(Bom. HC) in the context of revision petition u/s 264 of the 1961 Act has referred to the ratio of law laid down in Ghatge Patil Transports Limited(supra), wherein it is held as under: “10. Under the circumstances, we find that the Commissioner was not correct in refusing to exercise Petitioner's claim on merits. Since the Commissioner has not examined the merits of the Petitioner's case, we may place the Revision Petition back to the Commissioner for disposal on merits. We have noticed that all payments towards employee's contribution to the PF were made before the due date of the filing of the return. If that be so, surely, the Commissioner would be guided by the decision of this Court on the relevant issue namely - CIT v. Ghatge Patil Transport Ltd. [2014] 368 ITR 749/[2015] 228 Taxman 340/53 taxmann.com 141 (Bom.).