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Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B’, CHANDIGARH
Before: SMT.DIVA SINGH & SHRI VIKRAM SINGH YADAV
Per Vikram Singh Yadav, Accountant Member:
This is an appeal filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short the ‘Ld. CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) dated 12.09.2021 for assessment year 2019-20, wherein the assessee has taken the following revised grounds:
“1. That the prejudicial observations made in the appellate order and the assessment order are either unfounded or the same are not susceptible of giving rise to any adverse conclusion.
That the Learned Commissioner of Income tax (Appeals) has grossly erred in confirming the addition of Rs. 368124/- on account of late deposit of Employees Contribution to ESI and EPF on the basis of conjectures, surmises and without appreciating the facts of the case and the provisions of the Act as applicable during the financial year relevant to the assessment year and on date of filing of Income Tax Return. The addition merits deletion.
That the action of the Learned Commissioner of Income tax (Appeals) in confirming the addition of Rs. 368124/- on account of late deposit of Employees Contribution to ESI and EPF is arbitrary, unwarranted and uncalled for. The addition merits deletion.
4. That the Learned Commissioner of Income tax (Appeals) has grossly erred in confirming the addition of Rs. 11142171- on account of provision for gratuity without considering the documents on record amounting to double taxation and the facts of the case. The addition merits deletion.
That the action of the Learned Commissioner of Income tax (Appeals) in confirming the addition of Rs. 11142177- on account of provision for gratuity amounting to double taxation is arbitrary, unwarranted and uncalled for. The addition merits deletion.
6. That the appellant reserves the right to add, alter or amend grounds of appeal
.”
2. Briefly, the facts of the case are that the assessee filed its return of income on 26.09.2019 declaring total income of Rs.78,28,879/-, which was processed u/s 143(1) of the Act and in terms of intimation u/s 143(1) dated 27.02.2020 issued by CPC, had made disallowance of Rs.3,68,124/- towards late deposit of employees’ contribution to ESI & PF and an amount of Rs.11,14,217/- on account of provision for gratuity.
3. On appeal, the Ld.CIT(A), NFAC has confirmed both the disallowances and against the said order, the assessee has now come up in appeal before us.
During the course of hearing, the Ld. AR submitted that the assessee has deposited employees’ contribution towards ESI and PF though with the delay of few days from the due date mentioned in the respective Statutes, however, the same was deposited well before the due date of filing of return of income u/s 139(1) of the Act. It was submitted that the said fact is not under dispute and where such contribution has been deposited before the due date of filing of the return of income, no disallowance u/s 36(1)(va) of the Act can be made. In support, reliance was placed on decision of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Hemla Embroidery Mills (P) Ltd., 366 ITR 117 and the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusion Ltd., 319 ITR 306. It was further submitted that the aforesaid decisions have since been followed by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Mark Auto Industries Ltd., 358 ITR 43, CIT Vs. Kamal Family Trust (2013), 219 Taxman 81 and CIT Vs. Nuchem Limited, 59 Taxmann.com 455. It was submitted that the Ld.CIT(A) has relied upon the amendment brought in by the Finance Act, 2021 wherein Explanation-5 has been inserted. It was submitted that the said amendment has been inserted w.e.f. assessment year 2021-22 onwards and have to be read prospectively and not retrospectively and various Benches of the Tribunal has been taking a consistent view in this regard and our reference was drawn to the decision of the Chandigarh Benches of the Tribunal in the case of M/s Czars Faucets Limited Vs. CPC in dated 02.11.2021 wherein the relevant findings read as under:
“4. We have heard the submissions and perused the material available on record. It is seen that in the present appeal, the assessee has only assailed the disallowance sustained by the CIT(A) vide his order passed u/s 250(6) of the Act amounting to Rs. 4,52,231/- on the grounds that the ESI & PF payments were not made within time as per the relevant Statute. The claim of the assessee that the payments were made before the due date of filing of the return u/s 139(1) was held to be not relevant. It is seen that the said issue as far as the present Forum is concerned, stands fully covered in favour of the assessee not only by the consistent orders of the various Benches of the ITAT namely; the order dated 03.08.2021 of the Delhi Benches in the case of Insta Exhibition Pvt. Ltd. Vs ACIT in ITA 6941/Del/2017; order dated 01.07.2021 of the Hyderabad Bench in the case of Crescent Roadways Pvt. Ltd. Vs DCIT in but also consistent orders of the Chandigarh Bench. It is seen that all along the Co-ordinate Benches have held that the amendments to Sections 36(1)(va) and u/s 43B of the Income Tax Act effected by the Finance Act, 2021 is applicable prospectively and not retrospectively. While coming to the said conclusion, the Benches have relied upon and read from the Notes on Clauses at the time of introduction of the Finance Act, 2021 and have held that the amendment is applicable in relation to the assessment year 2021-22 and subsequent years and not retrospectively. Thus, in vie w of this legal position as considered by the Co- ordinate Benches and taking note of the decisions of the jurisdictional High Court in the case of CIT Vs Nuchem Limited ITA 323 of 2009 and CIT Vs Hemla Embroidery Mills Pvt. Ltd. (2014) 366 ITR 167 we are of the view that the additions cannot be made or sustained on the strength of the amendment effected by Finance Act, 2021 to Sections 36(1)(va)/43B of the Act as the legal position thereon is very clear. The departmental stand that it is clarificatory in nature has consistently been rejected. Thus, in the face of the clear legal position, as set out hereinabove, we find that the claim of the assessee is to be allowed in the year under consideration which is 2018-19 assessment year. The impugned order, accordingly, is set aside and the AO is directed to delete the disallowance. The appeal of the assessee is allowed. Said order was pronounced in the presence of the parties via Webex.”
5. Per contra, the Ld. DR relied upon the amendment brought in by the Finance Act, 2021 wherein Explanation to section 36(1)(va) of the Act has been introduced. It was submitted that from the reading of the said amendment it is evident that the law is and has always been very clear that employees’ contribution to specified fund will not be allowed as deduction u/s 36(1)(va) of the Act if there is delay in deposit even by a single day as per the due dates specified in the respective Statutes. It was further submitted that the said amendment is only declaratory/clarificatory in nature and, is, therefore, applicable with retrospective effect by necessary intendment of deeming nature expressly stated therein. The Ld. DR accordingly submitted that in view of the unambiguous wording of the now amendment provisions of sections 36(1)(va) and 43B, it is clear that the employees’ contribution can be allowed as a deduction only if it had been paid within the prescribed due dates under the relevant Statutes and this position has been clarified by the aforesaid amendment. It was accordingly submitted that there is no infirmity in the order passed by the Ld.CIT(A) wherein he has sustained the disallowance made u/s 143(1) of the Act, by the CPC on account of assessee’s failure to pay the employees’ contribution towards ESI and PF within the prescribed due dates as per section 36(1)(va) of the Act.
He accordingly supported the order of the lower authorities.
We have heard the rival contentions and perused the material available on record. In the instant case, it is not in dispute that employees’ contribution to ESI and PF had been deposited well before the due date of filing of return of income u/s 139(1) of the Act. We find that the issue is squarely covered by the decisions of the Hon'ble Punjab & Haryana High Court as well as other High Courts such as Hon'ble Himachal Pradesh High Court and Hon'ble Rajasthan High Court. We further note that though the Id.
CIT(A) has not disputed the various decisions of Hon'ble High Courts including the decision of the jurisdictional Punjab & Haryana High Court but has referred to the amendment brought in by the Finance Act, 2021. It is a consistent position across various Benches of the Tribunal including Chandigarh Benches that the amendment which has been brought in by the Finance Act, 2021 shall apply w.e.f. assessment year 2021-22 and subsequent assessment years and the impugned assessment year being assessment year 2019-20, the said amendment cannot be applied in the instant case. Therefore, considering the entirety of facts and circumstances of the case and following the decisions of various High Courts as well as Coordinate Benches of the Tribunal referred above, the addition made by way of adjustment while processing the return of income u/s 143(1) of the Act, amounting to Rs.3,68,124/- so made by the CPC towards the deposit of employees’ contribution towards ESI and PF paid before the due date of filing of the return of income u/s 139(1) of the Act, is hereby directed to be deleted. Hence, ground no. 1 of assessee’s appeal is allowed.
Regarding ground No.2 wherein the Ld.CIT(A) has sustained the disallowance of Rs.11,14,217/- on account of provision for gratuity being debited to Profit & Loss Account, it was submitted that the assessee while filing its return of income has suo-moto disallowed the provision for gratuity and where such adjustment has been made by the CPC while processing the return of income, the same amount to double taxation which cannot stand in the eyes of law and, therefore, the said addition needs to be deleted. In this regard, our reference was drawn to the return of income wherein the assessee has disallowed a sum of Rs.14,56,296/- while computing income under the head ‘profits and gains of business and profession’ and it was submitted that the said figure of Rs.14,56,296/- consisted of expenses related to prior period amounting to Rs.41,174/-, interest on income tax and others amounting to Rs.2,88,305/-, donation amounting to Rs.12,600/- and provision for gratuity amounting to Rs.11,14,217/-. It was accordingly, submitted that from the return of income as well as from the computation of income, it is clear that there is a self disallowance by the assessee of the provision of gratuity and, therefore, the disallowance so made by the CPC while processing the return of income and sustained by the Ld.CIT(A) be deleted.
Per contra, the Ld. DR relied upon the order of the Ld.CIT(A). It was submitted that regarding the proposed disallowance, the assessee was intimated on 11.12.2019 wherein the intimation order was finally issued on 27.02.2020 and, therefore, the applicant had sufficient time to respond, however, there was no explanation submitted by the assessee before the CPC. It was further submitted that it is clearly mentioned in the intimation order that the disallowance of expenditure indicated in the Audit Report was not taken into account by the applicant for computing the total income while filing its return of income. It was accordingly, submitted that the Ld.CIT(A) has accordingly, confirmed the findings of the CPC that the amount mentioned in the Audit Report was not suo moto disallowed by the assessee while filing the return of income.
We have heard the rival contentions and perused the material available on record. It is manifest from the return of income along with the computation of income so filed by the assessee that the provision for gratuity which has been debited in the profit/loss account has been disallowed by the assessee itself and no claim for the provision for gratuity has been made by the assessee while filing its return of income. Therefore, the action of the CPC in disallowing the same will amount to a situation where there is disallowance of provision which has not been claimed at the first place by the assessee and the same will clearly result in double taxation and which cannot be sustained in eyes of law. In the result, the addition so made towards the provision for gratuity amounting to Rs.11,14,217/- is hereby directed to be deleted and the ground of appeal is thus allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced on 11.01.2022.