DCIT, GURGAON vs. M/S. LEASEFORCES STAFFING INDIA PVT. LTD., GURGAON

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER & 6267/Del/2014 Assessment Years: 2010-11 & 2011-12 Vs. M/s. Leaseforces Staffing India DCIT, Circle-1(1), Gurgaon Pvt. Ltd., N-89, South City-1, Near Sector -40, Gurgaon PAN : AABCL5621N (Appellant) (Respondent) Appellant by Sh. Amit Jain, Sr.DR Respondent by None Date of hearing 31.10.2017 Date of pronouncement 06.11.2017 ORDER PER O.P. KANT, A.M.:

These two appeals have been filed by the Revenue against orders dated 01/09/2014 passed by the Commissioner of Income-tax (Appeals)- 2, Faridabad for assessment years 2010-11 and 2011-12. In both the appeals, identical grounds have been raised by the Revenue, hence both the appeals were heard together and disposed off by way of this consolidated order, for the sake of convenience and brevity.

AY: 2010-11 2. First we take up the ground raised in for assessment year 2010-11, which are reproduced as under:

3. The briefly stated facts of the case are that the assessee filed return of income on 30/09/2008, declaring total income of Rs.42,45,488/. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. During assessment proceeding, the Assessing Officer observed that assessee had made payment amounting to Rs.29,95,149/- for employees’ contribution to the Employees State Insurance (ESI), after due date prescribed under the ESI Act, which according to him, was not allowable in terms of section 36(1)(va) of the Act. The assessee contended that said payment was made before the due date of filing of return of income and therefore, same was allowable under section 43B of the Act in terms of the decision of the Hon’ble Supreme Court in the case of CIT Vs. Vinay Cement Ltd. However, the Ld. Assessing Officer was of the view that employees’ contribution to the provident fund/ESI paid after due date is governed by the explanation to provisions of section 36(1)(va) of the Act rather than the provisions of section 43B of the Act. In support of his finding, he relied on the decision of the Tribunal Kolkata Bench in the case of DCIT Vs. Bengal Chemicals and Pharmaceutical Ltd. (2011) 11 taxmann 328 (Kol) and other decisions cited in the assessment order. 3.1 On further appeal, the Ld. CIT-(A) after considering the facts of the case in various decisions on the issue in dispute, allowed the appeal of the assessee. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

4. The sole issue raised in the grounds of the appeal is related to addition in respect of ESI payment, deleted by the Ld. CIT-(A).

is whether the payment of ESI made after the due date prescribed under the ESI, is allowable as deduction or not. The contention of the learned counsel is that same is allowable in terms of section 43B of the Act, if paid before the due date of filing the return of income. The contention of the Ld. Sr. DR is that deduction of employees’ contribution to ESI or provident fund after the due date prescribed under the relevant Act is governed by the provisions of section 36(1)(va) of the Act and not governed by the provisions of section 43B of the Act.

8. We find that the learned CIT-(A) has discussed the issue in detail and after referring judicial pronouncement on the issue in dispute allowed the appeal in favour of the assessee. The relevant finding of the learned CIT-(A) on the issue in dispute is reproduced as under: “4.3 I have considered the facts of the case and gone through the submissions of the Ld. Counsel of the appellant. I have also gone through various prominent judicial pronouncements on this issue. The Assessing Officer made the addition on account of late payment of employees' contribution to ESI and EPF on the ground that the appellant had paid these amounts beyond the due date specified in the respective Acts. While making the addition, the A.O. invoked provisions of section 2(24)(x) read alongwith Section 36(l)(va) of the IT Act. Another important ground for making the addition was that provisions of section 43B (b) are not applicable in respect of employees' contributions to PF and ESI which were deposited by the appellant beyond the due date specified in the respective Acts. In order to understand the issue of applicability of section 43B to employees' contribution of Provident Fund/ESI, it is important to analyze the genesis of the inclusion of payment of provident fund in section 43B of the IT Act. The same has been elaborately explained in the judgment of Hon'ble Supreme Court in the case of CIT Vs. ALOM Extrusion Limited (319 ITR 306)(SC) (2009). In this judgment, it has been explained that income has been defined under section 2(24)(x) of the IT Act as including employees' contribution to Provident Fund/superannuation fund or any other funds set up under Employees' State Insurance Act, 1948 or any other fund for welfare for such employees. Since, employees' contribution constituted income, Section 36(l)(va) of the IT Act allowed for its deduction provided a provision was made to that effect in the books of account. In this situation it was possible for an employer to collect employees' contribution to Provident Fund/ESI and make a provision in the books of account and claim the same amount as deduction without even making the payment to the Government. In order to take care of this problem the Second Proviso was introduced to section 43B of the I. T. Act by Finance Act, 1989,with effect from 1- 4-89. The relevant portion of the said Proviso reads as follows: "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 sub section (1) of section 36." 4.4 After this amendment it became crystal clear that an employer had to make payment of employees' contribution in order to enable a deduction from its income. As regards the due date for making the payment, it was specified that the due date would be the same as given in section 36(l)(va) of the I. T. Act, 1961. This due date was the date by which the assessee was required as an employer to credit the employees' contribution to the employees account in the relevant fund. Thus, as a result of this amendment, it became obligatory for assessees to deposit the employees' contribution by the due date specified in the respective Acts. Subsequent to this amendment, the Assessing Officer started making disallowances in all such cases where the payment of employees" contribution was made beyond the due date as per section 36(1)(va) of the I.T. Act, 1961. In order to take care of this problem faced by the assessees, the Parliament inserted one more amendment vide Finance Act 2003 which came into force w. e. f. 01.4.2004. As per this amendment, the aforesaid Proviso was withdrawn and payment of contribution to ESI/EPF was brought within the purview of first Proviso to Section 43B of the IT Act. After this amendment, it was sufficient for the employer to deposit the contribution from employees by the due date for filing the return in order to enable it to claim the deduction under the Act. The two obvious inferences which can be derived from the above facts are as under: (i) Section 43B of the I. T. Act, 1961 governs the allowability of employees' as well as employer's contribution to Provident Fund, ESI and other funds setup for the welfare of employees. Had Section 43B not been applicable to employees' contribution to ESI/EPF, the AO could not have disallowed these on the basis of non-payment of such contributions since section 36(1)(va) of the IT Act does not link the allowability of such contributions with the payment to the Government. (ii) During the period 1-4-89 to 31-3-2004, the employees' contribution to ESI/EPF was disallowable on the basis of non- payment by the due dates specified in the respective Acts. However, with effect from 1-4- 2004, no disallowance can be made as per law on account of employees' contribution to ESI/EPF if the same is paid by the due date for filing the return. The position of law existing as on date in totally unambiguous on this issue and any disallowance reflects lack of appreciation of the provisions of law and various judicial pronouncements on the part of the Assessing Officer. 4.5 The AssessingOfficer has stated in his order that employees' contribution to Provident Fund is only governed by provision of section 36(l)(va) of the Act. If that had been the case, then the employers would have got deduction on account of employees' contribution to Provident Fund without making the payment since, what is required in section 36(l)(va) is to make a provision for employees' contribution to provident fund. It was the introduction of Section 43B(b) and its Second Proviso that the assessing officer started making disallowance on account for employees' contribution to provident fund since that section made it obligatory for them to make payment of employees' contribution by the due date specified in the respective Acts in order to claim it as a deduction. It was only when the Government found that the provision was too harsh that amendment was brought about by Finance Act 2003" with effect from 1-4-2004. The amendment made it crystal clear that if the employer deposited the contribution of employees' to ESI/EPF by the due date for filing of return of income, there was no room for disallowance on the issue of employees' contribution to ESI/EPF. 4.6 The above discussion makes it abundantly clear that there is no force in the AO's contention that section 43B is not applicable to employees' contribution to ESI/EPF. If the premise that section 43B is not applicable to provident fund breaks down, then it follows that employees' contribution to Provident Fund and ESI paid by the due date for filing the return of income would be eligible for a deduction. Taking the same logic forward, a number of judicial pronouncements on this issue have held that if the employees' contribution to PF and ESI is paid by the due date for filing the return of income, no disallowance is called for on this issue. The most prominent judicial pronouncement is the judgment of Hon'ble Apex Court in the case of CIT Vs. Vinay Cement Limited (2007) 213 CTR 268 (Supreme Court). Then, following the judgment of the Hon'ble Apex Court in the case of CIT Vs. Vinay Cement Limited [2007] (Supra), the Hon'ble High Court of Delhi in the case of CIT Vs. AIMIL Limited [2010] 188 Taxmann 265 (Delhi held that employees' contribution towards PF and ESI would qualify for deduction even if it is paid after due date prescribed under Provident Fund Act and ESI Act but before the due for filing the return of income. The relevant extracts of the said order are reproduced hereunder: "If the employees' contribution is not deposited by the due date prescribed under the relevant facts 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 in the ESI Act. Therefore, the Act permits the employer to make the deposit with some delay, subject to the aforesaid consequences. Insofar as the Income-tax 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 CIT v. Vinay Cement Ltd. [2007] 213 CTR (SC) 268." 4.7 Following the judgment of Hon'ble Delhi High Court in the case of CIT Vs. AIMIL Limited (supra), the Hon'ble Delhi High court in the case of CIT Vs. SPL Industries Limited [2011] 9 Taxmann.com 195 (Delhi) held that if the assessee has deposited contribution deducted from employees' salary towards PF and Employees' State Insurance before due date for filing the return of income it would be entitled to deduction of said payments under section 43B of the I.T. Act. The relevant extracts of the said order are given hereunder:

11. Before we delve into this discussion, we may take note of some more provisions of the Act. Section 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 provident fund 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 provident fund/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 section 36(l)(va) of the Act. Section 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.

are accordingly dismissed.

11. In result, the appeal is dismissed.

ITA No. 6267/Del/2014 for AY 2011-12 12. The grounds of appeal raised in for assessment year 2011-12 are reproduced as under:

1. Whether Ld. CIT(A) is justified in deleting the disallowance of Rs.42,88,215/- ignoring the fact that employees’ contribution to PF and ESI received by the employer is income in his hands as per section 2(24)(x) and it is deductible only if it is paid within the due date as per the respective Act as specified in section 36(l)(va) of the I.T. Act, 1961? 2. Whether Ld. CIT(A) is justified in deleting the disallowance of Rs.42,88,215/- ignoring the fact that the provisions of section 43B which is applicable in respect of employees contribution is different from the provisions of section 36(1 )(va) which is applicable in respect of employee’s contribution? 3. Whether Ld. CIT(A) is justified in deleting the disallowance without appreciating the fact that the opening words of section 43B make it clear that the said section would have overriding effect and apply only when a deduction is otherwise allowable under the l.T. Act, 1961? 4. Whether Ld. CIT(A) is justified in deleting the disallowance of Rs.42,88,215/- without considering and commenting upon the facts mentioned in the various cases-laws cited by the AO in his assessment order? 5. Whether Ld. CIT(A) is justified in deleting the disallowance without appreciating the fact that in the present case as per the explanation to section 36(l)(va) of the Act, the due date of payment is the 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 ESI Fund under the ESI Act and not the due date of filing of Return of income? 6. Whether Ld. CIT(A) is justified in deleting the disallowance of Rs.42,88,215/- without appreciating the fact that the amendment made in section 43B of the Act, which entitled the employer to a deduction in the relevant year if the employer’s contribution was deposited on or before the due date of filing of tax return, would not be applicable with respect to the employees’ contribution as there is no corresponding amendment in section 36(1 )(va) of the Act in relation to deposit of the employee's contribution? 7. That the appellant craves for the permission to add, delete or amend the grounds of appeal

13. Since the issue in dispute involved in the instant appeal is identical to the grounds raised in Revenue in the instant appeal also.

14. In result, the appeal of the Revenue is dismissed.

15. In summary, both the appeals of the Revenue are dismissed. The decision is pronounced in the open court on 6th Nov., 2017.