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Facts
The assessee appealed against the disallowance of Rs. 2,98,41,746/- for belated remittance of Employees' Provident Fund and ESI contributions for AY 2019-20. The CIT(A) and CPC disallowed the claim under section 143(1), citing the retrospective effect of the explanation to section 36 by Finance Act, 2021. The assessee contended that the explanation has prospective effect and also raised issues of natural justice due to an ex-parte disallowance.
Held
The tribunal, while acknowledging the Supreme Court's ruling in Checkmate Services Pvt. Ltd. that delayed deposits of EPF and ESIC are not allowable, considered the assessee's alternative argument regarding the definition of 'due date' under EPF Scheme, 1952. Consequently, the matter was remanded to the Assessing Officer to verify the 'due date' as prescribed by the EPF Scheme, 1952, and re-examine the allowability of the contributions.
Key Issues
Whether belated remittance of employees' provident fund and ESI contributions is allowable, considering the retrospective or prospective effect of Finance Act, 2021 amendments to Section 36 and the interpretation of 'due date' under EPF Scheme, 1952.
Sections Cited
143(1), 43B, 36, 2(24)(x), 36(1)(iv), 36(1)(va)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH’ G’: NEW DELHI
1 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH’ G’: NEW DELHI
BEFORE, SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER
ITA No.2104/Del/2023 (ASSESSMENT YEAR 2019-20)
Simbhaoli Sugars Ltd. ACIT Kothi No. 1, Simbhaoli, Circle-2(3) (1) Hapur, Vs. Bulandshahar Uttar Pradesh PAN-AAPCS7569A (Appellant) (Respondent)
Appellant by Sh. Subhash Kumar, CA Respondent by Sh. Anuj Garg, Sr. DR
Date of Hearing 09/05/2024 Date of Pronouncement 10/05/2024
ORDER PER YOGESH KUMAR U.S.JM:
This appeal is filed by the Assessee against the order of
Income Tax Department/National Faceless Appeal Centre [“NFAC”
for short], dated 30/05/2022 for the Assessment Year 2019-20.
The Grounds of Appeal are as under:-
“1. On the facts and circumstances of the case the learned CIT (Appeals)/National Faceless Appcal Centre
2 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT (NFAC) and the CPC, erred in law in disallowing a claim u/s 143(1) which is debatable in respect of belated remittance of Employee's provident fund and ESI Contribution of Rs. 2,98,41,746/- for the assessment year 2019-20. After the omission of the second proviso to section 43B w.e.f. 01-04-2004, the deduction is allowable under the first proviso, if the payment is made on or before the "due date" for furnishing the return of income under I. Tax Act.
On the facts and circumstances of the case the learned CIT (Appeals)/National Faceless Appeal Centre (NFAC) and the CPC, erred in law in disallowing the claim in respect of belated remittance of Employee's provident fund based on the insertion to explanation to section 36 of Income Tax Act, 1961 by the Finance Act, 2021, stating it to be retrospective in nature. The Assessee believes that explanation to section 36 by Finance Act, 2021 has prospective effect and not retrospective effect. Hence, not applicable for assessment year 2019-20, thus, the addition of Rs. 2,98,41.746/-, needs to be deleted.
On the facts and circumstances of the case the learned CIT (Appeals)/National Faceless Appeal Centre (NFAC), erred in law in disallowing the claim ex-parte which is against the principal of Natural Justice. the Appellant was not even aware of the appeal filed as the manager taxation has resigned during Covid and the New Manager taxation has registered during covid and the New Manager has updated the email ID on portal in March, 2022 which prevented the Appellant to comply with the notices.
The grievance of the Assessee in the above appeal against the
Revenue in disallowing claim in respect of belated remittance of
Employees Provident Fund. The Ld. Counsel for the Assessee
3 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT vehemently submitted that the Ld. CIT(A) committed error in
confirming the disallowance of Rs. 2,98,41,746/-.
Per contra, the Departmental Representative relying on the
orders of the Lower Authorities and submitted that as per the ratio
laid down by the Hon'ble Supreme Court of India in the case of
Checkmate Services Pvt. Ltd. Vs. CIT-1 in Civil Appeal No. 2833 of
2016, vide order dated 12/10/2022, the present Appeal filed by the
Assessee is liable to be dismissed.
We have heard both the parties and perused the material
available on record. The Hon'ble Supreme Court in the case of
Checkmate Services Pvt. Ltd. vs. CIT-1 in Civil Appeal No. 2833 of
2016, vide order dated 12/10/2022 held that delayed deposit of the
contribution EPF & ESIC beyond the stipulated period prescribed in
the respective Acts are not allowable in following manners:-
“51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Court’s principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its
4 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.
When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be
5 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessee are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.
The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such 33 amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest
6 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such 34 interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
Since, the Hon'ble Supreme Court has laid down the ratio that
the Employee’s Contribution not paid within the due date specified
under the relevant act is not allowable. Thus, following the ratio
7 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT laid down in the case of Checkmate (supra), we find no merits in
the Grounds of Appeal of the assessee.
The Ld. Counsel for the Assessee alternatively submitted that
the Employees Contribution has been paid well within time
considering eh due dates as per Section 38 of EPF Scheme 1952,
therefore, the addition/disallowance u/s 2(24)(x) is not warranted.
Further submitted that as per Clause 38 of the Employees’
Provident Fund Scheme, 1952, fixes the time limit for making
payment in respect of contribution to the provident fund to be 15
days from the close of the month concerned. However, the issue
here is whether the “month” should be considered to be the month
to which the wages relates or the month in which the actual
disbursement of the wages is made irrespective of month to which
is same relates.
Considering the alternative submission of the the Assessee's
Representative and in view of the above facts and circumstances,
we remand the matter to the file of the A.O. to verify ‘the due date’
as prescribed by the EPF Scheme, 1952 and examine the issue of
8 ITA No. 2104/Del/2023 Simbhaoli Sugar Ltd. Vs. ACIT allowability afresh in accordance with law. Accordingly, the Appeal
of the Assessee is partly allowed for statistical purpose.
In the result, the Appeal of the Assessee is partly allowed for
statistical purpose.
Order pronounced in open Court on 10th MAY, 2024
Sd/- Sd/- (S. RIFAUR RAHMAN) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 10/05/2024 R.N, Sr.ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT, NEW DELHI