THYSSENKRUPP UHDE INDIA PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX -15(3)(1), MUMBAI

3 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited 8) The learned Commissioner of Income tax (Appeals) erred in holding that a notice of proposed adjustment was sent to the Appellant. 9) The Appellant submits that since the notice of proposed adjustment was never served on the appellant and, therefore, the adjustment made in the intimation issued under section 143(1) should be deleted. 10) The learned Assessing Officer erred in withdrawing TDS credit to the tune of Rs.1,47,92,761/-, in contravention of the provisions of section 154(3) of the Income tax Act. 11) Having regards to the facts and circumstances, the Appellant submits the withdrawal of TDS credit is illegal and beyond authority of law. 12) The Appellant submits that CPC Bangalore be directed to grant TDS credit of Rs.18,95,94,995/- as claimed in the Return of Income and allowed as per the original intimation issued under section 143(1) dated 16th March, 2018.” 3. The Grounds No. 1 to 7 pertain to disallowance of employee’s contribution to Provident Fund amounting to Rs.1,08,48,643/- u/s.36(1)(va) of the Income Tax Act while processing u/s.143(1) of the Income Tax Act by the Centralized Processing Centre (CPC) (Bangalore). Grounds No. 8 & 9 was not pressed by the appellant and Grounds No. 10, 11 & 12 pertain to TDS credit. 4. The facts of the case, in brief, are that the company is engaged in the business of providing entire range of engineering services involved in the design, construction and commissioning of plants mainly for the Chemical, Petrochemical, Fertilizer, Refinery and Pharmaceutical

4 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited Industries in India and abroad. It also provides engineering, procurement, construction management services and implements projects on lump sum turnkey basis. The appellant company i.e. M/s. Thyssenkrupp Uhde India Private Limited, filed this return of income u/s. 139(1) of the Act and claimed deduction of Rs.1,08,49,643/- on account of employees contribution to Provident Fund. The return was processed by the CPC Bangalore but it was found by the assessee company that in the intimation order dated 30/03/2019 issued u/s.143(1) of the Act, the same was not allowed on the ground that it was reported in clause 20B of the tax auditor report that appellant had deposited employee’s contribution to PF amounting to Rs.1,08,49,643/- for the month of December, 2016 was paid on 16/01/2017 whereas as per the due date of payment under EPF Act was 15/01/2017. According to the appellant, there was delay of only one day and that too because the due date of 15/01/2017 fell on Sunday. 5. Aggrieved by the said intimation order appeal was filed before the Ld. CIT(A) who decided the appeal against the assessee vide its order dated 11.01.2024. The Ld. CIT (A), after considering all the points raised by the appellant, concluded that all the decisions of the Tribunals and High courts, which are claimed to be in favour of the assessee, were given before the date of processing of the return of

5 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited income. But the latest decision of the apex court in the case of M/s. Checkmate Services Private Limited vs. CIT dated 12/10/2022 has put at rest all earlier decisions delivered on this issue. The extract of the order of the Ld. CIT(A) is reproduced as under:- “4.2.4. The main argument of the assessee is based on the fact that appellate tribunals and High Courts have given judgments in favour of the assessee before the date of processing the return of the income in several cases where the circumstances are similar to that of the assessee. Till the recent decision of the Apex Court in the case of M/s. Checkmate Services Pvt. Ltd. Vs. CIT dated 12/10/2022 is passed, majority of the earlier decisions of the appellate forums and the Hon'ble High Courts were supporting the arguments of the assessees relating to the contributions of PF & ESI amounts collected from employees can be remitted to the employees accounts of the PF & ESI Act on or before the due date of filing of the return of income according to the provisions of Sec. 43B of the Act, but not as per the due date prescribed under the PF & ESI Act. The main reason given in the above appellate orders relied on by the appellant is that Sec. 43B of the Act is having an overriding effect over Sec. 36 of the Act. 4.2.5. To end the long pending controversy of several years about the claim of overriding effect of Sec. 43B over Sec.36(1) (va) relating to employees contribution of PF & ESI amounts remitted by the assessee, the Hon'ble Supreme Court has pronounced a detailed judgment after thorough consideration of the legislative history of Sec. 36 and Sec. 43B, intent of the

6 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited Parliament in introducing the sections & amendments made from time to time to the sections, the relevant portion of Kelkar Committee report and interpretation of taxing statute. After analysing the above, the Apex Court has decided the issue in favour of Revenue by upholding the decision of the Hon'ble Gujarat High Court in the subject matter that the deduction u/s. 36(1) (va) shall be allowable only when the assessee remits the employees contribution on or before the due date specified under the PF & ESI Acts. The concluding portion of the judgment in case of Checkmate Services Pvt. Ltd. (supra) is reproduced below for ready reference: "52. 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

7 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited 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 is to 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 maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures or out-goings forming part of the assessee's liability. These include liabilities such as tax liability, cess, duties etc. or interest liability having regard to the terms of the contract. Thus, timely payments 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 assessees

8 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited 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. 53. 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 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. 54. 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,

9 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited 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 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 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

10 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited liability to deposit the employee's contribution on or before the due date as a condition for deduction. 55. 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.” 4.2.6. Based on the above judgment, now the Revenue's stand of not allowing the deductions u/s. 36(1)(va) in respect of contributions collected from the employees if the contributions are not remitted to PF & ESI authorities on or before the due dates specified in the PF & ESI Act is vindicated all along from the inception of the provision u/s.36(1)(va). 4.2.7. Further, it is relevant to refer a recent decision of the Hon'ble ITAT, Chennai, A Bench, in the case of M/s. Electrical India & Others vs. ADIT, CPC, which clarifies the correctness of action taken by AO, CPC where the adjustment was made u/s. 143(1)(a). A detailed discussion is made on the applicability of particular clause of S.143(1)(a) on adjustment of PF & ESI deducted from the employees but not paid in time as per the PF & ESI Act when this fact is emerging from the audit report filed in Form 3CD. It says there the issue of debate is no more exists after the correct law lay down by the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. (supra) and, also, supported the action of the AO, CPC against the various grounds raised by the several assessees. For the sake of ready

11 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited reference, the operating portion of the ITAT, Chennai decision (supra) is reproduced as under.: "Our findings and Adjudication 1. We find that the provisions of Section 2(24) enumerate different components of income. The income as defined therein 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 thus clear that as soon as the Employer receives any contribution from its employees towards provident fund or ESI by way of deduction or otherwise, then the same is treated as income of the assessee. If the assessee deposit the same as per the mandate of Sec. 36(1)(va), the deduction of the same is allowed to the assessee otherwise the right to claim the deduction is lost forever. In other words, the contribution is first treated as deemed income of the assessee and thereafter, the deduction of the same is allowed to the assessee if the conditions of Sec. 36(1) (va) are met. The CPC, as is evident, has denied this deduction to the assessee since the assessee did not fulfill the mandate of Sec. 36(1) (va). It could also be seen that this is not an increase in income but disallowance of expenditure, the adjustment of which is covered u/s 143(1)(a)(iv) which provide that the disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return could be made while processing the return of income. The amendment made w.e.f. 01/04/2021 by insertion of words 'increase in income' would have no impact

12 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited on such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv). 2. The impugned adjustment, in our opinion, would also fall u/s. 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per statutory mandate, the assessee is required by law to get its accounts audited u/s. 44AB if its turnover crosses threshold turnover. The purpose of the audit is to enable the revenue to make correct computation of assessee's income. A proper audit would, inter-alia, ensure that the claims for deduction are correctly made. The report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return. As noted earlier, the contribution is first treated as income of the assessee and thereafter, the deduction of the same has to be claimed by the assessee. Therefore, the columns in the Profit & Loss Account in the return of income has to be filled in this manner only i.e., the contribution is to be first added to the income of the assessee and thereafter, the deduction of the same would be claimed by the assessee. In other words, the assessee would first add the same to its income and thereafter, it would claim deduction after crossing the hurdle of Sec. 36(1)(va). Since the claim made by the assessee is inconsistent with the reporting made

13 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited by Tax Auditor, it was an incorrect claim which CPC has rightly disallowed. 3. Another argument is that the debatable issues could not be subject matter of adjustment u/s 143(1). However, so far as the revenue is concerned, this issue is not debatable for the revenue. The revenue has always maintained a position that the claim is allowable to assessee only when the contribution is deposited as per the mandate of Sec. 36(1) (va) otherwise not. Therefore, it is incorrect to say that the issue is debatable one. The Hon'ble Supreme Court has upheld the stand and of the revenue. 4. The Hon'ble High Court of Madras in Southern Industrial Corporation vs. CIT (258 ITR 481) held that when a statutory provision is interpreted by the Apex Court in a manner different from the interpretation made in the earlier decisions by a smaller Bench, the order which does not conform to the law laid down by the larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. Therefore, in the present case, the law laid down by Hon'ble court is to be regarded as law of land and it was to be presumed that the law was always like that. 5. The case law of Hon'ble Supreme Court in Kvaverner John Brown Engg. (India) P. Ltd. vs. ACIT (305 ITR 103), as referred on behalf of assessee, deal with deduction u/s 80-0 for which two interpretations were possible viz. the deduction could be computed at gross value or the same could be

14 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited computed on net value. The same is not the case here. The action of revenue is in accordance with the law laid down by Hon'ble Supreme Court in the cited decision. In fact, Hon'ble High Court of Madras in Tamilnadu Magnesite Ltd. vs. DCIT (303 ITR 71) held that where the amount was inadmissible in view of Sec. 43B which overrides section 36(1) of the Act, the revenue was well within its power to make a prima facie adjustment in the computation of taxable total income while processing returns of income under Section 143(1)(a) of the Act. The aforesaid decision supports our view. 12. The decision of Hon'ble High Court of Bombay in Bajaj Auto Finance Ltd. vs. CIT (93 Taxmann.com 63) as referred before us deals with case of debatable issue and hence distinguishable. The case law of Chandigarh Tribunal in Lanjani Co-operative Agri Service Society Ltd. vs. DCIT (ITA No.332/Chd/2021 dated 30.08.2022) relates with adjustment u/s 143(1)(a)(v) which is not the case here. The case law of Visakhapatnam Tribunal in S. V. Engineering Constructions India (P.) Ltd. vs. DCIT (ITA No. 130/Viz/2021 dated 23.09.2021) relies on another decision of Tribunal in Andhra Trade Development Corp. Ltd. (ITA No.434/Viz/2019 dated 05.05.2021) which deal with set-off of losses. In this decision, the bench also dealt with the merits of the case by following earlier view which has now been reversed by Hon'ble Supreme Court. The decision of Delhi Tribunal in SVS Guarding Services Pvt. Ltd. vs. ITO (ITA No. 231/Del/2022 dated 24.05.2022) held that the

15 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited issue whether the amendment made by Finance Act, 2021 was retrospective or prospective was debatable and controversial and consequently, the adjustment was beyond the scope of Sec. 143(1). Further the bench did not specifically examine the applicability of clauses (ii) and (iv) of Sec. 143(1)(a) in that decision. The subsequent decision of the bench in 360 Realtors LLP vs. ADIT (ITA No. 303/Del/2022 dated 26.09.2022) is substantially on same lines. All these case laws have been rendered before the recent decision of Hon'ble Supreme Court which has settled the law since its inception. Therefore, all these case laws do not render any assistance to the case of the assessee." 4.2.8 In view of the above, based on the evidence placed on record and keeping in view the relevant provisions of the statute i.e section 36(1) (va) of the Act and case law (supra.)discussed in the preceding paragraphs , I am of the considered viewthat, the appellant is not entitled to claim deduction towards employees contribution to PF to the extent of Rs.1,08,49,643/-, since the same was paid beyond the due dates specified as per the PF Act. Hence in my view, there is no illegality in making adjustment u/s 143(1) (a) (ii) or u/s143(1)(a) (iv)of the Act.” 5. Not satisfied with the above order of the Ld. CIT (A), the appellant has filed this appeal. It was contended before us that though, it is a

16 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited fact that the payment was made towards employees contribution to PF amounting to Rs.1,08,49,743/- on 16/01/2017 as against the due date of 15/01/2017, the reason for one day delay was because 15/01/2017 was a holiday. Further, the appellant has also produced before us a circular issued by the EPFO vide its circular no. WSU/9(1)2013/Settlement of Claims/26308 dated 12/01/2017 that the due date of the payment was extended till 20/01/2017. The copy of the said circular has also been enclosed by the appellant along with the Paper Books. The appellant has also placed reliance on various decisions including the decisions of the Coordinate Bench of ITAT (Mumbai), wherein, the Coordinate Bench in the case of ITA No. 931/Mum/2021 for the Assessment Year 2017-18 had decided the similar issue in favour of the assessee. 6. We have considered the facts of the present case and also the legal position in this regard. Though, it is a fact that the issue of late payment of PF u/s 36 (1) (va) of the Act has been settled by Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra.), the facts of the instant case, however, is slightly different in the sense that the payment was delayed by one day because of next day was holiday and the EPFO had already extended the due date till 20th of January 2017. Thus, in our considered view, there was no delay in making payments

17 ITA No.1030/M/2024 M/s. Thyssenkrupp Uhde India Private Limited of Rs.1,08,49,743/- towards employees contribution to PF u/s 36(1) (va) of the Act. We hold it accordingly. 7. Rests of the grounds are consequential in nature. 8. In the result, the appeal is partly allowed. Order pronounced in the open court on 26.06.2024.

Sd/- Sd/- (PAVAN KUMAR GADALE) (RATNESH NANDAN SAHAY) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated: 26.06.2024. Snehal C. Ayare, Stenographer

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.