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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SANDEEP SINGH KARHAILSHRI GAGAN GOYAL
PER BENCH
Both the assessee as well as the Revenue are in appeal/cross objection before us against the separate impugned orders passed u/s 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment years 2018-19, 2019-20 and 2020-21.
Since similar issues arising out of a similar factual matrix pertaining to the same assessee is involved in these cases, therefore, these cases were heard together and are being decided by way of this consolidated order.
ITA. No.2967/Mum./2022 – Revenue’s Appeal and C.O. No. 16/Mum./2023 – Assessee’s Cross-Objection A.Y. 2018-19
In its appeal, the Revenue has raised the following grounds: –
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 “1. On the facts and circumstances of the case and in law, the ld. CIT(A) NFAC, erred in deletion of Employees Contribution of Rs.1,75,81,498/- payable under the ESI/PF Act on account of delay in remitting the same on or before the due date specified u/s 36(1(va) of the ITA. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) NFAC, erred in deletion of Employees Contribution of 1,75,81,498/- payable under the ESI/PF Act which was not paid within the due date as prescribed u/s 36(1)(va) and therefore, not allowable in view of the recent Supreme Court Judgment in the case of Checkmate Services Pvt. Ltd Vs. CIT (2022) 143?.”
The only issue raised by the Revenue pertains to the deletion of disallowance made u/s 36(1)(va) of the Act on account of delayed payment of Employees’ Contribution towards Employees State Insurance Corporation (“ESIC”)/Provident Fund (“PF”). As per the Revenue, this issue has been decided in its favour by the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT, [2022] 448 ITR 518 (SC), wherein it was held that payment of Employees’ Contribution towards ESIC/PF beyond the due date prescribed under the relevant statute is not allowable u/s 36(1)(va) of the Act.
On the other hand, the assessee has filed cross-objection and raised the following grounds: -
“1 Ground No.1: Non admission and adjudication of the Additional Grounds raised before the CIT(A) (a) The CIT(A) has erred in law and on facts in; i not admitting the additional grounds no.4 to 6 filed with him on 04.09.2022 (Ann I) or, ii. in the alternative in not adjudicating the said additional grounds iii. rejecting such grounds by not adjudicating the same at all. b) Your Respondent submits that the additional grounds raised by the company. before the CIT(A), being ground no. 4, 5 and 6 was filed on 04.09.2022, in respect of which the CIT(A) has not passed any speaking order. c) Your Respondent prays that the said additional grounds be adjudicated by Honorable Tribunal. Page | 3
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 2. Ground No.2: Failure to issue to Statutory notice u/s 143(1)(a) of the Income Tax Act (a) The ld CIT(A) had failed to appreciate that the ld. AO/(CPC) has erred in law and on facts in disallowing the expenditure on payment of Employee’s contribution of Rs.1,75,81,498/- while issuing the intimation u/s 143(1) without providing an opportunity of being heard of objecting to the proposed adjustment by failing to issue the statutory notice under clause (a) of sub- section (1) of section 143 of the Act or in the alternative failed to appreciate that the objections if filed were ignored by the AO(CPC). b) Your Respondent submits that no prior notice, as required under Proviso to clause (a) of sub-section (1) of section 143, was ever issued on your Respondent, by AO(CPC), before issuing intimation u/s. 143(1) for disallowing the expenditure on payment of Employee’s contribution of Rs. 1,75,81,498. Your Respondent prays that the intimation u/s 143(1) be held to be bad in law and be quashed. 3. Ground No. 3: Invalid Adjustment u/s. 143(1) (a) The Id. CIT(A) had erred in law and on facts in failing to appreciate and hold that the intimation u/s. 143(1) was not sustainable in law and was bad in law in as much as that no adjustments by AO (CPC) to the returned income was possible at all in respect of the claim of deduction from business expenditure in respect of employee’s contribution towards PF/ESIC of Rs. 1,75,81,498/- in issuing intimation u/s. 143(1) for the reason the issue of deduction was debatable and was in any case decided in favour of the assessee by various High Courts as on the date of issue of intimation. (b) Your Respondent submits that no adjustment to the returned income, with or without notice, was possible at all in respect of the claim for deduction of the employee’s contribution towards PF/ESIC while issuing intimation dt. 16.10.2019. Without Prejudice, your Respondent submits that even after the decision of the Supreme Court dt. 12.10.2022 in Checkmate’s case, 448 ITR 518, such an adjustment to the returned income while issuing intimation was not possible in respect of a debatable issue as has been held by the Hon‘ble ITAT in case of P R Packaging Services, ITA No.2376/Mum/2022 dated 07.12.2022. (c) Your Respondent prays that the intimation u/s 143(1) be held to be declared as void in law.”
As per the defect notice issued by the Registry, the cross-objection filed by the assessee is delayed by 102 days. Along with the cross-objection, the assessee has filed an application seeking condonation of delay in filing the cross-objection, which is duly supported by the affidavit of the Director of the assessee. In the aforesaid affidavit, it has been submitted that the notice of
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 hearing of the appeal filed by the Revenue was received by the assessee on 28.12.2022 and therefore the assessee had 30 days therefrom to file any cross-objection. It is submitted that the assessee filed its cross-objection on 31.01.2023 after a delay of about four days. In the aforesaid affidavit, it is further submitted that the mistake in not filing the cross-objection was realized by the assessee in the last week of January 2023 while briefing the Authorised Representative, who represents the assessee’s case in appeal by the Revenue. Thereafter, the present cross-objection was prepared and filed before the Tribunal. From the perusal of the record, it is evident that the Revenue filed its appeal for the assessment year 2018-19 on 21.11.2022. We further find that on 27.12.2022, the Registry issued the notice fixing the appeal filed by the Revenue for hearing on 19.01.2023. Therefore, there is no material to doubt the contention of the assessee that the notice of hearing of Revenue’s appeal was received by it on 28.12.2022. Since the assessee filed its cross-objection on 31.01.2023, therefore, in the interest of justice the slight delay of four days in filing the cross-objection is condoned.
The primary contention of the assessee is that the impugned disallowance u/s 36(1)(va) of the Act was made vide intimation issued u/s 143(1) of the Act without giving prior intimation to the assessee about the aforesaid adjustment and therefore the opportunity of raising objection against the proposed adjustment was not granted to the assessee. Accordingly, as per the assessee, since no prior intimation as required under proviso to section 143(1)(a) of the Act is issued, the intimation issued u/s 143(1) of the Act is bad in law. Since this issue raised in the cross-objection filed by the assessee
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 goes to the root of the matter, therefore, we have dealt with the same at the outset before going into the merits of the addition.
The brief facts of the case, as emanating from the record, are: For the year under consideration, the assessee filed its return of income on 30.10.2018 declaring a total income of Rs.2,93,88,190/-. The return filed by the assessee was processed vide intimation dated 16.10.2019 issued u/s 143(1) of the Act computing the total income of the assessee at Rs.4,69,94,420/-, inter-alia, after making the disallowance of Rs.1,75,81,498/- on account of delayed payment of Employees’ Contribution to ESIC/PF. The rectification application filed by the assessee u/s 154 of the Act was disposed of vide order dated 05.12.2019 without granting any relief to the assessee in respect of the aforesaid disallowance u/s 36(1)(va) of the Act. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee following the decision of the Hon’ble Jurisdictional High Court in CIT vs. Ghatge Patil Transport Ltd, (2014) 368 ITR 749 (Bom.) and held that payment of Employees’ Contribution to ESIC/PF after the due date but before the date of filing the return of income u/s 139(1) of the Act is an allowable deduction u/s 36(1)(va) of the Act. Being aggrieved, the Revenue is in appeal before us on merits of disallowance, while the assessee has filed the cross-objection also raising the jurisdictional challenge against the issuance of intimation u/s 143(1) of the Act.
During the hearing, the learned Authorised Representative (“learned AR”) submitted that no intimation/communication, as is required under proviso to section 143(1)(a) of the Act, was given to the assessee about the proposed Page | 6
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 addition/adjustments to the return of income. The learned AR further submitted that in the intimation dated 16.10.2019 issued u/s 143(1) of the Act it is mentioned that the communication was sent to the email id, sanjay@markoline.com, on 17.03.2019. However, no such communication was received by the assessee. The learned AR by referring to the return of income filed by the assessee for the assessment year 2018-19 submitted that the email address for the communication was mentioned as mundadarajesh20@gmail.com. It was further submitted that as per the Income Tax Portal, the primary email address of the assessee is prashant.mohite@markolines.com and the secondary email address is mundadarajesh20@gmail.com. Thus, it was submitted that the email address, i.e. sanjay@markoline.com, is not the email address provided to the income tax department for any communication. Further, the learned AR submitted that even the intimation u/s 143(1) of the Act was sent to the email address prashant.mohite@markolines.com. It was also submitted that for the subsequent assessment year, the intimation as is required under proviso to section 143(1)(a) of the Act was issued and served at the email address prashant.mohite@markolines.com. Thus, it was submitted that since no intimation as required under proviso to section 143(1)(a) of the Act was issued to the assessee, therefore the intimation issued u/s 143(1) of the Act is bad in law.
In view of the submissions made by the assessee, vide order sheet dated 02.08.2023, the learned Departmental Representative (“learned DR”) was
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 directed to furnish a reply from the Assessing Officer (“AO”)/Centralised Processing Centre, Bengaluru (“CPC”) as to:- (a) Whether the notice required to be sent u/s 143(1) of the Act before making any adjustment was sent or not? (b) If sent, to which email address it was sent? (c) Whether the said email address was the official address furnished by the assessee? If so, the basis for mentioning the same?
Accordingly, the learned DR furnished a copy of an email dated 18.10.2023 from CPC, Bangaluru along with a copy of the activity log of the assessee from the e-filing portal in support of the contention that the assessee added the email address sanjay@markoline.com on 20.01.2017 at 3:12 P.M. and the same was shared with CPC, which was used to send the intimation/communication for adjustment u/s 143(1)(a) of the Act on 17.03.2019 to the assessee. The learned DR also furnished a certificate u/s 65B of the Evidence Act signed by the Assistant Director (Systems), Bangaluru to the effect that only authorised user knows the user address and password and can only make the changes.
We have considered the oral and written submissions of both sides and perused the material available on record. As per the provisions of the first proviso to section 143(1)(a) of the Act, no adjustment as mentioned in clause (a) of the aforesaid section shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode. In the present case, the return filed by the assessee was processed vide intimation dated 16.10.2019 issued u/s 143(1) of the Act. In the aforesaid intimation, it Page | 8
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 has been claimed that a communication as regards the proposed adjustment u/s 36(1)(va) of the Act was sent to the assessee on 17.03.2019 at the email address sanjay@markoline.com. During the hearing, the learned AR vehemently argued that the aforesaid email address is not the email address given to the department for communication, as in the return of income for the year under consideration email address of its Chartered Accountant, i.e. mundadarajesh20@gmail.com was mentioned and even on the Income Tax Portal apart from the aforesaid email address, i.e. mundadarajesh20@gmail.com, mentioned as the secondary email address, the assessee has provided email address, i.e. prashant.mohite@markolines.com, as the primary email address. On the contrary, it is the claim of the Revenue that the email address, i.e. sanjay@markoline.com was added by the assessee in the taxpayer profile, and the same was used by the CPC, Bangaluru for sending a copy of communication dated 17.03.2019 in respect of proposed adjustment u/s 143(1)(a) of the Act. From the copy of the activity log from the e-filing 1.0 portal furnished by the learned DR along with a copy of the email from CPC, Bangaluru, we find that contact details were updated on 20.01.2017 at 3:12 P.M. and the email address sanjay@markoline.com was mentioned as secondary contact, apart from the email address prashant.mohite@markoline.com which was also mentioned as the secondary email address. Further, the assessee has also updated the contact mobile number in respect of the aforesaid email addresses. In support of the aforesaid information in the form of the activity log of the user profile on the Income Tax Portal, the learned DR also furnished the certificate u/s 65B of the Evidence Act, wherein it has been certified that only the concerned user can make the Page | 9
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 changes through unique user id and associate password. During the hearing, the learned DR also submitted that the email address sanjay@markoline.com is the email address of one of the Directors of the assessee. It is pertinent to note that no material contrary to the aforesaid submission of the learned DR has been brought on record by the assessee. Further, the assessee also did not bring any material to show that the email address sanjay@markoline.com was never updated in the user profile. The only claim of the assessee is that the communication was not sent to the two email addresses, i.e. prashant.mohite@markolines.com and mundadarajesh20@gmail.com, as available on the Income Tax Portal. From the snapshot of the Income Tax Portal furnished by the learned AR along with the submission dated 09.02.2024, it is not evident when these email addresses were modified/updated since as per the snapshot, the last update was on 30.09.2022 and the last login and log out was on 12.05.2023. Thus, there is no evidence on record that on the date of alleged communication, i.e. 17.03.2019, only two email addresses, i.e. prashant.mohite@markolines.com and mundadarajesh20@gmail.com were available on the record of the Income Tax department and the email address, i.e. sanjay@markoline.com, which was added on 20.01.2017 was subsequently deleted from the profile prior to the aforesaid date of communication. The assessee though alleged that the email address sanjay@markoline.com was discarded in January 2019, however, no evidence or proof is brought on record that the necessary changes were made in the taxpayer profile on the Income Tax Portal prior to the aforesaid date of communication. Further, the information about the primary and secondary email addresses as mentioned in the snapshot of the Income Tax Portal cannot Page | 10
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 be considered to exist at the same position on the date of communication, i.e. 17.03.2019, as the email address, i.e. prashant.mohite@markolines.com, which is mentioned as a primary email address in the snapshot of the Income Tax Portal, is mentioned as a secondary email address as per the activity log of the assessee from e-filing portal furnished by the learned DR.
It is pertinent to note that as per Rule 127 of the Income Tax Rules, 1962 (“the Rules”) read with section 282 of the Act, the communication can be delivered or transmitted electronically as under: -
“(b) for communications delivered or transmitted electronically— (i) e-mail address available in the income-tax return furnished by the addressee to which the communication relates; or (ii) the e-mail address available in the last income-tax return furnished by the addressee; or (iii) in the case of addressee being a company, e-mail address of the company as available on the website of Ministry of Corporate Affairs; or (iv) any e-mail address made available by the addressee to the income-tax authority or any person authorised by such income-tax authority.”
Therefore, from the plain reading of provisions of Rules 127(2)(b) of the Rules, it is evident that any notice or summons or requisition or order or any other communication, for the purposes of section 282(1) of the Act can be communicated electronically, inter-alia, at any email address made available by the addressee to the Income Tax authority. From the perusal of the aforesaid Rule, it is also evident that the same does not prescribe any sequence of preference, and all the sub-clauses of clause (b) of Rule 127(2) of the Rules, as noted above, are mutually exclusive. Thus, we are of the considered view that even if any communication under the Act is sent to the
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 email address made available by the assessee to the Income Tax authority, the same is a valid service of such communication. Even Notification No.2 of 2016 dated 03.02.2016 issued by the CBDT, relied upon by the learned AR, also supports the aforesaid findings, as in the present case the email address sanjay@markoline.com has been found to have been added by the assessee in the taxpayer profile on 20.01.2017 and in view of the para-6 of the aforesaid Notification the email address sanjay@markoline.com is the primary email address for the purpose of issuing electronic communication. Therefore, in view of the aforesaid facts and the provisions of Rule 127 of the Rules, we are of the considered view that the communication dated 17.03.2019 of the proposed adjustment u/s 143(1)(a) of the Act at the aforesaid email address is a valid communication.
As regards the plea of the assessee that there is no such communication as required under proviso to section 143(1)(a) of the Act, the learned DR, post-hearing of the present appeal, furnished the copy of communication dated 17.03.2019 in respect of the proposed adjustment u/s 143(1)(a) of the Act. Thus, we do not find any merit in this submission of the assessee in view of the documents placed on record. Accordingly, we are of the considered view that the communication, as required under proviso to section 143(1)(a) of the Act, was duly given to the assessee via electronic mode at one of the email addresses furnished by the assessee. As a result, ground no. 2 raised in the cross-objection filed by the assessee is dismissed.
Ground no. 1 raised in the assessee’s cross-objection pertaining to non- admission and adjudication of additional ground by the learned CIT(A) was not Page | 12
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 pressed during the hearing. Accordingly, ground no. 1 is dismissed as not pressed.
Since ground no. 3 raised in the assessee’s cross objection and the ground raised by the Revenue in its appeal pertain to the merit of adjustment u/s 143(1) of the Act on account of delayed payment of Employees’ Contribution towards ESIC/PF, therefore, the aforesaid grounds are considered together.
On merits, the learned AR submitted that disallowance u/s 36(1)(va) of the Act on account of late payment of Employees’ Contribution towards ESIC/PF has been made u/s 143(1)(a) (iv) of the Act, which is not applicable to the present case as there was no indication in the audit report about the disallowance of the aforesaid payments. The learned AR further submitted that the aforesaid disallowance cannot also be considered as an “incorrect claim” u/s 143(1)(a)(ii) of the Act, as the said provision was not invoked for the aforesaid disallowance. The learned AR submitted that the auditor is not an authority for disallowance of an expenditure. It was further submitted that allowance of payment has to be decided on the basis of law prevailing on the date of payment and on the said date the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd (supra) was not available. The learned AR also submitted that as per the provisions of the Provident Fund Scheme, the employee’s contribution to PF is required to be deposited within 15 days from the close of every month, and the term “every month” should be read as the month in which the salary is paid, which in the present case is subsequent to the month for which the salary is paid. Thus, the learned AR submitted that Page | 13
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 not all the payments towards Employees’ Contribution to PF and ESIC are beyond the due date. In support of its submission, the learned AR placed reliance upon the decision of the coordinate bench of the Tribunal in The Master Polishers v/s ADIT, in ITA No. 252/Mum./2023.
On the other hand, learned DR by placing reliance upon the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd (supra) submitted that the payment of Employee’s Contribution towards ESIC/PF after the due date prescribed under the relevant statute is not allowable u/s 36(1)(va) of the Act.
We have considered the submission of both sides and perused the material available on record. We find that the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) held that the payment towards Employees’ Contribution to PF and ESIC, after the due date prescribed under the relevant statute is not allowable as a deduction under section 36(1)(va) of the Act. The relevant findings of the Hon’ble Supreme Court, in the aforesaid decision, are as under:–
"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.
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 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, 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 liability to deposit the employee’s contribution on or before the due date as a condition for deduction.”
In the present case, it is undisputed that the amount of Employees’ Contributions towards ESIC/PF, which was deposited after the due date prescribed under the relevant statute has been disallowed u/s 36(1)(va) of the Act.
Further, we find that recently the Hon’ble High Court of Bombay at Goa in Rohan Korgaonkar Vs. DCIT, [2024] 159 taxmann.com 321 (Bom.), after considering the aforesaid decision of the Hon’ble Supreme Court inCheckmate Services Pvt. Ltd. (supra) and the decision of the Co-ordinate Bench of Tribunal in M/s. P.R. Packaging Service vs. ACIT, in ITA. No.2376/Mum./2022, held that merely because the assessment order has been made u/s 143(1)(a) of the Act, the same makes no difference and the decision of the Hon’ble
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 Supreme Court in Checkmate Services Pvt. Ltd. (supra) is equally applicable. The relevant findings of the Hon’ble High Court, in the aforesaid decision, are reproduced as under: -
“7. Though the decision cited was that of the ITAT, we have considered the same. In our judgment, however, the fact that the assessment order in Checkmate Services (P.) Ltd. (supra) was incidentally under section 143(3) and the assessment order in the present case is under section 143(1)(a) of the IT Act, makes no difference to the principle involved in this matter. The ITAT decision does not discuss why this circumstance constitutes a distinguishing feature based on which the ratio of Checkmate Services (P.) Ltd. (supra) could be departed from. 8. Checkmate Services (P.) Ltd. (Supra) holds that the deductions can be claimed or adjustments can be made under section I4l(l)(a)(iv), read with section 36(1)(va) only when the employer deposits the contributions in the employees' accounts on or before the due date prescribed under the Employees Provident Fund /Employees State Insurance Act. In this case, admittedly, the contributions were deposited in the employees' accounts beyond the due date. The circumstance that the assessment order was made under section 143(1)(a) of the IT Act can make no difference.”
As regards the submissions of the learned AR that as per the provisions of the Provident Fund Scheme, the Employees’ Contribution to PF is required to be deposited within 15 days from the close of every month, and the term “every month” should be read as the month in which the salary is paid, which in the present case is subsequent to the month for which the salary is paid, we further find that the coordinate bench of the Tribunal in Creative Textile Mills Pvt. Ltd. v/s DCIT, in ITA No. 409/Mum./2022, vide order dated 31/05/2023, following the decision of the Hon’ble Madras High Court in CIT v/s Madras Radiators & Pressing Ltd., 264 ITR 620 (Madras), rejected the similar arguments as raised by the learned AR before us. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:-
“3. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. dispute before us is regarding the due Page | 16
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 date before which the employee’s contribution should be deposited into provident fund account. The Ld. Counsel of the assessee has referred to clause 38 of the employee’s provident fund which reads that provident contribution fund are payable to central government within 15 days of the close of every month. The Ld. Counsel has referred to the decision of the Co-ordinate Bench of the Tribunal (Kolkata) Bench in the case of Kanoi Paper and Industries Ltd ACIT in 1260/Mum/1996. T (supra) has referred to the said finding. For ready reference, said finding is reproduced as under: "6. 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, we are of the considered opinion that the expression "month" should mean here the month during which the wages/salary is actually disbursed irrespective of month to which the same relates. Thus, the scheme of the government in this regard is that once a deduction is made in respect of the employees' contribution to the provident fund from the salary/wages of the employee or the employer also makes his contribution, factually at thetime of disbursement of the salary the payment in respect of such contribution should be made forthwith. If for some reason or other the payment of salary for a particular month be held up for considerable period of time it cannot be said that the employer would be liable to make payments in respect of the employer's" as well as "employees contribution in respect of wages for such period within a period of 15 days from the close of the month to which the wages relates. On the other hand, in our view, most appropriate interpretation would be that the employer would be at liberty to make payment of the contribution concerned within 15 days (subject however to the further grace period) from the end of the month during which the disbursement of the salary is actually made and the contribution of the, provident fund are, thus, generated, inasmuch as, the provision relating to the disallowance of such contribution on account of delay is rather an artificial provision. In our view, a liberal approach has got to be made to this issue. Ultimately, therefore, we reverse the order of the lower authorities and direct the assessing officer to examine whether the payments of contribution in the present case were made within 15 days (allowed with further grace period of 5 days) from the close of the respective months during which the disbursement of the salary/wages were actually made. The assessing officer should recompute the amount disallowable, if any, on the above basis and take appropriate action accordingly." 3.1 However, we find that the Hon'ble Madras High Court in the case of the Commissioner of Income-tax v. Madras Radiators & Pressing Ltd. 264 ITR 620 Madras has held that the term "every month" in clause 58 of the Provident Fund Scheme should be read as month in which the wages were actually earned i.e. salary payable. The relevant finding of the Hon'ble Madras High Court is reproduced as under: “4. In our considered opinion, we are of the view that the Tribunal is not correct in coming to the conclusion that there was some ambiguity in construing the expression "month" used in para 38 of the Scheme under the Provident Fund Act on the premise that the assessee used to pay the salary to its employees only on the 7th day of succeeding month under section 5 of the Payment of Wages Act. It is true that section 5 of the Payment of Wages Act provided for payment of wages in respect of certain categories of industries on or before the 7th day of succeeding month. However section 4 of the Act provided for fixation of wage period and also provided that no wage period shall extend one month. Page | 17
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023
Para 29 of the Scheme under the Provident Fund Act provided that the contribution payable should be calculated on the basis of the basic wages and other allowances actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis. The expression "basic wages" is defined as all emoluments, which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him. 6. Para 30 of the Scheme of the Provident Fund Act imposed an obligation on the employer to remit both the shares of contributions in the first instance and para 32 empowered the employer to recover the employees' contributions from the wages of the employees. As per para 38 of the Scheme, the employer is required to remit both the contributions together with the administrative charges thereon within 15 days before the close of every month. 7. Thus as seen from the above provisions, it is clear that it is the responsibility of the employer to make payment of the contributions at the first instance irrespective of the fact, whether the wages are paid in time or not. Hence the actual payment of wages on the 7th day of succeeding month would not any way alter the situation and give room for interpreting that the "close of 15th day" has to be calculated from the end of the month in which the wages were actually paid. The payment of wages on the 7th dayof succeeding month would not in any way alter the initial responsibility of the employer for making payment of contributions, which he is statutorily authorised to recover from the employees salary, whether the salary is paid in time or not. Hence the one and only reasonable conclusion is that the employer has to remit both the contributions to the Provident Fund within 15 days from the close of the month for which the employees earned their salary i.e., Salary payable. Our view has been fortified by the Division Bench of this court in Presidency Kid Leather (P) Ltd. v. Regional Provident Fund CIT (1997) 91 F.J.R. 661, wherein the Division Bench of this court held as follows: "As per para 38 of the Employees' Provident Funds Scheme, the employer is required to remit both the employees' as well the employer's share of as contributions together with administrative charges thereon before the close of the 15th of every month. Para 30 of the Scheme imposes an obligation on the employer to remit both the shares of contributions in the first instance and para 32 of the Scheme enables the employer to recover the employees contributions from the wages of the employees. The initial responsibility for making payment of the contributions lies on the employer irrespective of the fact whether the wages are paid in time or not. As such, the Provident Fund payments made after the due date will attract the penal damages under section 14B of the Act." The Tribunal committed serious error in coming to the contrary conclusion. Hence the first two questions of law referred to us are answered in the negative against the assessee and in favour of the revenue." (emphasis supplied externally) 3.2 The Hon'ble High Court being higher in hierarchy of judiciary than the Tribunal, therefore, following the decision of the Hon'ble Madras High Court (supra), we reject the prayer of the Ld. Counsel of the assessee for restoring the matter back to the Assessing Officer. The grounds of appeal of the assessee are accordingly dismissed.”
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 24. Further, as regards the submission of the learned AR that the allowance of payment has to be decided on the basis of law prevailing on the date of payment and on the said date the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd (supra) was not available, it is pertinent to note that the Hon'ble Supreme Court in ACIT v/s Saurashtra Kutch Stock Exchange, [2008] 305 ITR 227 (SC) held that the judicial decision acts retrospectively and it is not the function of the Court to pronounce a “new rule”, but to maintain and expound the “old one”. Thus, it was held that the Judges do not make a law, they only discover or find the correct law.
Since, in the present case, Employees’ Contributions to PF and ESIC were found to be deposited after the due date prescribed under the relevant statute, therefore respectfully following the aforesaid decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) and the Hon’ble High Court in Rohan Korgaonkar (supra), the ground no 3 raised by the assessee in its cross-objection is dismissed and grounds no. 1 & 2 raised by the Revenue in its appeal are allowed.
In the result, the cross-objection by the assessee is dismissed, while the appeal by the Revenue for the assessment year 2018-19 is allowed.
ITA. No.366/Mum./2023 Assessee’s Appeal – A.Y.2019-20
In this appeal, the assessee has raised the following grounds: -
“1. The learned CIT(A)-National Faceless Appeal Centre (NFAC), Delhi erred in law and on facts in confirming the addition of Rs. 3,07,92,004/- on account of delay in depositing Employee’s Contribution to PF /ESI Act made by the Asst. Page | 19
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 Director of Income Tax, CPC Bangalore although the assesse had deposited the same before the due date of filing the return u/s.139(1) of the ITA. 2. The IT Authorities ought to have appreciated that amendment to Section 43B r.w.s 36(1)(va) r.w.s 143(1)(a)(iv) by Finance Act 2021 is prospective i.e. effective from April 01, 2021 and thus not applicable in the instant case. 3. The IT Authorities ought to have appreciated that the Employee Contribution to PF/ ESI is allowable as deduction u/ 43B of the ITA 1961 although disallowable u/s. 36(1)(va) of the ITA 1961 4. Non Adjudication of Ground no.4 & 5 raised before CIT-A The Ld. CIT-A has erred in not adjudicating the grounds raised by the appellant before the CIT-A_ being ground no. 4 & 5 and thus erred in not adjudicating the grounds filed by the appellant. 5. Invalid Adjustment u/s. 143(1) a. The Id. CIT(A) had erred in law and on facts in failing to appreciate and hold that the intimation u/s. 143(1) was not sustainable in law and was bad in law in as much as that no adjustments by AO (CPC) to the returned income was possible at all in respect of the claim of deduction from business expenditure in respect of employee’s contribution towards PF/ESIC of Rs. 3,07,92,004/in issuing intimation u/s. 143(1) for the reason the issue of deduction was debatable and was in any case decided in favour of the assessees by various High Courts as on the date of issue of intimation. b. The Ld. CIT (A) erred in not appreciating that no adjustment to the returned income, with or without notice, was possible at all in respect of the claim fordeduction of the employee’s contribution towards PF/ESIC while issuing intimation dt. 18-05-2020. Without Prejudice, the appellant submits that even after the decision of the Supreme Court dt. 12.10.2022 in Checkmate’s case, 448 ITR 518, such an adjustment to the returned income while issuing intimation was not possible in respect of a debatable issue as has been held by the Hon’ble ITAT in case of P. R. Packaging Services, ITA No.2376/Mum/2022 dated 07.12.2022.”
The only grievance of the assessee in the present appeal is against the disallowance u/s 36(1)(va) of the Act on account of delayed payment of Employees’ Contribution towards ESIC/PF vide intimation issued u/s 143(1) of the Act. In this appeal, the assessee has not raised any jurisdictional issue. Since a similar issue has already been decided in Revenue’s appeal for the assessment year 2018-19, therefore, our findings/conclusions rendered therein shall apply mutatis mutandis to the present appeal. As a result, we do not find Page | 20
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 any infirmity in the impugned order passed by the learned CIT(A), whereby the disallowance made u/s 36(1)(va) of the Act on account of delayed deposit of Employees’ Contribution towards ESIC/PF by following the decision of Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) was upheld. Accordingly, the grounds raised by the assessee in the present appeal are dismissed.
In the result, the appeal by the assessee for the assessment year 2019- 20 is dismissed.
ITA. No.1170/Mum./2023 Assessee’s Appeal – A.Y. 2020-21 30. In this appeal, the assessee has raised the following grounds: -
“1. The learned CIT(A)-(NFAC), Delhi erred in law and on facts failing to appreciate that ‘the intimation u/s.143(1) of the ITA was not sustainable in law as no adjustment by AO(CPC) could be made in the intimation w/s.143(1) of the ITA in respect of employees contribution towards Provident Fund/ESI of Rs.2,11,39,989/-as the issue was debatable in view of divergent views of High Court as on the date of issue of intimation. 2. The Ld. CIT(A) erred in law & on facts to appreciate that the disallowance of employees contribution towards ESI/Provident Fund in the intimation passed ws.143(1) of the ITA was not justified in view of the favourable judgement of the jurisdictional High Court in the case of CIT vs GhatgePatil Transport (368ITR 749 -MUM-HC). 3. a. The Ld. CIT-A has erred in rejecting Ground no. 1, 1.1, 4 & 5 without adjudicating the grounds raised by the appellant before the CIT-A. b. Further the Ld. CIT(A) erred in not passing speaking order adjudicating the Ground No. 1, 1.1, 4 & 5. 4. The-ld. CIT(A) failed to appreciate that the Ld.AO (CPC) erred in law & facts in disallowance of employees contribution towards ESI/Provident Fund at the time of issuing intimation u/s. 143(1) of the ITA without providing opportunity of being heard by failing to issue statutory notice as provided in the proviso to Sec.143(1) (a) of the ITA.”
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 31. In this appeal, the assessee has made submissions similar to its submissions made in the cross-objection for the assessment year 2018-19 on merits as well as the issuance of intimation u/s 143(1) of the Act without giving intimation to the assessee. From the perusal of the written submission filed by the assessee, we find that in this year, apart from raising its submission on the aforesaid aspects of the matter, the assessee has also submitted that the time period for payment/deposit of Employees’ Contribution towards PF/ESIC was extended by the Employees’ Provident Fund Organization vide Notification No.C-I/Misc./2019-20/Vol-II/Part/9 dated 15.04.2020 on account of Covid-19 Pandemic. Accordingly, in view of the aforesaid submission made by the assessee, we deem it appropriate to restore this issue to file of the jurisdictional AO for de novo consideration, as per law, after taking into consideration any extension granted by the concerned authority under the relevant statutes for payment of Employees’ Contribution towards ESIC/PF. If the payment made by the assessee on account of Employees’ Contribution towards ESIC/PF is found to be within the extended time granted by the concerned authority under the relevant statutes, then, the other issues raised in the present appeal shall be rendered academic and therefore we are keeping the same open at this stage. Accordingly, in view of the aforesaid direction, the impugned order passed by the learned CIT(A) is set aside and the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal by the assessee for the assessment year 2020- 21 is allowed for statistical purposes.
Markolines Infra Pvt. Ltd. ITA no.2967/Mum/2022 CO. No.16/Mum/2022 ITAs No. 366 & 1170/Mum/2023 33. To sum up :-
(i) the appeal by the Revenue for the assessment year 2018-19 is allowed, while the cross-objection by the assessee is dismissed; (ii) the appeal by the assessee for the assessment year 2019-20 is dismissed; and (iii) the appeal by the assessee for the assessment year 2020-21 is allowed for statistical purposes. Order pronounced in the open Court on 08/05/2024
Sd/- Sd/- GAGAN GOYAL SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08/05/2024
Vijay Pal Singh, (Sr. PS) Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order
Assistant Registrar ITAT, Mumbai