CHANDRA SHEKHAR TIWARI,JAIPUR vs. ASSISTANT DIRECTOR OF CPC, BENGALURU

ITA No. Fingrowth Co- CIT(A), NFAC, 01/09/2021 05/JP/2022 operative Bank Delhi Limited 2. ITA No. Tirupati CIT(A), NFAC, 15/09/2021 304/JP/2021 Plastomatics Pvt. Delhi Ltd.

As a lead case, for deciding the appeals, we take ITA No. 05/JP/2022 for the A.Y. 2019-20 wherein following grounds have been raised by the assessee. “1. That the learned CIT-'A' has erred in upholding the intimation U/S 143(1) & confirming disallowance of Rs. 5,46,535/-. The said action is illegal & unjustified & adjustment made to the income of assessee under section 143(1) is illegal.

Delay of 67 days in filing of this appeal has been observed. The learned counsel for the assessee(s) filed his letter dated 17/01/2022, mentioning that the Hon’ble Supreme Court vide order dated 10/01/2022 passed in Miscellaneous Application No. 21 of 2022 in Misc. Application No. 665/2021, has extended the period of the limitation as prescribed under any general or special laws in respect of all judicial and quasi-judicial proceeding till further orders and directed that the period of limitation from 15/03/2020 to 28/02/2022 in filing these appeals stands excluded from limitation by the order of the Hon’ble Supreme Court. The assessee(s) prayed that in present appeal, the period of limitation falls within the aforesaid period of exclusion and, therefore, appeal filed by the assessee(s) are not barred by the limitation. The learned Departmental Representative also could not controvert above facts. In view of the order of the Hon’ble Supreme Court (supra), it is held that the appeals filed by the assessee(s) are not delayed and accordingly admitted.

The only grievance made by the assessee in this appeal relates to confirmation of the disallowance of Rs. 5,46,535/- made by the A.O. on account of late payments towards EPF and ESI under section 36(1)(va) of the Income Tax Act, 1961 (for short the ‘Act’), however, before furnishing 5 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals the return of income under section 139(1) of the Act. When the matter was taken to the Ld. CIT(A) the said disallowance was sustained.

Now the assessee is in appeal before the ITAT. 7. During the course of hearing, the ld. AR submitted that the assessee deposited employee’s contribution of PF/ESI though with a delay of few days from the due dates mentioned in the respective Acts, however the same was deposited well before the due date of filing of return of income. It was submitted that the said fact is not under dispute and where such contribution has been deposited before the due date of filing of the return of income, no disallowance U/s 36(1)(va) of the Act can be made and in support, reliance was placed on the Hon’ble Rajasthan High Court decision in case of CIT vs. Rajasthan State Beverages Corporation Ltd. (2017) 392 ITR 2 and CIT vs. State Bank of Bikaner and Jaipur (2014) 43 taxmann.com 411. It was further submitted that the recently Jodhpur Benches of the Tribunal has also taken a similar view in case of Mohangarh Engineers and Construction company vs DCIT, CPC (in ITA No. 405/JODH/2021 dated 12.08.2021) and similar view has been taken by the Bangalore Benches in case of Shri Gopalkrishna Aswini Kumar vs. ACIT (in ITA No. 359/Bang/2021 dated 12.10.2021). It was further submitted that the explanation added to Section 36(1)(va) of the Act by the Finance Act, 2021 will take effect from 1st April, 2021 and will apply from the assessment year 2021-22 and subsequent assessment years and not to the impugned assessment year. It was further submitted that the adjustment is beyond the scope of Section 143(1) of the Act. The ld. AR has also submitted that identical issue has already been decided by the Coordinate Bench of this Tribunal in assessee’s own case for the A.Y. 2018-19 in ITA No. 186/JP/2021 order dated 15/11/2021 and decided in the appeal in 6 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals favour of the assessee. It was accordingly submitted that the adjustment so made by the CPC and confirmed by the ld. CIT(A) NFAC may be directed to be deleted.

Per contra, the ld. DR submitted that as per details furnished in the tax audit report, the payment of employee’s contribution of PF/ESI amounting to Rs. 5,46,535/- was not made within the prescribed due date U/s 36(1)(va) of the Act and since these amount were not disallowed in the return of income filed by the assessee, the variance between the tax audit report and ITR has been duly flagged by the CPC in the computerized processing and disallowance U/s 143(1)(a)(iv) on the basis of fact furnished by the assessee was made which clearly fails within ambit of prima facie adjustment to be carried out U/s 143(1)(a)(iv) of the Act. Further, reliance was placed on the amendment brought in by the Finance Act, 2021 wherein the explanation to Section 36(1)(va) has been introduced. It was submitted from the said amendment, it is evident that the law is and has always very clear i.e. employee’s contribution to specified fund will not be allowed as deduction U/s 36(1)(va) if there is delay in deposit even by a single day as per the due dates mentioned in the respective legislation. It is also clear that the amendments are only declaratory/clarificatory in nature and are therefore, applicable with retrospective effect by necessary intendment of deeming nature expressly stated therein. The ld. DR accordingly submitted that in view of the unambiguous wording of the now amended provisions of Section 36(1) and 43B, it is clear that the employee’s contribution can be allowed as a deduction only if it had been paid within the prescribed due dates under the relevant welfare funds and this position of law is and has always been the case and the clarification brought about by the amendment clearly apply retrospectively. It was therefore rightly held by the ld CIT(A) that the 7 ITA No. 05 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals disallowance made U/s 143(1) of the Act by CPC on account of assessee’s failure to pay the employees’ contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) is strictly in accordance with law and clearly comes under the prima facie adjustments as envisaged U/s 143(1)(a)(iv) of the Act.

We have heard the rival contentions and perused the material available on record. In case of Mohangarh Engineers and Construction Company vs DCIT, CPC (Supra), the Coordinate Bench of the Tribunal has dealt with the identical matter relating to employee’s contribution towards ESI/PF and the findings of the Coordinate Bench therein read as under: “13. We have heard the rival contentions and perused the material available on record. On perusal of the details submitted by the assessee as part of its return of income, it is noted that the assessee has deposited the employees’s contribution towards ESI and PF well before the due date of filing of return of income u/s 139(1) and the last of such deposits were made on 16.04.2019 whereas due date of filing the return for the impugned assessment year 2019-20 was 31.10.2019 and the return of income was also filed on the said date. Admittedly and undisputedly, the employees’s contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of filing of return of income u/s 139(1) of the Act. 14. The issue is no more res integra in light of series of decisions rendered by the Hon’ble Rajasthan High Court starting from CIT vs. State Bank of Bikaner & Jaipur (supra) and subsequent decisions. 15. In this regard, we may refer to the initial decision of Hon’ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner & Jaipur wherein the Hon’ble High Court after extensively examining the matter and considering the various decisions of the Hon’ble Supreme Court and various other High Courts has decided the 8 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals matter in favour of the assessee. In the said decision, the Hon’ble High Court was pleased to held as under: “20. On perusal of Sec.36(1)(va) and Sec.43(B)(b) and analyzing the judgments rendered, in our view as well, it is clear that the legislature brought in the statute Section 43(B)(b) to curb the activities of such tax payers who did not discharge their statutory liability of payment of dues, as aforesaid; and rightly so as on the one hand claim was being made under Section 36 for allowing the deduction of GPF, CPF, ESI etc. as per the system followed by the assessees in claiming the deduction i.e. accrual basis and the same was being allowed, as the liability did exist but the said amount though claimed as a deduction was not being deposited even after lapse of several years. Therefore, to put a check on the said claims/deductions having been made, the said provision was brought in to curb the said activities and which was approved by the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. (supra).

A conjoint reading of the proviso to Section 43-B which was inserted by the Finance Act, 1987 made effective from 01/04/1988, the words numbered as clause (a), (c), (d), (e) and (f), are omitted from the above proviso and, furthermore second proviso was removed by Finance Act, 2003 therefore, the deduction towards the employer's contribution, if paid, prior to due date of filing of return can be claimed by the assessee. In our view, the explanation appended to Section 36(1)(va) of the Act further envisage that the amount actually paid by the assessee on or before the due date admissible at the time of submitting return of the income under Section 139 of the Act in respect of the previous year can be claimed by the assessee for deduction out of their gross total income. It is also clear that Sec.43B starts with a notwithstanding clause & would thus override Sec.36(1) (va) and if read in isolation Sec. 43B would become obsolete. Accordingly, contention of counsel for the revenue is not tenable for the reason aforesaid that deductions out of the gross income for payment of tax at the time of submission of return under Section 139 is permissible only if the statutory liability of payment of PF or other contribution referred to in Clause (b) are paid within the 9 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals due date under the respective enactments by the assessees and not under the due date of filing of return.

We have already observed that till this provision was brought in as the due amounts on one pretext or the other were not being deposited by the assessees though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said amounts were not deposited. It is pertinent to note that the respective Act such as PF etc. also provides that the amounts can be paid later on subject to payment of interest and other consequences and to get benefit under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 of the IT Act.

Thus, we are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act.”

The said decision has subsequently been followed in CIT vs. Jaipur Vidyut Vitran Nigam Ltd. (supra), CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (supra), and CIT vs Rajasthan State Beverages Corporation Limited (supra). In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act.

We further note that though the ld. CIT(A) has not disputed the various decisions of Hon’ble Rajasthan High Court but has decided to follow the decisions rendered by the Hon’ble Delhi, Madras, Gujarat and Kerala High Courts. Given the divergent views taken by the various High Courts and in the instant case, the fact that the jurisdiction over the Assessing officer lies with the Hon’ble Rajasthan High Court, in our considered view, the ld CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as evident from series of decisions referred 10 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals supra, as the same is binding on all the appellate authorities as well as the Assessing officer under its jurisdiction in the State of Rajasthan.

In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs 4,38,530/- so made by the CPC towards the delayed deposit of the employees’s contribution towards ESI and PF though paid well before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decisions of the Hon’ble Rajasthan High Court.”

In the instant case, admittedly and undisputedly, the employees’ contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further, the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill, 2021, however, we find that there are express wordings in the said memorandum which says “these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years”. In the instant case, the impugned assessment year is assessment year 2018-19 and therefore, the said amended provisions cannot be applied in the instant case. Similar view has been taken by the Coordinate Bangalore Benches in case of Shri Gopalkrishna Aswini Kumar vs. ACIT (supra) wherein it has held as under:- “7. The Hon'ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd., (supra) has taken the view that employee's contribution under section 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share 11 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals of the employee's share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon'ble Karnataka High Court. The next aspect to be considered is whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act in both the Assessment Years deserves to be deleted.”

In light of the aforesaid discussions and in the entirety of facts and circumstances of the case and following the consistent decisions taken by the various Benches of the Tribunal, the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs. 5,46,535 so made by the CPC towards the deposit of the employees’s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted.

In the result, the appeal of the assessee is allowed.

In other appeal also the facts are identical to the facts involved in ITA No. 05/JP/2022 for the A.Y. 2019-20, the only difference is in the amount of disallowance made by the A.O. and sustained by the Ld. CIT(A). In ITA No. 304/JP/2021, there is also a delay of 25 days in filing the appeal 12 ITA No. 05 /JP/2022 Fingrowth Cooperative Bank Ltd. Vs ADIT & Ors. appeals and in view of the direction of the Hon’ble Supreme Court, the appeal is not delayed and accordingly admitted and our findings given in the former part of this order shall apply mutatis mutandis for other appeals also.

In the result, all these appeals of the assessees are allowed. Order pronounced in the open Court on 28/02/2022.