ASHA PANCHARYA,JAIPUR vs. ITO WARD 5(2), JAIPUR, JAIPUR

1 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA Nos. 15 & 16/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2018-19 & 2019-20 cuke Mrs. Asha Pancharia The ITO Vs. 9, Moti Dungari Road Ward 5(2) Uniara Garden, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AARPP 1289 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.M. Mehta, CA jktLo dh vksj ls@ Revenue by: Smt. Monisha Choudhary (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/02/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24 /02/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

Both these appeals by the assessee are directed against two different orders of ld. CIT(A)/ National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) dated 23/11/2021 and 15/11/2021 for the A.Y. 2018-19 & 2019-20 respectively. Since the grounds of appeal raised by the assessee in the above mentioned appeals are almost similar, therefore, for the sake of convenience and

2 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur brevity of the case, all these appeals of the assessee are disposed off through this

consolidated order.

of the prevailing situation of Covid-19 Pandemic

Year 2019-20 as a lead case wherein the assessee has raised following grounds of

appeal:

4.1 Thus, the only issue arises in this appeal of the assessee is regarding

disallowance of employee’s contribution of PF and ESI deposited belatedly but

before due date of filing of return of income U/s 139(1) of the Income Tax Act,

1961 (in short, the Act).

3 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur 4.2 The assessee filed her return of income on 14.10.2019 which was processed

U/s 143(1) of the Act whereby an adjustment was made on account of

disallowance of claim of deduction with respect to employees contribution towards

PF and ESI deposited belatedly. The assessee challenged the said adjustment

before the ld. CIT(A)/NFAC and contended that as per the binding precedents if

the payment is made in the government account before due date of filing of return

of income U/s 139(1) of the Act then as per provisions of Section 43B of the Act,

no disallowance is made. The ld. CIT(A)/NFAC did not accept this contention of

the assessee and confirmed the disallowance by considering the amendment in

Section 36(1)(va) of the Act whereby an explanation (2) as well as explanation (5)

to Section 43B of the Act was inserted being retrospective in nature.

4.3. The Hon'ble Rajasthan High Court as well as other Hon'ble High Courts are

consistently holding that where Assessee had paid employees contribution of PF

and ESI, though beyond due date(s) under respective Acts but prior to due date of

filing the Return of income under sec. 139(1) of IT Act, the payments cannot be

disallowed u/s. 43B. The assessee contended that avoiding the binding nature of

judgments, the CPC, Bangalore was not justified in making addition of

Rs.6,78,909/- which was paid before due date of filing of Return of Income and in

rejecting application. The matter were carried to CIT(A)/NFAC by the assessee

and the appeal of the assessee is dismissed and the decision of the Jurisdictional

4 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur High court is not considered while passing the order by the NFAC and has relied

on the decision of Hon'ble Gujarat High Court in the case of Gujarat State

Transport Corporation, Kerala High Court in the case of Merchem Ltd. and

Hon'ble Madras High also where the contrary views there in respect of this issue.

The NFAC has also relied upon various decision connected these Hon'ble High

Courts and the amendment made in the Finance Act, 2021 and contended that the

amendment being curative in nature should apply restrospectively.

4.4. Since the CIT(A)/NFAC has quoted the amendment made in Finance Act,

2021, it is worthwhile to record the extract of the memorandum explaining the change made in the relevant provisions of the Act.

Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date

Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub- clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head =Profits and gains of business or profession‘.Clause (va) of the said sub- section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, "due date" to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or

5 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur

superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee‘s contribution towards welfare fund. It may be noted that employee‘s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee‘s contributions. Accordingly, in order to provide certainty, it is proposed to – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the "due date" under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

4.5. Thus, it is clear that the provision is not retrospective and prospective.

Before the Tribunal, the ld. AR of the assessee has submitted that this issue is

covered by the various decisions of this Tribunal as well as the Hon’ble

Jurisdictional High Courts. He has relied upon the decision of the Coordinate

6 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur Bench of this Tribunal in the case of M/s Kogta Financial (India) Ltd. Vs CPC

order dated 11/11/2021 in ITA No. 182/JP/2021.

4.6. On the other hand, the ld. DR has submitted that the amendment to Section

36(1)(va) as well as 43B of the Act vide Finance Bill, 2021 is clarificatory in

nature and therefore, applicable with retrospective effect. The ld. DR has submitted

that the ld. CIT(A) has relied upon the decision of the Delhi Benches of the

Tribunal in the case of Vedvan Consultants Pvt. Ltd. in ITA No. 1312/Del/2020

order dated 26/08/2021.

4.7. We have considered the rival submissions as well as the relevant material on

record. There is no dispute that prior to the amendment brought by the Finance

Bill, 2021 in Section 36(1)(va) as well as Section 43B of the Act, the issue of

allowability of employees contribution towards PF and ESI and depositing the

same in the government account before the due date of filing of return of income

U/s 139(1) of the Act was settled and decided in favour of the assessee by various

binding precedents of Hon’ble High Courts including the Jurisdictional High

Court. The limited controversy is whether the amendment brought to Section

36(1)(va) as well as 43B of the Act is applicable retrospective or from assessment

year 2021-22 as it is specifically stated in the memorandum of Finance Bill, 2021.

At the outset, it is noted that the Coordinate Bench of this Tribunal in the case of

7 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur

M/s Kogta Financial (India) Ltd. Vs CPC (supra) has considered this issue in para

5 to 7 as under:

“5. 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), speaking through one of us, we have extensively dealt with the identical matter relating to employee’s contribution towards ESI/PF and our findings 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 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).

8 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur

9 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur

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 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. 18. 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.” 6. 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, I 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 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

10 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur 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.” 7. 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. 37,62,586/- 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.”

Thus, it is clear from the above cited decision that this Tribunal has considered

various decisions on this issue and by following decisions of the Coordinate

Benches of the Tribunal, this issue was decided in favour of the assessee by

holding that amendment in Section 36(1)(va) as well as Section 43B of the Act by

way of inserting the explanation vide Finance Bill, 2021 are applicable only from

A.Y. 2021-22 and subsequent assessment years and therefore, the said amendment

is not applicable to the assessment year under consideration.

4.8. Similar view has been taken by the Delhi Benches of the Tribunal in the case

of Chatru Mal Garg Vs ACIT (supra) in para 7 as under:

“7. I have heard the rival submissions and perused the materials on record. The issue in the present ground is with respect to disallowance under section 36(1)(va) of the Act. It is an undisputed fact that there has been slight delay in the deposit of employees’ contribution of PF and ESI by the assessee and the contribution have been deposited beyond the due date prescribed by the relevant

11 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur

authorities but at the same time it is also a fact that the amounts have been deposited with the appropriate authorities by the assessee before filing the return of income for the relevant assessment year. I find that Hon’ble Delhi High Court in the case of CIT vs. AIMIL Ltd. (supra) has held that no disallowance under section 36(1)(va) of the Act is called for when the amounts are deposited before filing the return of income. Similar view has also been taken by the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Hemla Embroidery Mills (P) Ltd (supra) and Indian Geotechnical Services (supra). As far as the applicability of amendment made by Finance Act 2021 is concerned, I find that the Co-ordinate Bench of Tribunal in the case of Indian Geotechnical Services (supra) has held that amendment made by Finance Bill 2021 shall take effect from 1st April 2021 and will accordingly apply to A.Y. 2021-11 and subsequent years. In the present case assessment year involved is 2018-19 and therefore following the aforesaid decision in thecase of Indian Geotechnical Services (supra), I am of the view that the amended provisions would have no application to the case under consideration. Before me, Learned DR has relied on the decision of Co-ordinate Bench of Tribunal in the case of Vedvan Consultants Pvt. Ltd. (supra). It is settled law that when two judgments are available giving different views then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon’ble Supreme Court. I therefore following the decision of High Courts cited hereinabove and the decision of the Co-ordinate Bench of Tribunal, I am of the view that no addition u/s 36(1)(va) of the Act is called for in the present case. Therefore I direct the AO to delete the addition. Thus the ground of assessee is allowed.’’

Thus, it is clear that the Delhi Benches of the Tribunal has considered the earlier

decision of the Tribunal in the case of Vadvan Consultants Pvt. Ltd. (supra) which

was relied upon by the ld. CIT(A) as well as the ld. DR and the issue was decided

12 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur by following the decisions of Hon’ble Delhi High Court and Hon’ble Punjab &

Haryana High Court and the decisions of the Division Bench of the Delhi Tribunal

in the case of Indian Geotechnical Services in ITA No. 622/Del/2018 order dated

27/08/2021. Accordingly, in view of the above discussions as well as following the

decisions of the Coordinate Benches of the Tribunal, this issue is decided in favour

of the assessee and consequently, the disallowance made on account of employees

contribution towards PF & ESI deposited before due date of filing of return of

income U/s 139(1) of the Act is deleted.

5.1 Now we take up the following grounds of appeal of the assessee for the

Assessment Year 2018-19.

‘’1. Ld. CIT(A) has erred in law and on facts in not following the law laid down by the Hon'ble Jurisdictional High Court/ I. Tax Appellate Tribunal that employees’ contribution towards PF and ESI cannot be disallowed if paid late as per period under respective laws of PF and ESI but paid on or before due date of filing of return of income u/s 139(1). 2. Ld. CIT(A) was not justified in sustaining legality of rejection of application u/s 1544 of I.T. Act disallowing Rs.2,19,648./- on account of delayed payment of employees’ contribution towards PF and ESI, though paid late under the respective laws of PF and ESI but paid before due date of filing of return of income u/s 139(1) of I.T. Act.’’

5.2 Since the appeal of the assessee in ITA No.16/JP/2022 for the Assessment

Year 2019-20 is allowed in favour of the assessee, therefore, the decision taken

therein shall also apply mutatis mutandis in the appeal of the assessee for the

13 ITA No. 15/JP/2022 Mrs. Asha Pancharya vs ITO, Ward 5(2), Jaipur Assessment Year 2018-19 being the similar issue. Thus the appeal of the assessee

for the Assessment Year 2018-19 is allowed.

6.0. In the result, both the appeals of the assessee are allowed.

Order pronounced in the open court on 24th February, 2022.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 24/02/2022

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