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Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI C.N. PRASAD & SHRI NAVEEN CHANDRA
ORDER
PER C.N. PRASAD, JM,
This appeal is filed by the assessee is against the order of the learned Commissioner of Income Tax (Appeals)/ NFAC [hereafter referred as “CIT(A)”] vide order dated 12.11.2021 for A.Y. 2018-19 in sustaining the disallowance under Section 36(1)(va) r.w.s. 43B of the Act in respect of PF/ESI contribution while processing the return under Section 143(1) of the Act.
In the appeal filed before us the assessee challenged the order of the CIT(A) as bad in law and also on various other grounds on merits.
Heard rival contentions and perused the orders of the authorities below.
4. Brief facts of the case are that CPC while processing the return and sending the intimation under Section 143(1) of the Act dated 09.01.2020 made disallowance of Rs.99,07,089/- in respect of the employee’s contribution to PF/ESI. This intimation was passed on 09.01.2020. The learned CIT(A) however, sustained the disallowance vide order dated 12.11.2021. Before us the learned Counsel for the assessee placing reliance on the decision of the coordinate Bench of Delhi in the case of A2Z Infra Services Pvt. Ltd. Vs. DCIT reported in 176 taxmann.com 639, stated that the Tribunal had considered as to whether an adjournment under Section 143(1) can be made in respect of employee’s contribution to PF /ESI prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT and the Hon’ble Bench held that when the intimation u/s. 143(1) was passed there were binding decisions of jurisdictional High Court in favour of the assessee and by virtue of this binding decision the AO/CPC could not have made disallowance of employee’s contribution to PF/ ESI though paid beyond the due date specified in respective Acts but before the due date for filing the return of income while by processing return under Section 143(1). Page | 2
On the other hand the learned DR placed reliance on the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Limited reported in 448 ITR 518.
6. Heard rival submissions and perused the orders of the authorities below.
7. We find that the coordinate Bench of the Delhi Tribunal in the case of A2Z Infra Services Limited Vs. DCIT had held that while processing the return u/s. 143(1) prior to the decision of the Hon’ble Supreme Court there were binding decisions of jurisdictional High Court and, therefore, the AO / CPC could not have disallowed the employee’s contribution to PF/ESI while passing intimation u/s. 143(1) of the Act and while holding so the coordinate Bench followed the decision of the Hon’ble Chattisgarh High Court in the case of Raj Kumar Bothra Vs. DCIT (476 ITR 249). The relevant observations of the Tribunal as under :-
“2. The aforesaid question of law arises for consideration on the following factual backdrop:- 3. The appellant/assessee filed the return of income for Assessment Year 2020-21 declaring a total income of Rs.3,76,34,910/- and paid tax to the tune of Rs.1,44,33,865/-. The return of the assessee was processed by Central Processing Centre (CPC), Bengaluru/Assessing Officer and an intimation order was issued exercising the powers under Section 143(1) (a) of the Act of 1961, wherein, claim for deduction of delayed deposit of employees' share of contribution towards Employees' State Insurance (ESI) and Employees Provident Fund (EPF) of Rs.28,21,065/- under Section 36(1)(va) of the Act of 1961 was disallowed by the order dated 16.12.2021. Feeling aggrieved by the said order, the assessee preferred an appeal under Section 246A of the Act of 1961 before the Commissioner of Income Tax (Appeals) {for short "the CIT(Appeals)"} by submitting Form No.35 and challenging the aforesaid intimation order. In the meanwhile, on 12.10.2022, in the case of Checkmate Services Private Limited Vs. Commissioner of Income Tax-11 judgment was delivered by the Supreme Court, settling the issue with regard to claim of deduction under Section 36(1) (va) of the Act of 1961, wherein, it was held that to claim deduction under the aforesaid provision, employees' contribution should be deposited on or before the due dates specified under the respective employees welfare Acts. Ultimately, the CIT (Appeals) passed the order on 15.07.2024 dismissing the appeal of the assessee, against which, the assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT), which was dismissed by the impugned order dated 26.09.2024 leading to filing of the present appeal, in which, the above-stated substantial question of law has been formulated for consideration.
Mr. Nikhilesh Begani, learned counsel appearing for the appellant/assessee submits that though the Assessing Officer has processed the return of the income of assessee, however, on 1 (2023) 6 SCC 451 4 the date when the intimation order was issued exercising powers under Section 143(1)(a) of the Act 1961, the issue with regard to claim of deduction under Section 36(1)(va) of the Act of 1961 i.e. as to whether the employees' contribution should be deposited on or before the due dates in terms of Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (for short "EPF Act 1952") and Employees' State Insurance Act, 1948 (for short "ESI Act 1948"), was pending consideration before the Supreme Court in Checkmate Services Pvt Ltd (supra) and only on 12.10.2022, the issue with regard to claim of deduction under Section 36(1)(va) of the Act of 1961 was settled holding that employees' contribution should be deposited on or before the due dates specified under the respective employees welfare Acts. Therefore, on the date of passing the intimation order, the issue with regard to deposit of contribution on or before the due date under Section 36(1)(va) of the Act of 1961, was highly debatable and contentious. Learned counsel further submits that the scope and ambit of Section 143(1)(a) of the Act of 1961 only permits prima facie adjustments to be carried out and the highly debatable issues cannot be adjusted/disallowed while processing return under Section 143(1)(a) of the Act 1961. In support of the contention, learned counsel would rely upon the decisions 5 rendered by the Supreme Court in the matter of Kvaverner John Brown Engg. (India) Pvt. Ltd. Vs. Assistant Commissioner of Income Tax and in the matter of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. 3 He further submits that since on the Page | 4
relevant date of passing of intimation order, the issue being highly debatable, the Assessing Officer ought not to have resorted to the provision under Section 143(1)(a) of the Act of 1961, which was completely unsustainable and bad in law and the same was neither considered by the CIT (Appeals) nor the ITAT. He would also submit that the reliance placed by the ITAT in the matter of M/s. BPS Infrastructure Vs. ITO, Ward-1(3), Raipur would not be applicable, as in that case, this Court has considered the issue of delay in filing the appeal and dismissed the same as barred by limitation by holding that no sufficient cause has been shown in filing the appeal and further the substantial question of law formulated in this tax appeal was neither involved nor considered at all in that appeal. As such, the ITAT committed a grave legal error in applying the decision of M/s. BPS Infrastructure (supra) while passing the impugned order. He would finally submit that the ITAT in Satpal Singh Sandhu Vs. DCIT and Parv Buildcon Vs. DCIT6 had already held that claim of deduction in respect of delayed deposit in respect of employees’ share of contribution towards ESI and EPF could not be summarily disallowed by Assessing Officer under the provisions contained in Section 143(1)(a) of the Act of 1961 and negated disallowance of delayed deposit of employees’ share of contribution towards ESI and EPF holding that the decision of the Supreme Court in Checkmate Services Pvt. Ltd. (supra) was not available at the time when the intimation under Section 143(1)(a) of the Act of 1961 was issued in this case on 16.12.2021 and against the aforesaid orders of the ITAT, tax appeals vide TAXC No.149/2024 (The Deputy Commissioner of Income Tax Vs. Parv Builcon) and TAXC No.158/2024 (The Deputy Commissioner of Income Tax Vs. Satpal Singh Sandhu) respectively were preferred before this Court by the Revenue, however, both the appeals were withdrawn by the Revenue and as such, the Revenue cannot be allowed to take a different stand in different forums. Learned counsel for the appellant/assessee finally submits that the intimation order under Section 143(1)(a) of the Act of 1961, the order passed by CIT(Appeals) and the order passed by the 5 delivered on 11.05.2023 (ITAT Raipur Bench ‘SMC’) 6 [2024] 159 taxmann.com 1574 (Raipur-Trib.) 7 ITAT, affirming the order of CIT (Appeals), deserve to be setaside by granting this appeal.
5. Mr. Ajay Kumrani, learned counsel for the respondent would support the impugned order and submit that the contention of the appellant that the subject adjustment/disallowance is beyond the power of Assessing Officer in view of Section 143(1)(a) of the Act of 1961 is not correct. The adjustment made towards delayed deposit of employees' contribution is very much within the powers of Assessing Officer to prima facie make adjustment at the time of processing of return. He further submits that in view of the Page | 5 decision of the Supreme Court in the matter of Checkmate Services Pvt. Ltd. (supra), the issue is now well settled. He further submits that in the present case, it is an admitted position that the appellant/assessee has deposited the employees’ contribution under the heads of ESI and EPF after the due date. He would also submit that the clarificatory judgment of the Supreme Court in Checkmate Services Pvt Ltd (supra) would have the retrospective effect as held in the decisions rendered by the Supreme Court in the matters of State of Bihar and Ors Vs. Ramesh Prasad Verma (Dead) through LR7 , P.V. George and Ors Vs. State of Kerala and Ors and also Central Bureau of Investigation v . R.R. Kishore9 . He finally submits that the judgments upon which learned counsel for the appellant has placed reliance are clearly distinguishable to the facts of the present case, therefore, they are of no help to the appellant. In view of such submission, learned counsel for the respondent prays that this appeal be dismissed.
We have heard learned counsel for the parties and considered their rival submissions and also went through the record with utmost circumspection.
Admittedly, return of the income filed by the appellant/assessee was processed by the Assessing Officer and an intimation order dated 16.12.2021 was issued exercising power under Section 143(1)(a) Act of 1961, wherein, claims for deduction of delayed deposit of employees' share of contribution towards Employees State Insurance and Provident Fund of Rs.28,21,065/- under Section 36 (1) (va) of the Act of 1961 were disallowed, inasmuch as, on the said date, the issue with regard to delayed deposit of contribution with respect to interpretation under Section 36(1)(va) of the Act of 1961 and whether the assessee is entitled to deduction of amount deposited by them, which was contribution in terms of the EPF Act, 1952 and the ESI Act, 1948 on or before the due date was 9 (2023) 15 SCC 339 9 pending consideration before the Supreme Court in the matter of Checkmate Services Pvt. Ltd. (supra). In the said judgment, their Lordships of the Supreme Court noticed a division of opinion on the issue of interpretation under Section 36(1)(va) of the Act of 1961, with the High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favouring the interpretation beneficial to the assessees on the one hand, and the High Courts of Kerala and Gujarat preferring the interpretation in favour of the Revenue on the other hand. Ultimately, their Lordships resolved the issue authoritatively by holding that to claim deduction under Section 36(1)(va) of the Act of 1961, the employees’ contribution should be deposited on or before the due dates specified under the respective Employee Welfare Act. Their Lordships of the Supreme Court settled the issue by making the following observation :- Page | 6 “62. 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 10 distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest 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 as a condition for deduction.”