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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
ORDER PER BENCH: Both these appeals filed by the assessee are directed against two different orders of the ld. Addl.CIT(A)/ JCIT (A)-10, Mumbai dated 12-10-2023 for the assessment year 2018-19 and 2019-20 respectively wherein the assessee has raised the following grounds of appeal in both the appeals.
ITA No. 750/JP/2023 – A.Y. 2018-19 ‘’1. That on the facts and circumstances of the case, the AO is wrong, unjust and erred the law and in making adjustment to income section 143(1(iv) on wrong facts as disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. In fact, auditor never indicates disallowance nor it is asked from the auditor they simply report the date of the due date and date of payment. 2.. That on the facts and circumstances of the case, the AO is further wrong , unjust and erred in law in making adjustment to income u/s 143(1) disallowing PF and ESI contribution of Rs.8,31849/- u/s 36(1)(va) and added total incomedespite the fact that the same was paid before the due date of submission of return of income u/s 139 and the same has already incurred penalty, interest in the respective PF, ESI Act for the delay – A.Y. 2019-20 ‘’1. That on the facts and circumstances of the case, the AO is wrong, unjust and erred the law and in making adjustment to income section 143(1(iv) on wrong facts as disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. In fact, auditor never indicates disallowance nor it is asked from the auditor they simply report the date of the due date and date of payment. 2.. That on the facts and circumstances of the case, the AO is further wrong , unjust and erred in law in making adjustment to income u/s 143(1) disallowing PF and ESI contribution of Rs.7,44,118/- u/s 36(1)(va) and added total incomedespite the fact that the same was paid before the due date of submission of return of income u/s 139 and the same has already incurred penalty, interest in the respective PF, ESI Act for the delay 2.1 First of all, we take up the appeal of the assessee for the assessment year 2018-19 for adjudication. 3.1 Apropos Ground No. 1 and 2 of the assessee wherein the ld. Addl/ CIT(A)/ JCIT(A) has dismissed the appeal of the assessee giving facts and figure in the case of the assessee by observing at para 3 of his order as under:-
‘’ 3. Findings and decision : I have carefully considered Form 35, statement of facts, order by DCIT, CPC Bangalore, submission/ details uploaded in the system and the grounds of appeal raised. The appellant has raised ground of appeal which pertain to only one issue i.e. the AO’s action in making the disallowance of Rs.8,31,849/- u/s 36(1)(va) on account of ESI & PF payable which was actually paid after the due date prescribed under the relevant PF/ESI Act.
In this case, it is undisputed that the employee's contribution to provident fund & ESI was deposited by the assesse after the due date prescribed under the relevant statute. In the decision dated 12.10.2022 Hon'ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs CIT-1 (2022) 448 ITR 518 (SC) has held that payment towards employee's contribution to provident fund/ESI after the due date prescribed under the relevant statute is not allowable as deduction u/s 36(1)(va) of the Act. The relevant findings of the Hon'ble Supreme Court in the aforesaid decision are as under-
The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Income-Tax and another v. Sabari Enterprises; Commissioner of Income Tax v. Pamwi Tissues Ltd.; Commissioner of Income-Tax, Udaipur v. Udaipur DugdhUtpadak Sahakari Sandh Ltd. and NipsoPolyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act, 52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, Inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain theseparate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income it is the character of the amount that is important, i.e., not income earned.
4 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other Important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre- condition necessary pre-condition for allowing the expenditure.
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 ofevery 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 5 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR 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 light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.
Respectfully following the above view endorsed by the Hon'ble Supreme Court in which the Hon'ble Court has dealt with various rulings and finally concluded the matter in favour of Revenue, the disallowance of Rs.831849/- u/s 36(1) (va) on account of ESI & PF payable which was actually paid after the due date prescribed under the relevant PF/ESI Act is confirmed. Therefore, the grounds of appeal taken by the appellant are dismissed. In the result, the appeal is "dismissed".
3.2 During the course of hearing the ld. AR of the assessee has filed a written submission praying therein to accept the appeal of the assessee meaning thereby that the appeal of the assessee should be allowed.
‘’The appellant company is engaged in manufacturing and export of gold and silver jewellery studded with precious and semi precious stones. For AY 2018-19 return filed u/s 139(1) dated 29-10-2018 and processing made u/s 143(1)from CPC vide order DIN CPC/1819/A5/1919451723 dated 22-08-2019.During the relevant year as per tax audit report the contribution on account of P.F and ESIC Rs 831849(Including employers contribution to ESI Rs 409701 ) deposited some delay from due date under PF or ESIC Act but deposited before due date of submission of the return even within the financial year. While processing the return of income CPC made adjustment u/s 143(1)(a)(iv) by addition on account of late deposit of employee contribution to PF AND ESI u/s 6 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR 36(1(va) of Income Tax Act 1961. Against the demand raised in processing 143(1)(a)(iv), the assessee filed appeal before CIT Appeal who rejected appeal following the view Hon’ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs CIT-1 (2022) 448 ITR 518 (SC) .HoweverLd CIT appeal silent about legal validity of adjustment u/s 143(1)(a)(iv) as submitted by the appellant. Our submission: A. Adjustments u/s 143(1)(a)(iv) on misconception of fact is invalid:
The ld ITO CPC in misconception of fact while applying section 143(1)(iv) on account of late deposit of employee contribution to EPF and ESI considering disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in thereturn. For better clarification,we refer the relevant part of audit report as below: 20(b) Details of contributions received from employees for various funds as referred to in section 36(1)(va): Name of Fund Amount Due Date Actual The actual Date amount paid PROVIDENT FUND 18012 18012 09-Sep- 15-May- 2017 2017 PROVIDENT FUND 24900 24900 09-Sep- 15-Jun- 2017 2017 PROVIDENT FUND 24654 24654 09-Sep- 15-Jul- 2017 2017 PROVIDENT FUND 22965 22965 19-Mar- 15-Aug- 2018 2017 PROVIDENT FUND 21911 21911 19-Mar- 15-Sep- 2018 2017 PROVIDENT FUND 22866 22866 19-Mar- 15-Oct- 2018 2017 PROVIDENT FUND 23053 23053 19-Mar- 15-Nov- 2018 2017 PROVIDENT FUND 23077 23077 19-Mar- 15-Dec- 2018 2017 PROVIDENT FUND 23102 23102 19-Mar- 15-Jan- 2018 2018 PROVIDENT FUND 21456 21456 19-Mar- 15-Feb- 2018 2018 PROVIDENT FUND 22789 22789 19-Mar- 15-Mar- 2018 2018 PROVIDENT FUND 22142 22142 09-May- 15-Apr- 2018 2018 EMPLOYEES STATE INSURANCE 38065 38065 09-Sep- 21-May- 2017 2017 EMPLOYEES STATE INSURANCE 48093 48093 09-Sep- 21-Jun- 2017 2017 EMPLOYEES STATE INSURANCE 50278 50278 09-Sep- 15-Jul- 2017 2017 EMPLOYEES STATE INSURANCE 47666 47666 19-Mar- 15-Aug- 2018 2017 EMPLOYEES STATE INSURANCE 51469 51469 19-Mar- 15-Sep- 2018 2017 EMPLOYEES STATE INSURANCE 47149 47149 19-Mar- 15-Oct- 2018 2017 EMPLOYEES STATE INSURANCE 45645 45645 19-Mar- 15-Nov- 2018 2017 EMPLOYEES STATE INSURANCE 43547 43547 19-Mar- 15-Dec- 2018 2017 7 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR EMPLOYEES STATE INSURANCE 48115 48115 19-Mar- 15-Jan- 2018 2018 EMPLOYEES STATE INSURANCE 46940 46940 19-Mar- 15-Feb- 2018 2018 EMPLOYEES STATE INSURANCE 48748 48748 19-Mar- 15-Mar- 2018 2018 EMPLOYEES STATE INSURANCE 45207 45207 09-May- 15-Apr- 2018 2018 From a perusal of above, it is submitted that the auditor never indicates disallowance nor it is asked from the auditor, they simply report the date of the due date and date of payment. Hence, in view of the above, it may be said that the ITO CPC is wrong in invoking the provision of section 143(1)(a)(iv) of the Income Tax Act on the fallacy of presumption that the auditor has disallowed the employee contribution to EPF /ESI.
Further as there were several contrary judgement on the issue of allowability of late deposit of ESI and EPF at the time of making adjustment hence itcan not falls under the word prime facie adjustment. The isuue of disallowance for late deposit of contribution to PF and ESI debatable in nature hence adjustments u/s 143(1)(a) can not be made.
B. That on the facts and circumstances of the case the ld .Ao is further wrong , unjust and erred the law in making adjustment to income u/s 143(1) disallowing the PF and ESI contribution of RS 831849 u/s 36 (1) (va ) and added to total income despite the fact that the same was paid before the due date of submission of return of income us 139 and the assesse has already incurred penalty , interest in the respective PF , ESI Act for the delay . C. Disallowance includes Employers contribution to ESI Rs 409701. Without prejudice to above, alternatively it is further submitted that the contribution disallowed includes employer’s to ESI Rs 409701.Statement of ESI payment enclosed for verification of facts. The decision of Hon Supreme Court is in the case of Checkmate Services Pvt. Ltd. Vs CIT-1 (2022) 448 ITR 518 (SC) is only for employee’s contribution therefore even if adjustment is to be made, it should be only for employee’s contribution only and employer’s contribution Rs 409701 is to exclude. Your honor is therefore requested to accept the appeal of the assessee.
3.3 On the other hand, the ld. DR relied upon the order of the ld. Addl.CIT(A)/ JCIT(A).
8 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR 3.4 We have heard both the parties and perused the materials available on record and we find that the issue raised by the assessee relate to late deposition of ESI/PF contribution is covered by the decision of Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. vs CIT-1 (2022) 448 ITR 518 (SC). Hence, the Bench does not find any infirmity in the order of the ld. Addl. CIT(A) /Jt. CIT(A) on this issue. As regards the second issue of the assessee relating to addition of Rs.8,31,849 (including employers contribution to ESI Rs.4,09,701/-. The Bench noted that the AO has wrongly clubbed the amount of Rs.4,09,701/- in the total addition amounting to Rs.8,31,849/- which should not have been calculated or added with the employees contribution of PF/ESI. In this view of the matter, this issue of addition of employers share is restored to the file of the ld. AO to decide it afresh and allow the benefit to the assessee in accordance with the prevalent law. The assessee is also directed to produce all the relevant records/ submissions in order to dispel the doubt raised as to clubbing of employer’s share in the total addition of Rs.8,31,849/-. Thus, the appeal of the assessee to the extent of ground No. 2 is allowed for statistical purposes and the Ground No. 1 of the assessee is dismissed. 4.1 The Bench has also noted that the similar issue has been raised by the assessee for the assessment year 2019-20 wherein there is change of amount of addition but the issue is similar and the written submission of the assessee is 9 ITA NO. 750/JP/2023 SHREE STONES CRUSHER VS DCIT, CIRCLE-6, JAIPUR almost similar. Hence, the decision taken by the bench in the case of the assessee for the assessment year 2018-19 shall apply mutatis mutandis in the case of the assessee for the assessment year 2019-20. 5.0 In the result, both the appeals of the assessee are partly allowed for statistical purposes as indicated hereinabove. Order pronounced in the open court on 19 /01/2024.