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Income Tax Appellate Tribunal, MUMBAI BENCHES “A” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned cross – appeals i.e. one by the assessee and the other by the revenue are filed against the order of the learned Commissioner (Appeals) – 12, Mumbai and arise out of order u/s 143(3) of the Income Tax Act, 1961 (the “Act’’). We shall take up first the appeal filed by the assessee.
Assessment Year: 2009-10
The grounds of appeal filed by the assessee read as under:
“ Disallowance of PF/ESIC i. The learned Hon’ble CIT(A) erred in confirming disallowance of Rs. 2,44,084/- relating to employees contribution to PF and Rs. 15,62,812/- relating to employees contribution to ESIC for the assessment years 2007- 2008 and 2008-2009 paid during the current year disregarding the provisions of Section 43B of the Act, on the facts and circumstances of the case and in law. Deductibility of Damages for late payment of PF/ESIC ii. The learned Hon’ble CIT(A) erred in confirming disallowance of Rs. 5,97,941/- paid towards damages for late payment of PF/ESIC contribution, on the facts and circumstances of the case and in law.”
Briefly stated, the facts are that the Assessing Officer (AO) observed that the assessee-company had paid Rs. 18,06,896/- of the Employees’ contribution beyond the due date i.e. PF relating to F.Y. 2006-07 and 2007-08 had been paid in the F.Y. 2008-09. In response to a query raised by the AO, the assessee filed a reply dated 15.12.2011 stating that section 43B (b) provides that the contribution towards PF and ESIC shall be allowed irrespective of the year in which the liability is paid by the assessee. The AO was not convinced with the above explanation of the assessee – company as section 43B(b) states that the Employers’ contribution is to be allowed as and when the same is paid. The AO noted that as per section 36(1)(va), a deduction is allowed on 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 to the Employees’ account in the relevant fund or funds on or before the due date. As per explanation to sub-clause of this provision, due date is the date by which the assessee is required to credit the Employees’ account in the relevant fund. As per the PF Act, the due date is 15th day of the following month and in the case of ESIC, it is 21st day of the following month. As per the details filed by the assessee, the AO found that the assessee had paid Employees’ contribution of PF and ESIC after the specified due date. In view of the above, the AO made a disallowance of Rs. 18,06,896/- u/s 36(1)(va) of the Act.
3.1 The AO also noted that during the impugned assessment year the assessee has paid the following amount as penalty a. Damage & Interest for the period June, 07 to Rs. 5,88,838/- January, 08 b. Interest & Damages for November, 06 to January, Rs. 2,03,107/- 08 c. Interest & Penalty paid as per notice 21.10.2008 Rs. 29,085/- Total Rs. 8,21,030/- As the above amount of Rs. 8,21,030/- claimed towards PF & ESIC is penal in nature, the AO asked the assessee to explain why the same should not be disallowed and added back to the total income. In response to it, the assessee filed a reply stating that out of Rs. 5,88,838/- an amount of Rs. 4,37,505/- had been paid towards damages and Rs. 1,51,333/- for the interest. The AO referred to clause 17(e) of the audit report dated 29.09.2009 which states the following facts: ‘’Kind attention is drawn to Annexure ‘’D’’ and ‘’E’’ which gives particular of interest and damages levied by Provident Fund and Employees State Insurance Scheme authorities which are account for in the books of accounts. We have been informed that apart from above no other penalties of fines have been paid by the company’’. Thus the AO disallowed Rs. 8,21,030/- paid towards damages and interest for PF and ESIC and added back the same to the total income as per section 37(1) of the Act.
The assessee preferred an appeal before the learned CIT(A). It is found that the learned CIT(A) agreed with the reasons given by the AO and confirmed the disallowances of Rs. 18,06,896/- and Rs. 8,21,030/- mentioned at para 3 and 3.1 here-in-above.
None appeared on behalf of the assessee. The learned DR supported the order passed by the learned CIT(A) confirming the above disallowances made by the AO.
We have perused the relevant material on record. We find that the dispute relates to payment of Employees’ contribution towards PF and ESIC. The assessee relies on section 43B(b) of the Act whereas the AO and the learned CIT(A) refer to section 36(1)(va). It is the settled position of law that section 43B is not applicable in the case of Employees’ contribution towards staff welfare schemes. Such contribution is governed by section 36(1)(va). In other words, if Employees’ contribution towards Provident Fund or any other Staff Welfare Scheme is credited by the employer after the due date and grace period (under Provident Fund Regulations), it is not deductable u/s 36(1)(va), even if it is credited / paid on or before due date of submission of return of income u/s 139(1) of the Act. It has been held so in CIT vs. South India Corporation Ltd. [2005] 216 Taxman 241 (Ker), CIT vs. Merchem Ltd. [2015] 61 taxmann.com 119 (Ker). In the instant case, as per the grounds of appeal
, Rs. 2,44,084/- relating to Employees’ contribution to PF and Rs. 15,62,812/- relating to Employees’ contribution towards ESIC for assessment years 2007-08 and 2008-09 were paid during the A.Y. 2009-10 (emphasis underlined). The AO has rightly referred to section 36(1)(va) and disallowed Rs. 18,06,896/- paid towards Employees’ contribution to PF and ESIC. The order of the learned CIT(A) confirming the disallowance of the above amount is thus upheld. 6.1 The 2nd ground relates to disallowance of Rs. 5,97,941/- paid towards damages for late payment of PF / ESIC. We find that clause 17(e) of the audit report dated 29.09.2009 clearly states that the said amount relates to interest and damages levied by Provident Fund and Employees’ State Insurance Scheme Authorities. As the above amount is penal in nature, we uphold the order of the learned CIT(A).
7. In the result, the appeal filed by the assessee is dismissed. Assessment Year: 2009-10
Now we turn to the appeal filed by the revenue. The grounds of appeal read as under: i. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the set off of carried forward business loss of Rs. 25,25,373/- against the short term capital gains arising on sale of factory building used for the business purpose. ii. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee claim that gains from the business assets were eligible for set off against the brought forward losses u/s 72 of the IT Act without appreciating that section 72 allows brought forward losses to be set-off against the ‘’profit & gains of any business or profession’’ i.e. income earned
out of business carried on by the assessee and not just income connected in some way to the business or profession carried on by the assessee. 9. The tax effect in respect of the above grounds of appeal is less than the monetary limit of Rs. 10,00,000/- fixed by CBDT vide Circular No. 21 of 2015 dated 10.12.2015 in relation to appeal before the ITAT. This is also fairly stated by the learned DR. We have seen that the monetary limits have been made applicable retrospectively by the CBDT in the said Circular as would be evident from the following extract:- ‘’10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts / Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.’’
10. In view of the above, we dismiss the appeal of the revenue as not maintainable.
11. In the result, the appeal filed by the revenue stands dismissed. Order pronounced in the open court on 10/01/2017