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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. Nos. 534 & 536/JP/2023
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” 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. 534 & 536/JP/2023 fu/kZkj.k o"kZ@Assessment Years : 2019-20 & 2018-19 cuke Om Infra Limited ADIT (CPC), Bangalore, Om Tower, M. I. Road Church Vs. Bengaluru, Karnataka Road, Rajasthan LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACO 8245 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri B. V. Maheshwari (F.C.A.) jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehra (Addl. CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 11/10/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 08/11/2023
vkns'k@ ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM These two appeals filed by assessee are arising out of the order of the Commissioner of Income Tax (Appeals)-4, Jaipur dated 28/06/2023 [here in after (ld. CIT(A)] for assessment years 2019-20 & 2018-19 which in turn arise from the order dated 10.06.2020 & 27.01.2020 passed under section 154 of the Income Tax Act, by the ADIT, CPC, Bengaluru.
2 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
At the outset, the ld. AR has submitted that the matter in ITA
No. 536/JP/2023 may be taken as a lead case for discussions as
the issues involved in the lead case are common and inextricably
interlinked or in fact interwoven and the facts and circumstances of
other cases are identical except the difference in the amount in
other assessment year. The ld. DR did not raise any specific
objection against taking that case as a lead case. Therefore, for
the purpose of the present discussions, the case of ITA No.
536/JP/2023 is taken as a lead case. Based on the above
arguments we have also seen that for both the appeals grounds
are similar, facts are similar and arguments were similar and
therefore, were heard together and are disposed by taking lead
case facts, grounds, and arguments from the folder in ITA No.
536/JP/2023.
Before moving towards the facts of the case we would like to
mention that the assessee has assailed the appeal in ITA No.
536/JP/2023 on the following grounds;
“1. That the Ld. CIT(A) grossly erred an passing the exparte order since the Appellant filed Adjournment Application it was not discussed & the appeal was decided.
3 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
That the Ld. CIT(A) also erred in not deciding the ground in legal spirit.
That the Ld. AO grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1)/154 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITAT decided the issue in favour of Assessee.
That the Ld. AO grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/-.
That the Ld. AO disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses.
That Appellant, craves to leave, add, alter the grounds of Appeal.”
The fact as culled out from the records is that for the year
under consideration in intimation dated 02.12.2019 was issued u/s
143(1) of the Act. In the said intimation adjustment of PF & ESI not
paid within time for an amount of Rs. 41,89,576/- and unpaid
service tax disallowed as per provision of section 43B for an
amount of Rs. 1,07,621/-.
Aggrieved from the said adjustment made u/s 143(1), of the
Act, assessee preferred an appeal before the ld. CIT(A). A propose
to the grounds so raised the relevant finding of the ld. CIT(A) is
reiterated here in below:
4 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
“(ii). I have carefully considered the facts of the case in the light of submissions made by the appellant and also perused the various citations of jurisdictional High Courts and Hon'ble ITAT as well as the order of the ADIT, CPC, Bengaluru u/s 143(1) of the Act and the applicable law in this regard. The facts of the case are that the appellant collected ESI and PF from its employees but did not pay the sum of Rs. 41,89,576/- within stipulated time as prescribed in the relevant legislation. (Contribution to ESI of Rs. 4,53,702/- and PF of Rs. 37,36,054/-). The amount was however paid before the due date under section 139(1) of filing the return of income. Thus the issues involved in this appeal is as to whether this adjustment could have been made as per the provisions of section 143(1)(a) and whether the addition made by the AO on account of employees contribution to ESI and PP by invoking the provisions of section 36(1)(va) read with section 2(24)(x) of the act was correct or not. (iii) The claim of the appellant as per the written submissions that the disallowance was not indicated in the Audit Report and therefore the said adjustment could not have been made as per the provisions of section 143(1)(a)(iv) is not acceptable. The information viz-a-viz the amount of the contribution, the due date and the date of actual payment and the no. of days of delay is duly indicated in the Audit Report. Once the Audit Report clearly mentioned the delay the AO is rather duty bound to make such adjustment. (iv) The claim of the appellant is that the payment of ESI and PP should be allowed as the amount is paid before filing of Return of Income. However, under the provisions of section 2(24)tx) of the Act, the contributions from employees are deemed income and subject to tax in the hands of the employer and the employer will not get deduction under section 36(1)(va) of the Act unless the employer credits such contribution to the employees account in the relevant fund within the due date applicable for that relevant fund. (v) On this issue the Hon'ble Supreme Court after considering all the divergent decision of various High Courts has given a judgement in the case of Commissioner of Income Tax-1 vs. Checkmate Service Pvt. Ltd. Civil Appeal No. 2833 of 2016 vide order 12.10.2022. The concluding para no. 54 of decision in the case of Checkmate Service Pvt. Ltd. (supra) is reproduced as under: 54. In the opinion of this court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner
5 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
dilute or override the employer's obligation to deposit the amounts retained by it or deducted by Il 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 438 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 assesee 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 other income, monies only 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 wellare enactments. It is upon deposit, in terms of those enactments and an 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 wete to be adopted, the non-obstante.cloue under section 438 or anything contained in the provision would not absove The assessee from its liability to deposit the employee's contribution on or before the due date os condition for deduction 55 in the light of the above reasonsing, this court is of the opinion that there is no infirmity in the approach of the impugned judgement. The decisions of the other High Courts holding to the contrary, do not lay down the correct law. For those reasons, this court does not find any reason to interfere with the impugned judgement. The appeals are accordingly dismissed" (vi) Recently, on this issue Hon'ble ITAT, Bangalore SMC-B' Bench has given a judgement in the case of Mahaveer Bulk Carriers Vs. Assisstant Director of Income Tax vide order 06.01.2023. The concluding para in the case of is reproduced as under:
6 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
Business expenditure - Employees contribution to PF and ESt-Delayed deposit of employees' contribution - Addition can be made in respect of the employees contribution to PF/ES! which has not been deposited within the stipulated date as per the respective Acts Since the assessee has not deposited the employees - contribution within the due date as per the respective Acts disallowance can be more as per's 36/11(va) r/w.s. 2(24)(x)-Checkmate Services (P) Ltd. & Or Vs Cit (2022) 329 CTR (SC) 1: (2022) 218 DTR (SC) 401 followed. Assessment - Prima facie adjustment under s 143(1) - Disallowance of delayed deposit of employees' contribution to PF/ESI-Sec. 143111(a) has specified that prima focle adjustment can be made on the basis of information's available with the return of income along with the necessary documents-Tax Auditor has reported in Form 3CD that the assessee did not deposit the employees' contribution within the due date Therefore, the same was rightly disallowed while processing the return under s. 143(1)(a) - AA520 Veerappampalayam Primary Agricultural Co-operative Credit Society Lid, vs. Dy. CIT (20211 321 CTR (Mod) 163 (2021) 202 DTR (Mad! 391 and Amror Co-operaive Urban Society v Dy. CIT (2023) 221 TT (Coch followed......." (vii) The disallowance has rightly been made on the basis of the relevant law viz-a vir the due dates of depositing of the amounts which are held by the employer, the appellant in trust since these are the contributions of the employees and not the share of the contribution to be made by the employer. The Hon'ble Supreme Court has held that these have to be deposited in terms of such welfare enactments. The Hon'ble Supreme Court has also observed that the decision of other High Courts, holding the contrary do not lay down the correct law. From this observation it becomes abundantly clear that this was always the correct law, which will be dully applicable to the facts and circumstances of the case in hand. (viii) It is also pertinent to mention here that a notice in terms of sec, 251(2) of IT Act was issued on 09.03.2023 to enhance the addition on account of PF/ESI to Rs. 81,16,761/- from the original addition of Rs. 41,89,576/-. The difference has been reconciled being the contribution of the employer. Therefore, no adverse inference is drawn.
As the assessee did not find any favor from the order of the
ld. CIT(A), preferred the present appeal on the ground as
7 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
reproduced hereinabove. To support the various grounds so raised
by the ld. AR of the assessee, he has filed the written submissions
and the same is reproduced herein below:
“That against the order u/s 143(1) & not considering the application u/s 154 the company filed appeal before the Ld. CIT(A). The Ld. CIT(A)-4, Jaipur decided the Appeal vide order dtd. 28.06.2023 the Ld. CIT(A) partly allowed the appeal & dismissed most of the grounds. We also submitted that the ESI/PF adjustment is not to be made in order u/s 143(1) but the Ld. CIT(A) ignored all our submission & dismissed the grounds & appeal. Hence the assessee is in appeal before your honours.
Grounds of Appeal 1. That the Ld. CIT(A) grossly erred an passing the exparte order since the Appeallant filed Adjournment Application it was not discussed & the appeal was decided.
That the Ld. CIT(A) also erred in not deciding the ground in legal spirt.
That the Ld. A.0. grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1)/154 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITAT decided the issue in favour of Assessee.
That the Ld. A.0. grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/-.
That the Ld. A.O. disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses.
That Appellant, craves to leave, add, alter the grounds of Appeal.
Ground No. 1 That the Ld. CIT(A) grossly erred an passing the exparte order since the Appeallant filed Adjournment Application it was not discussed & the appeal was decided.
Submission That on last hearing we filed application for adjournment to bring on records the latest order of Hon. ITAT but the Ld. CIT not considered our
8 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
application & passed the appeal order which has ignored the latest decision of the Hon. ITAT.
Ground No. 2 That the Ld. CIT(A) also erred in not deciding the ground in legal spirt.
Submission That the Ld. CIT grossly erred in not deciding the appeal on legal issues that about ESI/PF the Hon. ITAT decided that unless the disallowance is made in Tax Audit report the Ld. CIT(A)/A.O. cannot disallow in order u/s 143(1) but the Ld. CIT(A) ignored this legal issue. Similarly about Service Tax also the Ld. CIT(A) ignored our submission that the Service Tax has not been passed though P/L A/c hence when there is question of disallowance by invoking sec. 43B As such the CIT(A) have not decided the ground in legal spirit.
Ground No. 3 That the Ld. A.O. grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1)/154 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITAT decided the issue in favour of Assessee.
Submission That the ESI/PF expenses disallowed by CPC in intimation u/s 143(1)/154 which is not in the power of CPC, the CPC cannot amend the income own its own notion. Similarly the Ld. CIT(A) also ignored the submission of the appellant whereas this issue has been decided by the Hon. ITAT in favour of Assessee in its order in the following case
PARIS ELYSEES INDIA (P) LTD v/s DCIT, CIRCLE -7, JAIPUR ITA No. 357/JPR/2022 A.Y. 2018-19 The company of order is submitted along with paper book. That there is another decision of ITAT, Ahemdabad in the case of
ARHAM PUMPS v/s DCIT CPC BANGALORE, ITA No. 206/AHD/2021 A.Y. 2018-19”
In which the disallowance made u/s 143(1) was deleted. Ground No. 4 That the Ld. A.O. grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/
9 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
Submission Again the same issue that the Ld. A.O. CPC & Ld. CIT(A) ignored our submission that the disallowance cannot be made in intimation u/s 143(1) and 154. As per the stand taken by Hon. ITAT as submitted in above ground. As such the Ld. CIT(A) is wrong in not allowing the ground of allowance of ESI/PF. Ground No. 5 That the Ld. A.O. disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses. Submission That the service Tax was not taken up in P/L A/c it was the O/s liability hence the disallowance cannot be made u/s 43B the relevant papers are submitted.”
The ld. AR of the assessee also filed the following evidence /
judgment in support of the contentions so raised in the written
submission;
S. N. Particulars Page No. Remarks Before 1 Copy of IT Return & Computation A.Y 2018-19 1-5 AO NFAC, Delhi 2 Copy of Intimation order u/s 143(1) dtd. 02.12.2019 6-10 AO NFAC, Delhi 3 Copy of Intimation order u/s 154 dtd. 27.01.2020 11-12 AO NFAC, Delhi 4 Copy of 3CD 3CA Report 13-28 AO NFAC, Delhi 5 Details of ESI & PF 29-30 AO & CIT(A) 6 Ledger of Dividend Receipts & Service Tax payable 31-40 AO & CIT(A) Account and Profit & Loss on Sales of Fixed Assets. 7 ITAT, Jaipur Order of Paris Elysees India Pvt. Ltd. 41-52 Legal order order dtd. 20.02.2023 8 ITAT, Ahemdabad of Arham Pumps order dtd 53-58 Legal order 27.04.2022
10 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
9 Copy of written submission of CIT(A)-4, Jaipur 59-63 CIT(A) 10 Copy of Adjournment Letter dtd. 26.06.2023 before 64-65 CIT(A) ld. CIT(A)-4, Jaipur
Per contra, the ld. DR relied upon the order of Hon’ble Apex
Court in the case of CIT-1 vs. Checkmate Service Pvt. Ltd. Civil
Appeal No. 2833 of 2016 vide order dated 12.10.2022 and
submitted that considering that judgment of the apex court there is
no benefit of relying on the judgment of this bench as the issue is
decided by the apex court in favour of the revenue and therefore,
for PF & ESI he supported the finding of the lower authority. As
regards the disallowance of service tax made u/s 43B of the Act
since there is an amendment in section 145 of the Act so as to
include the service tax as part of turnover and the assessee is
supposed to declare the gross amount and thus, the service tax
forms part of the profit and loss account and thereby the provision
of section 43B squarely apply in this case.
We have heard the rival contentions, perused the material
placed on record and gone through the judicial decision relied
upon by both the parities to drive home to their contentions. So far
as the ground Nos. 3 & 4 in relation to the disallowance of payment
11 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
of ESI & PF. The ld. CIT(A) has followed the judgment of CIT-1 vs.
Checkmate Service Pvt. Ltd.(supra) and disallowance so made is
in accordance with law clarified by the Hon’ble Apex Court.
Thereafter, Similar issue has also been decided by the Hon’ble
Supreme Court in the case of PCIT vs Strides Arcolab Ltd. vide its
order dated 29-11-2022 (Civil Appeal No.9009 of 2021 [2023] 147
taxmann.com 202 SC)]. For the sake of convenience and brevity of
the case, the order passed by the Supreme Court in the case of
PCIT vs Strides Arcolab Ltd. (supra) is also reproduced as under:-
‘’1.Leave granted. 2. As per the Office record, Service is complete on the sole respondent but none has entered appearance on behalf of the Respondnet Assessee. 3. Mr. Balbir Sharma, learned Additional Solicitor General appearing for the appellant submits that the issue involved in this appeal is squarely answered in favour of the Revenue by a Three- Judge Bench of this Court vide judgement dated 12-10-2022 in Checkmate Services (P) Ltd. vs CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518/2022 SCC Online SC 1423 4. In view of the above, the impunged judgement dated 22- 03-2019 passed by the High Court of Judicature at Bombay is set aside and the appeal is allowed in terms of the cited decision.’’
9.1 It may be mentioned that similar issue has also been decided
by the ITAT Delhi Bench in favour of the Revenue in the case of
Salveen Kaur Vs Income Tax Office vide its order darted 9th
January 2023 (in IT Appeal Nos. 2197,2249, 2250 and 2293
12 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
(Delhi) of 2022 – A.Y. 2017-18 to 2019-20 [2023] 147 taxmann.co.
402 (Delhi-Trib) by observing as under:-
‘’4. The undisputed fact in the captioned appeals is that there was a delay in depositing the employees’ contribution and the contribution has been deposited beyond the date stipulated under the relevant Fund Act.
Though the quarrel is no more res integra, as it has been settled by the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd 143 Taxmann.com 178. But, before us, the decision of the co-ordinate bench at Mumbai has been placed in the case of PR Packaging Service in ITA No. 2376/MUM/2022 and it has been seriously argued that the co-ordinate bench has considered the decision of the Hon’ble Supreme Court and yet decided the quarrel in favor of the assessee and against the Revenue. 6. Another argument taken before us is that the disallowance made by the CPC Bengaluru while processing the return u/s 143(1) of the Act is beyond the scope of provisions of section 143(1(a) of the Act and,therefore, cannot be sustained.
We have carefully perused the decision of the co-ordinate bench in the case of M/s P R Packaging Services [supra]. We find that the co-ordinate bench has not given any independent finding but has simply relied upon another decision of the co-ordinate bench in the case of Kalpesh Synthetics Pvt Ltd 195 ITD 142 wherein the co- ordinate bench has based its decision on the interpretation and binding decision of the Hon'ble Jurisdictional High Court. In the case of Kalpesh Synthetics Pvt Ltd [supra], the Tribunal has held that the CPC Bengaluru cannot override the binding decision of the Hon'ble Bombay High Court while making the impugned disallowance on account of delay in the deposit of employees’ contribution to PF/ESI.
It would be apt to refer to the relevant part of the decision of the Tribunal in the case of Kalpesh Synthetics [supra] followed in P R Packaging Service [supra] wherein it has been held as under:- “8. When the law enacted by the legislature has beenconstrued in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read any other manner than as read by the Hon'ble jurisdictional High Court. The views expressed by the tax auditor in sucha situation, cannot be reason enough to disregard the binding views of the Hon'ble jurisdictional Court. To that extent, the provisions of section 143(1)(a)(iv) must be read down. What essentially follows is the
13 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
adjustments under section 143(1)(a) in respect of” disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above”. That is where the quasi judicial exercise of dealing with the objections of the assessee against proposed adjustments under section 143(1), assumes critical importance in the processing of returns, also important to bear in mind the fact that what constitutes jurisdictionalHigh Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, rule 11(1) of the Central Processing of Returns Scheme, 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income Tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer” Thensitus of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether theCPC is within the jurisdiction of Hon'ble Bombay High Court or not, as for the regular Assessing Officer of the assesseeand the assessee are located in the jurisdiction of Hon'bleBombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon'ble Bombay High Court. In our considered view, it cannot be open tothe Assessing Officer CPC to take a view contrary to the view taken by the Hon'ble jurisdictional High Court- moreso when his attention was specifically invited to bindingjudicial precedents in this regard. For this reason also, the inputs in question in the tax audit report cannot be reason enough to make the impugned disallowance. The assesseemust succeed for this reason as well.”
With our utmost respect to the findings of the co-ordinate bench [supra], we are of the considered view that the co-ordinate bench has ignored the binding ratio decidendi of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra]. It would be pertinent to refer to the most relevant observations of the Hon'ble Supreme Court on the impugned quarrel which read as under:-
“32. The scheme of the provisions relating to deductions, such as Sections 32 - 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfillment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection.
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In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act,1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of “income” – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions,or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)).
The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, “employers’contribution”) is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that “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.” The essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date.
It is therefore, manifest that the definition of contribution in Section 2 (c) is used in entirely different senses, in the relevant deduction clauses. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish
15 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification under the IT Act, between the two.
It is instructive in this context to note that the Finance Act,1987, introduced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill,1987, presented to the Parliament, is extracted below: “Measures of penalising employers mis-utilising contributions to the provident fund or any funds set upunder the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees
12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B).The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. “Due date”means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise.
(Explanation to Section 36 (1) of the Finance Act)
12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.” XXXXXX
There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B,which mandated that unless the amount of employers’contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and
16 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available.
A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va).Furthermore, the separate provisions in Section 36(1) foremployers’ contribution and employees’ contribution, too went unnoticed. The court observed inter alia, that:
“15. …It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare fundsof employee(s) on the other. This is one more reason whywe hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P)Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effectfrom 1st April, 1988 [when the first proviso stoodinserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to theassessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act,they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April,2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003,to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April,2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003”. XXXX 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain
17 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
conditions, the conditions are to be strictly complied with. Eagle Flask Industries Ltd Vs. Commissioner of Central Exercise 2004Supp (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations.
That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements as follows: “23…. In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed onaccount of any subsequent event the exemption would not operate.
In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications.
In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule.
Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non- compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.” XXXX
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
18 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
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.
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 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.”
In our understanding, the aforementioned binding observations of the Hon'ble Supreme Court cannot be brushed aside simply because the decision was rendered in the context where the assessment was framed u/s 143(3) and not u/s 143(1)(a) of the Act. In our considered opinion, the decision of the Hon'ble Supreme Court is in the context of allowability of deposit of PF/ESI after due date specified in the relevant Act.
The Hon'ble Supreme Court has categorically held that the employees’ contribution deposited after respective due date cannot be allowed as deduction, and, therefore, it would be incorrect to say that the decision of the Hon'ble Supreme Court is applicable only in the case of an assessment farmed u/s 143(3) of the Act. In our considered view, the ratio decidendi is equally applicable for the intimation framed u/s 143(1) of the Act.
Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon'ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru.
The provisions of section 143(1)(a) read as under:-
19 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
“143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of Section143, such return shall be processed in the following manner, namely;- (a) The total income or loss shall be computed after making the following adjustments, namely;- (i) Any arithmetical error in the return; (ii) An incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) Disallowance of expenditure [or increase in income]indicated in the audit report but not taken into account in computing the total income in the return;
(v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain income”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or
(vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;”
13.1 A perusal of the afore-stated provisions show that at every stage in sub-section (1) of the Act, the return submitted by the assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses are found,appropriate adjustments are to be made. It is an open secret that hardly 3 to 5% of the returns are selected for scrutiny assessment, out of which, more than 50% are because of AIR Information under CASS and the Assessing Officer cannot go beyond the reasons for scrutiny selection and such cases are called Limited Scrutiny cases and only the remaining returns are taken up for complete scrutiny u/s 143(3) of the Act.
13.2 Meaning thereby, that exercise of power under sub- section (2) of section 143 of the Act leading to the passing of an order under sub-section (3) thereof, is to be undertaken where it is considered necessary or expedient to ensure that the assessee has not understated income or has not computed excessive loss, or has not under paid the tax in any manner.
If any narrow interpretation is given to the decisions of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra], it would not only defeat the very purpose of the enactment of the provisions of section 143(1) of the Act but also defeat the very purpose of the Legislators and the decision of the Hon'ble Supreme
20 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore
Court would be made redundant because there would be discrimination and chaos, in as much as, those returns which are processed by the CPC would go free even if the employees’ contribution is deposited after the due date and in some cases the employer may not even deposit the employees’ contribution and those whose returns have been scrutinized and assessed u/s 143(3) of the Act would have to face the disallowance. 15. This can neither be the intention of the Legislators nor the decision of the Hon'ble Supreme Court has to be interpreted in such a way so as to create such discrimination amongst the tax payers. Such interpretation amounts to creation of class [tax payer] within the class [tax payer] meaning thereby that those tax payers who are assessed u/s 143(3) of the Act would have to face disallowance because of the delay in deposit of contribution and those tax payers who have been processed and intimated u/s 143(1) of the Act would go scot- free even if there is delay in deposit of contribution and even if they do not deposit the contribution. 16. We are of the considered view that the ratio decidendi of the Hon'ble Supreme Court is equally applicable to the intimation u/s 143(1) of the Act and, therefore, the decision of the co-ordinate bench relied upon by the assessee is distinguishable. Therefore, respectfully following the binding decision of the Hon'ble Supreme Court [supra], all the three appeals of the assessee are dismissed and that of the revenue is allow 17. In the result, all the three appeals of the assessee in ITA No. 249/DEL/2022, 2250/DEL/2022 and 2197/DEL/2022 are dismissed whereas the appeal of the Revenue in ITA No. 2293/DEL/2022 is allowed.’’ In view of the above deliberations and the decision taken by the
Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd.
vs CIT-1(supra), PCIT vs Strides Arcolab Ltd. and also the
decision of ITAT Delhi Bench in the case of Savleen Kaur (supra),
the Bench sustains the addition confirmed by the ld. CIT(A) and
the appeal of the assessee is dismissed. Based on these
21 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore observations the ground no. 3 & 4 raised by the assessee are
dismissed.
As regards ground No. 5, the bench noted that in the
intimation issued u/s 143 (1) of the Act, the addition of Rs.
1,07,621/- made being the amount of the service tax not paid by
the assessee. The bench noted that to decide this ground it would
be appropriate to deal with provisions of section 145A of the Act.
As per the provisions of the that section, the assessee is supposed
to value the purchase and sale of goods including any tax duty
cess and fees any tax, duty, cess or books actually paid incurred
by the assessee to bring the goods or services to place on its
locations and conditions. Therefore, the plea of the assessee that
they have not debited the service tax into the profit & loss A/c does
not give any immunity of disclosing the purchase and sales or
services net of taxes. Thus considering this provision of the Act,
the assessee is supposed to include this service tax though not
debited or credited in profit & loss A/c. Since as per provision
section 145A the assessee has to include the service tax and
considering that aspect of the matter and we are of the considered
view that based on that provision if the assessee does not pay the
22 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore service tax within the time allowed then the provision of section
43B attracted. Based on these observations and the ld. AR of the
assessee does not deal with any arguments or supportive
judgment in support of the contentions so raised by the revenue
and therefore, based on the above provision of the act we do not
find any merits in the ground no. 5 raised by the assessee and the
same is dismissed.
As regards ground No. 1, 2 & 6, there is no submission or
argument advanced before us and therefore, the same are not
adjudicated in terms of these observations, the appeal of the
assessee is dismissed.
The fact of the case in ITA No. 534-JP-2023 is similar to the
case in ITA No. 536-JP-2023 and we have heard both the parties
and persuaded the materials available on record. The bench noted
that the issues raised by the assessee in this appeal No.
534/JP/2023 are equally similar on set of facts and grounds.
Therefore, it is not imperative to repeat the facts and various
grounds raised by both the parties. Hence, the bench feels that the
decision taken by us in ITA No. 536/JPR/2023 for the Assessment
23 ITA Nos. 534 & 536/JP/2023 Om Infra Limited vs. ADIT (CPC) Bangalore Year 2018-19 shall apply mutatis mutandis in the case of Om Infra
Limited in ITA No. 534-JP-2023 for the Assessment Year 2019-20.
In the result, both appeals of the assessee are dismissed.
Order pronounced in the open Court on 08/11/2023 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;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 08/11/2023 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Om Infra Limited, Jaipur 1. 2. izR;FkhZ@ The Respondent- ADIT (CPC) Bangalore, Bengaluru vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File { ITA Nos. 534 & 536/JP/2023} vkns'kkuqlkj@ By order
सहायक पंजीकार@Aेेज. त्महपेजतंत