ACIT CIR 5(3),MUMBAI vs. SHREE RAJ TRAVELS & TOUR LTD, MUMBAI

The Ld. AO rejected the assessee’s contention and held that since these payments were made beyond the stipulated dates, therefore, they are deemed income of the assessee under section 2(24)(x) r.w.s. 36(1)(va).

The Ld. CIT(A) has deleted the said addition after observing and holding as under:- “The disallowance of Rs.20,78,279/- under section 2(24)(va) r.w.s. 36(1)(va) of the Act made by the LAO on account of delayed payment to Employees Contribution to Employer’s Provident Fund by the employer is not maintainable in the light of various Tribunal as well as High Court decisions cited in the preceding paras. Hon’ble Delhi High Court in the case of CIT vs. AIMIL Limited [2010] 321 ITR 508 (Del) and Hon’ble Supreme Court in the case of CIT vs. Alom Extrusion Limited 319 ITR 306(SC) and CIT vs Vinay Cements 213 CTR 268 (SC) have held that such disallowances are not maintainable. Under the circumstances, ground of appeal no.2 is allowed”.

After considering the relevant finding given in the impugned order, we find that it is an undisputed fact that the delayed payments on account of employees contribution to EPF & ESIC has been made much within the due date of filing of return of income. We find that now this issue stands covered in favour of the assessee by the decision of Hon’ble jurisdictional High Court in the case of CIT vs Ghatge Patil Transports Ltd., reported in [2014] 368 ITR 749 wherein the Hon’ble High Court on the issue of payment of employees contribution towards EPF and ESIC has held that, the payment has been made before the due date of furnishing of return of income then same should be allowed under section 43B. In the case before the Hon’ble Court was exactly same question of law which has been answered in favour of the assessee. For the sake of ready reference substantial question of law as been admitted by the Hon’ble High Court reads as under:

Mr. Gupta submitted that the Tribunal erred in deletion of addition of amount to the extent of Rs.32,03,947/- and that the impugned order dated 29th July, 2011 is liable to be quashed. Mr. Gupta relied upon the judgment of Punjab & Haryana in Commissioner of Income-Tax V/s. Lakhani Rubber Works reported in [2010] 326 ITR 415 (P & H) and submitted that question Nos.1 & 2 in that case had already been decided against the revenue in view of the decision of Alom Extrusions Ltd. (supra). It is for this reason that he did not press for an answer to question No.1 in these Appeals.

Mr. Naniwadekar, learned counsel appearing on behalf of the assessee on the other hand relied upon the decision of the Supreme Court upon the decision of Alom Extrusions (supra) and pointed out that the scheme of the Income Tax Act, 1961 as it existed prior to April 1, 1984 and thereafter.

The second proviso resulted in implementation problems and which led to deletion of the second proviso in the Finance Act, 2003 and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds like employees' provident fund, superannuation. Fund and other welfare funds. The first proviso by Finance Act, 2003 made applicable with effect from April 1, 2004 and the assessee would argue that it curative in nature, clarificatory and, therefore, applied retrospectively from 1st April, 1988. The department argued that it was clarifactory and, therefore, applied prospectively. The Supreme Court held that Finance Act, 2003 would be applicable retrospectively and defaulter who fails to pay the contribution to the welfare fund right upto April 1, 2004 and who pays the contributor after April 1, 2004, would get the benefit of deduction under section 43B of the I.T. Act. It is held that the Finance Act, 2003 to the extent indicated above would be curative in nature and hence is retrospective. The reason being to be that the employers should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislation5 by delaying payment of contributions to the welfare funds.

Mr. Naniwadekar also relied upon the judgment dated 11th July, 2014 in Income Tax Appeal No.399 of 2012 passed by this Court, to which one of us (S.C.Dharmadhikari,J.) was a party where following two issues of law were raised.:- "(A) Whether on the facts and in the circumstances of the case, the Tribunal, in law, wa5 right in allowing the claim of the Assessee on account of delayed payments of P.F. employees' contribution amounting to Rs.1,82,77,138/- by relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs/. Alom Extrusions Ltd. (319 ITR 306) ? (B) Whether on the facts and in the circumstances of the case, the Tribunal in law, was right in deleting the disallowance of Rs.10,00,300/- on bond 7 �ी राज �ावे�स अँड टूरस �ल�मटेड Shree Raj Travels and Tours Ltd ITA 251/M/2013 registration charges and allowing the claim of the assessee u/s. 37(1) of the I.T. Act, 1961 ? 13. In that judgment, this Court held that no substantial questions of law would arise since section 43B is inserted in the I.T. Act with effect from 1st April, 1984 by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued. Under section 43B of the I.T. Act, it became mandatory for the assessee to account for such payment including to welfare funds not on mercantile basis but on cash basis The judgment further mentions that this situation continued between 1st April, 1984 and 1st April, 1988. It is also noticed that section 43B was again amended and the first proviso thereto has been added which was restricted to tax, duty, cess or fee excluding labour welfare. In view thereof, the second proviso as follows came to be inserted:- "Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of sub- section (1) a section 36."

In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contribution to various Employee’s Welfare Funds on the other. All this came up for consideration before the Hon’ble Supreme Court in the case of Alom Extrusions Ltd. (supra). The Tribunal in the case at hand relied upon the said judgment. There is no reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. applied to employees’ contribution as well as employers’ contribution. Question No. 2, 3 & 4 are accordingly answered in favour of the assessee and against the revenue”. Thus, respectfully following the ratio of the Hon’ble jurisdictional High Court, we also hold that if such payments have been made before the due date of filing of return of income, then same have to be allowed under section 43B. Accordingly, we decide this issue in favour of the assessee and the ground raised by the revenue are dismissed.

In the result, appeal of the revenue stands dismissed. Order pronounced in the open court on 13th April, 2016.