KHIMJI RAMDAS INDIA PRIVATE LIMITED,AHMEDABAD vs. THE ITO, WARD-2(1)(2) PRESENT JURIDICTION THE DCIT, CIRCLE-2(1)(1), AHMEDABAD

5. The Ld. AO has, while making the impugned addition has erred in law and on facts in reckoning and considering the due date for making the payment of the employees contribution and thereby have erred in making the impugned disallowance of Rs.27,19,302 Us.36(1)(va) of the Act and the Ld. CIT(A) has erred in law and on facts in confirming the same.

6. The Ld. AO have erred in law and on facts in not considering the mistake by the bank while putting the rubber stamp of tender date in respect of payment of Rs.6,08,002 towards Employee's PF (P&G Division) for the month of January 2014 salary of which was made on 18/02/2014 and thereby have committed an error in considering the date of said payments and Ld. CIT(A) has erred in law and on facts in confirming the same. We pray to delete the disallowance in respect of the same,

7. The Ld. AO have erred in law and on facts in not considering the fact that, the company had received a distributorship of Britannia Industries Limited and for that it had opened a new division called namely as CPD (Consumer Products Division) and have also not considered the fact that for complying the provisions of the Acts relating to the Provident Fund and ESIC, rules thereof and payment of contributions of employees/employers, the appellant was required to obtain the sub code from the said respective authorities and by not considering the facts the company was required to make the payment of such sub codes which was not possible and the Ld. AO has, by not considering these aspects, held that the payment of the following was late and have erred in law and in facts in disallowing the same (SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 3 a. Rs. 1,26,200 - PF (CPD Division) b. Rs. 32,614- ESIC (CPD Division) Rs.1,58,814 - Total and Ld. CIT(A) has erred in law and on facts in confirming the above. We pray to delete the disallowance in respect of the above.

8. The Ld. AO has erred in law and on facts in not considering the grace period of 5 days for payment of the dues in respect of Employee's contribution to PF as have been provided under the Employees Provident Fund Act and thereby have committed an error in working out the due dates and thereby the sum of Rs.12,70,580-PF (P&G Division) and Ld. CIT(A) has erred in law and on facts in confirming the same. We pray to delete the disallowance in respect of the same, 9. The Ld. AO have erred in law and on facts in not considering date of tender of the Demand draft and thereby have committed an error in law and facts in working out the late payments considering the date of actual clearing as against date of tender of the Demand draft and thereby making disallowance on this count of a. Rs 12,70,580-PF (P&G Division) b. Rs. 5,76,993 - ESIC (P&G Division) Rs. 18,47,573-Total and Ld. CIT(A) has erred in law and on facts in confirming the above. We pray to delete the disallowance in respect of the above.

10. The Ld. AO have erred in law and on facts in not considering the fact that, the payment of Employee's Contribution of ESIC amounting to Rs.1,04,911 had been made within 15 days from the end of the month from which the disbursement of salary is actually made and Ld. CIT(A) has erred in law and on facts in confirming the above. We pray to delete the disallowance in respect of the above.

11. The Ld. AO has erred in law and on facts in not considering that, the due dates for payment as well as the dates of payments in proper perspective and in the light of law/case law and thereby he has committed an error in disallowing the payments of contribution of Employee's PF and ESIC to the Authorities concerned and we pray to delete the entire disallowance of Rs.27,19,302 as has been made by the Ld. AO and Ld. CIT(A) has erred in law and on facts in confirming the same. We pray to delete the disallowance in respect of the same.

12. Both the Ld. AO as well as the Ld. CIT(A) have erred in law and on facts in concluding that, the provisions of Sec. 43B of the Act does not cover (SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 4 employees' contribution and it is not covered under the provision Sec. 43B of the Act.

3. Brief facts of the case are that an order u/s 154 of the Act was passed in the case of the assessee for rectification of mistake apparent from the record in the order passed u/s 143(3) of the Act on the assessee. The mistake sought to be rectified, as is evident from the bare perusal of the order passed u/s 154 of the Act, is to the effect that the employees’ contribution to ESI and PF which was deposited delayed by the assessee and which clearly emanated from the records having been disclosed in the Tax Audit Report filed by the assessee in Form No. 3CD, was not disallowed in terms of provisions of Section 2(24)(x) r.w.s. 36(1)(va) of the Act. The quantum of such disallowance noted by the Assessing Officer was Rs.27,19,302/-; the details of which are reproduced in the order as under:-

Type of Month Sum received Due date of Actual date payment from employees payment of payment Jan-14 8465 21.02.2014 18.06.2014 Feb-14 9200 21.03.2014 18.06.2014 Mar-14 9808 21.04.2014 18.06.2014 PF&P&G June-13 572966 15.07.2013 22.07.2013 Dec-13 697614 15.01.2014 23.01.2014 Jan-13 608002 15.02.2014 12.03.2014 Dec-13 19435 15.01.2014 05.05.2014 Jan-14 34436 15.02.2014 05.05.2014 (SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 5 Feb-14 35592 15.03.2014 05.05.2014 Mar-14 36767 15.04.2014 05.05.2014 ESIC Apr-13 81214 21.05.2013 23.05.2013 May-13 74750 21.06.2013 22.06.2013 Jun-13 78146 21.07.2013 24.07.2013 Jul-13 84485 21.08.2013 22.08.2013 Dec-13 104911 21.01.2014 08.02.2014 Jan-14 92493 21.02.2014 04.03.2014 Feb-14 83121 21.03.2014 22.03.2014 Mar-14 82785 21.04.2014 25.04.2014 ESIC CPD Dec-13 5142 21.01.2014 18.06.2014 TOTAL 2719302

4. The same was confirmed by the ld. CIT(A).

(SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 6

2. With regard to Ground No. 1,2,3 and 4 in respect of total disallowance of loss of Rs.2719302 out of the total business loss eligible for carry forward as determined by the Hon'ble CIT(A) of Rs.35,72,242, we most respectfully state that, the appellant Company had furnished it's Return of Income on 18.11.2014 and was assessed U/s,143(3) of the Act vide order Dtd.15.12.2016, after considering and after giving effect of brought forward unabsorbed loss and depreciation, the Company was assessed at "NIL". Later, the Company was issued notice U/s.154 of the Act proposing to rectify the assessment completed as stated above by disallowing Employees' Contribution to EPF of Rs.27,19,302 which is stated to have been paid late / was remained unpaid by the Company as per the details given in the order passed U/s.154 of the Act and the same is also stated to have reported in Annexure No.5 to Form 3CD as employees' contribution to EPF. The Company replied to the notice vide it's reply dtd.06.08.2018 and thereby objected to the proposed action of rectification as in it's view, there was no mistake apparent from the record within the meaning of Sec. 154 of the Act or otherwise which could be rectified by passing the order U/s.154 of the Act. But, however, the Ld. AO considered the reply as untenable in law and passed impugned order and thereby reduced the amount of carry forward business loss by Rs.27,19,302 by disallowing Rs.27,19,302 U/s. 36(l)(va) r.w.s. 2(24)(x) of the Act out of the loss allowed to be carried forward of Rs.35,72.242 as per appeal effect to the CIT(A)'s order dtd.26.04.2018 and thereby restricted the said amount of carried forward loss at Rs.8,52,970 (Rs.35,72.242 - Rs.27,19,302). Considering the same, it can be seen that, the order passed by the Ld. AO is beyond the scope of rectification U/s.154 of the Act and we pray to quash such order and to order to delete the said disallowance of carried forward business loss of Rs. 27,19,302.

3. Without prejudice to our main submissions with regard to Ground No. 1,2,3 and 4 that the order passed by the Ld. AO is beyond the scope of rectification U/s.154 of the Act and we pray to quash such order and to order to delete the said disallowance of carried forward business loss of Rs.27,19,302, we submit herewith in respect of other grounds as under: 3.1 With regard to Ground No. 5 in respect of disallowing Rs.6,08,002 (Pg. 21), we state that, during the course of assessment u/s. 143(3), this issue was discussed with the AO and it was also explained to him that, the Company had paid Rs. 12,95,749 towards EPF for the month of January,2014 on dtd. 14.02.2014 which is duly acknowledged by the State Bank of India, St. Xavier's H.S. Road Br., Ahmedabad 380 014 (Pg. 22), for which it issued the token dtd.14/02/2014 on receipt of the DD of Rs. 12,95,749 bearing No. 591845 dtd.13.02.2014 issued by Bank of Baroda, Law Garden Branch, Ahmedabad under which the payment for EPF was made. The amount of Rs. 12,95,749 included Employer's share of Contribution of Rs. 6,31,550, Employees' share of contribution of Rs. 6,08,002 and Administrative Charges of Rs. 55,726 for the month of January,2014 (01/2014). However, while delivering the said Combined Challan after clearing of the DD for the said amount of Rs. 12,95,749 for the said month of Jan,2014, the bank clerk /peon put a rubber stamp of dtd.12.03.2014 but however, on the said Challan the date of deposit of the said DD is correctly mentioned as dtd.14.02.2014 as appearing on the token referred to herein earlier. From this fact, it is clear that, the appellant Company made payment on dtd. 14.02.2014 vide DD referred to herein earlier dtd.13.02.2014. Without considering this aspect, the Tax auditor in Annex. No.5 of Form No. 3CD mentioned the date of payment as 12.03.2014 instead of dtd.14.02.2014 as mentioned on the combined Challan issued by the SBI bank on receipt of the DD & combined Challan. In fact the Company paid the amount before the due date of payment 15..02.2014.Considering this aspect while passing the order U/s. 143(3) ®f <he Act, by considering this aspect and considering the payment being in time and since it did not attract any disallowance, Ld. AO accepted the claim of the Company and did not disallow the said (SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 7 amount of Rs. 6,08,002. But, however, only because of audit objection, the Ld. AO issued notice u/s.154 of the act and without considering this aspect as well the fact that, the disallowance as have been made cannot be made by passing order U/s.154 of the Act, he disallowed the said sum of Rs.6,08,002 and included the same in total disallowance of Rs. 27,19,302 by passing an order U/s.154 of the Act which in our humble view is not correct and the considering the payment of Rs.6,08,002 well in time, the same should be allowed and we pray for the same. The evidences in support of the same is submitted at Sr. No. II of the list of additional evidences submitted vide Para 1 of this submission. (Pg. 21 to 24) 3.2 With regard to Ground No. 6 in respect of disallowing PF of Rs.126,200and ESIC of Rs.32,614 of CPD division we state that, during the year under appeal, the Company had received a distributorship of Britannia Industries Ltd. and for the purpose had opened a new division namely, CPD. For this, since the Company was required to apply for Sub Code to the PF & ESI Authorities. Company got the Distributorship from Britannia Industries w.e.f.dtd. 11/12/2013. Immediately there upon, the Company applied for sub code from the PF & ESI Authorities and supplied the required details & documents vide it's applications dtd.11/12/2013 (Pg. No. 73) to both the said authorities. There upon, after considering the same, the Company had been granted Sub Code Number 59998 by the PF Authorities vide their letter No. GJ/PFC/AHD/59998/ENF-I/T-11/2701 dtd.31/03/2014 and Sub Code No.37201078210021001 had granted by the ESI Authorities vide their letter dtd.20/05/2014 (Pg. No. 74). Copy of the registration letters are submitted at Sr. No.III of the list of additional evidences submitted vide Para 1 of this submission. (Pg. 71 to 74) Further, It is pertinent to note that, before making any payment in respect of ESIC & PF Contributions, whether pertaining to Employers' or Employees' Contribution, it is must to mention the Sub Code Numbers in the Challan under both the Acts. Without mentioning the said Sub Codes, no payments can be made in respect of PF and ESIC Contribution. As soon as the Company received the Sub Code, without any delay on it's part, it deposited PF and ESIC contributions from employees as under:-

(SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 8 Copies of the aforesaid Challan paid by the company are submitted at St. No. l(a)(B) of the list of additional evidences submitted vide Para 1 of this submission. It is to be noted that, the tax auditor while preparing the tax audit report did not considered the grace period which is available to the appellant under the respective law of PF. If the same would have been considered both by the Ld. AO and tax auditor, the due dates would have become 20J of the respective month as against reported by the tax auditor and considered by the Ld. AO as 15 1 of respective month. Similarly, with respect to the dates of payment in fact, the dates of Demand draft tendered .are required to be considered being the Demand draft on the local branches, which is not considered by the authorities. If these aspects would have been considered both by the tax auditor as well as the Ld. AO, the dates of payments should have been considered the dates of tender of Demand draft as mentioned herein in the above tables. Considering the above facts and relevant case laws the due dates for payment is required to be considered with reference to the related month of payment of salary. If the same is considered, the due dates for payments of PF/ ESIC will be as shown in the above referred tables. But considering the fact that, the appellant could have made the payment only on the receipt of the sub codes as have been contented herein earlier it could not have made the payment till it received the sub codes under both the Act PF and ESIC. It is to be noted that, in the absence of having the sub codes allotted to the Company, it was impossible to make the payments under the respective Acts and since the payments have been made immediately by the Appellant Company, the payments may be considered as in time specified and hence no disallowance in respect of the PF of Rs. 126,200 and ESIC of Rs.32,614 paid by the company is called for and the same shall be allowed and we pray for the same 3.3 With regard to Ground No. 7 in respect of not considering the grace period of 5 days for payment of the dues in respect of Employee's contribution to PF as have been provided under the Employees Provident Fund Act and with regard to Ground No. 8 in respect of not considering date of tender of the Demand draft and thereby have committed an error in law and facts in working out the late payments considering the date of actual clearing as against date of tender of the Demand draft and thereby disallowing sum of Rs. 12,70,580 PF (P&G Division) and Rs. 5,76,993 - ESIC (P&G Division), we submit herewith details of payment and due dates thereof in respect thereof as under:

(SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 9 The above shows that, considering the grace period for payment and the date of the tender of Demand draft the above payments are in time but however, while issuing the tax audit report have not considered this aspect and similarly while disallowing the above sums the Ld. AO have not considered the said aspect and that too while passing the order u/s. 154 of the Act which in our humble view is not tenable in law In support of the above, we submit herewith copies of Challan paid, Counterfoil of the bank and copy of demand draft wherein the details as appearing in the above table appears. Considering the same, the disallowance made by the Ld. AO is not tenable in law and the payment of Rs.12.70,580 PF (P&G Division) and Rs. 5,76,993 - ESIC (P&G Division) may be allowed and we pray for the same. Copies of the aforesaid Challan paid by the company are submitted at St. No. I(a)(A) of the list of additional evidences submitted vide Para 1 of this submission.

3.4 Further, in respect of disallowance of Rs.1,04,911 out of the total disallowance of Rs.27,19,302 under appeal, we submit herewith details of payment and due dates thereof in respect of Employees' Contribution of ESIC (P&G division) of Rs.1,04,911 is as under:

Copies of the aforesaid Challan paid by the company are submitted at St. No. l(a)(A)(8) of the list of additional evidences submitted vide Para 1 of this submission.

In respect of the above we rely on the following judgments: 1. Kanoi paper & Industries Ltd. vs. ACIT 75 TTJ 448 wherein it was observed and held, "most appropriate interpretation would be that the employer would be at liberty to make payment of the contribution concerned within 15 days (subject however to the further grace period) from the end of the month during which the disbursement of the salary is actually made and the contribution of the, provident fund are, thus, generated, inasmuch as, the provision relating to the disallowance of such contribution on account of delay is rather an artificial provision. In our view, a liberal approach has got to be made to this issue. Ultimately, therefore, we reverse the order of the lower authorities and direct the assessing officer to examine whether the payments of contribution in the present case were made within 15 days (allowed with further grace period of 5 days) from the close of the respective months during which the disbursement of the-salary/wages were actually made."

"As the term 'month1 has not been defined in the Act, so had the assessee paid the salary and wages on the last day of the month, there would have been no difficulty in defining the month or the due date. But in the case before us, the salary am wages had been paid on the 7th day from the end of the month to which it relates. So, there arises certain amount of ambiguity with regard to the period of 15 days from the close of each month. From reading of sections 36 and 38 reproduced above it can easily be said that there is ambiguity. Therefore, we are of the opinion that there is force in the submission of the assessee that benefit of ambiguity should be given to the assessee. Viewed in this context we hold that most of the payments having been made within 9 to 22 days from the date of payment of salary and wages will be deemed to have been made within due date and, therefore, no disallowance could be made on this account.

Considering the above as well as the case laws and judgments, the due dates for payment is required to be considered with reference to the related month of payment of salary. If the same is considered, the due dates for payments of PF/ ESIC will be as shown in the above referred table the payments and the payments thereof may be considered as in time specified and hence.no disallowance is called for in view of the above fact and request your Honor to kindly allow the payment of Rs.1,04,911 considering the same to be in time as against the same being disallowed by the AO.

4. We also rely on the judgement of ITAT, Hyderabad passed in the case of Value momentum Software Services Private Limited vs. DCIT, dtd.19/05/2021. In the said case, the AO has disallowed a sum of Rs.8,11,648/- under section 43B towards late deposit of employees contribution to EPF account after the due date prescribed in the respective statutes but before the filing of return u/s. 139(1). It has been held that, "The Revenue's case in tune thereof relies on Section 36(va) read with explanation thereto that it is not Section 43B but the former provision which is applicable in such an instance. We find no merit in the Revenue's foregoing stand. We take note of the explanatory memorandum (SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 11 to the Finance Act, 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only, the same is applicable from 01-04- 2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04- 2021. ” The fads of the above case is squarely applicable on our case. In view of the above fact, we request your Honor to kindly allow the payment of Rs.27,19,302 considering the same to be in time as against the same being disallowed by the AO. Kindly grant suitable date for further submissions and oblige.”

(iii) The auditors reporting in the Tax Audit Report did not consider the grace period allowed under the ESI and PF laws for depositing the dues and the delay ought to have been considered, therefore, from the grace period allowed under the respective laws.

(SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 12 The ld. Counsel for the assessee pointed out that all necessary evidences had also been filed before the ld. CIT(A) and attention was drawn to various judicial decisions in support of assessee’s contention.

The ld. Counsel for the assessee further pointed out that even the Assessing Officer had not afforded sufficient opportunity of hearing to the assessee while passing the order u/s 154 of the Act.

The ld. DR fairly agreed with the same.

(SMC) Khimji Ramdas India Pvt Ltd Vs. ITO AY : 2014-15 13

Ground No.2-14 is accordingly allowed for statistical purposes.

Ground No.1 is therefore dismissed.