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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
2. There is a delay of 11 days in filing these appeals. The assessee has filed application/affidavit for condonation of delay wherein the assessee has explained the cause of delay in filing these appeals. Ld. Sr. Counsel has submitted that the impugned order was uploaded on the Online Income Tax e-filing Portal. However it did not come to the notice of the & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 2 of 9 assessee and subsequent when the assessee came to know about the impugned order passed by the Ld. CIT(A) the steps were taken to file the present appeal and hence there was a delay of 11 days in filing the present appeal. He has thus pleaded that the delay in filing the appeal is neither intentional nor willful and therefore, the same may be condoned.
3. On the other hand, ld. DR has not seriously objected to the condition of delay and submitted that the bench may consider the reasons explained by the assessee.
Having considered rival submission and the reasons for delay explained by the assessee in the affidavit, we find that the assessee was having a reasonable cause for the delay of 11 days in filing these appeals. Accordingly in the facts and circumstances of the case and in the interest of justice the delay of 11 days in filing these appeals is condoned.
For A.Y.2013-14 The assesse has raised following grounds of appeal:
“1.That on the facts and in the circumstances of the case the order of the learned lower authorities are vitiated on several grounds hence the same may kindly be quashed.
That the delay in filing of Appeal be kindly condoned.
That the order of the learned lower authorities passed are unlawful and illegal.
4. That the learned lower authorities were not justified in not allowing proper and meaningful opportunity of being heard. Also the Learned CIT (Appeals). National Faceless E-Appeal Centre, was also not justified in not allowing any opportunity of personal hearing through digital media before confirming the disallowance.
That the various findings of the learned lower authorities are opposed to the facts hence the same may kindly be quashed.
6. That on the facts and circumstances of the case the learned lower authorities erred and were not justified in disallowing proportionate interest under section 36(1)(i) amounting to Rs. 98,95,148/-.
& 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 3 of 9 7. That on the facts and circumstances of the case the learned lower authorities erred and were not justified in disallowing delayed payment of employees contributions to PF and ESIC amounting to Rs. 12,74,876/-.
8. That on the facts and circumstances of the case the learned assessing officer erred and were not justified in making addition towards un reconciled receipts of Rs 35.82.639/- between form 26 AS and financial statements and the learned CIT Appeals in not deleting the said addition but referring the matter for reexamination.
That the above grounds are independent to each other.”
5. Ground no.1 to 5 are general in nature and does not require any specific adjudication. Even ground no.2 is regarding the delay in filing the appeal does not emanate from the impugned order of the Ld. CIT(A) and this bench has already condoned the delay in filing the present appeal. Therefore, this ground becomes infructuous.
Ground No.6 is regarding disallowance of interest made on account of interest free advances given by the assessee to sister concern. Ld. Sr. counsel has submitted that the assessee has given total loan and advance of Rs.7,76,09,009/- whereas the assessee’s own non-interest bearing fund is more than Rs.15 crore.
6.1 He has referred to page 14 of the assessment order and submitted that the details of the share capital and reserve & surplus are reproduced by the AO which shows that the assessee’s own interest free funds are more than sufficient to advance the interest free loans to the sister concern. In support of his contention he has relied upon the Hon’ble Supreme Court in case of South Indian Bank Ltd v. CIT (2021) 438 ITR 1 (SC). Thus, the Sr. counsel has submitted that on the legal point this issue is now covered by the judgment of Hon’ble Supreme Court however, since the availability of interest free fund was not verified and examined by the authorities below ttherefore, this issue may be set aside to the record of the AO for limited purpose of verification of the availability of interest free fund with the assessee. Page 3 of 9 & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 4 of 9 6.2 On the other hand, ld. DR has submitted that since this aspect has not been examined by the authorities below therefore, this issue may be remanded to the AO for fresh adjudication in the light of the judgment of Hon’ble Supreme Court.
6.3 Having considering the rival submissions as well as relevant material on record we note that the AO has made disallowance of the interest on account of interest free loans given to the sister concern in para 5.7 as under:
“5.7 In view of the above, the contention of the assessee is not accepted and proportionate disallowance of interest is hereby made, the resulting amount being non-eligible for deduction u/s.36(1)(ii) of the IT Act, 1916. On a perusal of the details of secured loans furnished by the assessee, it is noticed that the assessee has taken the said loans at the rate ranging from 12.75% to 13%. Therefore, the proportionate interest on interest free loans advanced is worked out by adopting the interest rate @12.75% on the total interest free loans aggregating to Rs.7,76,09,009/- as the majority of these loans are opening balances and the assessee has not provided the details of dates of advancing these loans. The same works out to Rs.98,95,148/- (12.75% of Rs.7,76,09,009/-):”
6.4 Similar disallowance was also made for A.Y.2014-15. Since the AO has not examined the factual aspect of availability of interest free funds with the assessee for advancing these loans to the sister concern therefore, in the facts and circumstances of the case the impugned order qua this issue is set aside and the same is remanded to the record of the AO for fresh adjudication in the light of the judgment of Hon’ble Supreme Court in case of South Indian Bank Ltd v. CIT (supra).
Ground No.7 is regarding the disallowance/addition made by the AO on account of delayed payment of employee’s contribution to PF & ESI. This issue is also common for both assessment years.
7.1 We have heard Ld. Senior counsel as well as Ld. DR and carefully perused the orders of the authorities below. Both the Ld. Counsel as well as Ld. DR fairly submitted that this issue is now covered by the judgement & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 5 of 9 of Hon’ble Supreme court in case of Checkmate Services (P.) Ltd. vs. CIT-1 448 ITR 518. Therefore, this issue is now covered by the judgment of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. vs. CIT- (supra) as relied upon by the Ld. CIT(A). The relevant finding of the Hon’ble Supreme Court in para 51 to 55 as under:
“51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd.26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd.27 and Nipso Polyfabriks (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.
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 Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court).Commissioner of Income-Tax and another Vs. Sabari Enterprises, [2008] 298 ITR 141 (Karnataka High Court).Commissioner of Income Tax Vs. Pamwi Tissues Ltd., [2009] 313 ITR 137 (Bombay High Court).Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd., [2013] 35 taxmann.com 616 (Rajasthan High Court).Parliament intended to retain the separate 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 & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 6 of 9 - it is the character of the amount that is important, i.e., not income earned. 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 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 of every 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 Page 6 of 9 & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 7 of 9 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 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.”
Accordingly we do not find any error and illegality in the impugned order of the Ld. CIT(A) qua this issue and the same is upheld.
Ground No.8 is regarding addition made by the AO on account of discrepancy in the receipts shown in the Form in 26AS. Ld. Sr. Counsel has submitted that the AO has already given effect to the directions of the Ld. CIT(A) wherein the AO was directed to give fresh opportunity to the assessee and reconcile the receipts. Therefore, this ground of the appeal becomes non-est.
8.1. On the other hand, Ld. DR has submitted that the ld. CIT(A) has already directed to AO to verify this discrepancy in the receipts as found in form no.26AS after considering reconciliation to be produced by the assessee. & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 8 of 9 8.2 We have considered the rival submissions as well as relevant material on record. The Ld. CIT(A) has considered this issue in para 5.3.1 as under:
“5.3.1 The order u/s 143(3) of the Act, the grounds of appeal and statement of facts have been carefully considered. The Assessing Officer is directed to give fresh opportunity to the appellant and reconcile receipts of Rs.35,82,639/- between Form 26AS and financial statements. Thus, Ground No.4 of the appellant is allowed.”
8.3 Thus, it is clear that the AO was directed by the Ld. CIT(A) to give fresh opportunity to the assessee and reconcile the receipts. Accordingly we reiterate the directions given by the ld. CIT(A) to the AO and no further order is required.
For A.Y.2014-15 The assesse has raised following ground of appeal. “1. That on the facts and in the circumstances of the case the order of the learned lower authorities are vitiated on several grounds hence the same may kindly be quashed.
2. That the delay in filing of Appeal be kindly condoned.
3. That the order of the learned lower authorities passed are unlawful and illegal.
4. That the learned lower authorities were not justified in not allowing proper and meaningful opportunity of being heard. Also the Learned CIT (Appeals), National Faceless E-Appeal Centre, was also not justified in not allowing any opportunity of personal hearing through digital media before confirming the disallowance.
5. That the various findings of the learned lower authorities are opposed to the facts hence the same may kindly be quashed.
6. That on the facts and circumstances of the case the learned lower authorities erred and were not justified in disallowing proportionate interest under section 36(1)() amounting to Rs. 74,36,395.00.
7. That on the facts and circumstances of the case the learned lower authorities erred and were not justified in disallowing delayed payment of employees contributions to PF and ESIC amounting to Rs. 15,63,137.00
8. That the above grounds are independent to each other.” Page 8 of 9 & 35/Ind/2023 Makson Healthcare Pvt. Ltd. Page 9 of 9
9. All grounds are common to the grounds raised for A.Y.2013-14 except the ground no.8 raised for A.Y.2013-14 is not involved for A.Y.2014-15. Accordingly the issues raised in ground no.6 & 7 are decided in terms of our finding for A.Y.2014-15. The Ground no.6 is set aside to the record of the AO for fresh adjudication after verification of the fact of availability of the funds as this is a recurring issue depending upon the outcome of this issue for A.Y.2013-14. Ground no.7 is decided against the assessee being covered by the judgment of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. vs. CIT-1 448 ITR 518.
In the result, both appeals filed by the assesse in ITANo.34 & 35/Ind/2023 are partly allowed for statistical purposes.
Order pronounced in the open court on 26.09.2023