THE ACIT-1(1), INDORE vs. M/S. BRIDGESTONE INDIA PVT. LTD., PUNE
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Per Vijay Pal Rao, JM:
This appeal by the Revenue is directed against the order dated 03.07.2022 of Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi for Assessment Year 2019-20.
Earlier this appeal of the revenue was disposed of by this Tribunal ex-parte vide order date 29.03.2023 and thereafter the said order was recalled by the Tribunal on the Misc. Application of assessee in M.A. No.23/Ind/2023 vide order dated 14.07.2023 for consideration of correct facts about the actual date of payment made by the assessee towards the employees contribution to PF in para 4 & 5 of the Misc. Application order as under:
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“4. We have considered rival submissions and carefully perused the relevant material on record. The Tribunal while passing the impugned order ex-parte has decided the issue arising from the order of the Ld. CIT(A) on the limited point of disallowance u/s 36(1)(va) due to delay in making payment towards employees contribution to PF. Therefore, the Tribunal has given the finding only on the legal issue of allowability of the deduction of the said amount by presuming the facts that there was a delay in making the payment by the assesse towards the employee’s contribution to PF. The CIT(A) has not taken into account correct facts about the date of deposit made by the assesse towards employees contribution to PF as mentioned in the statement of facts in para 3 as under: “3.The appellant submits that out of the above, a mismatch of INR 2,09,59,201 arises on account of incorrect mentioned of the date of deposit of employee’s contribution to the Provident Fund in clause 20(b) of the Tax Audit Report, which is summarized in the table below: Sr. As per Nature of Sum received Due date of Actual date Incorrect tax audit fund from payment of payment date report employees under the mentioned (Inr) relevant in Tax law Audit Report 7 Provident 1,04,90,672 November November November Fund 15,2018 12,2018 14,2019 8 Provident 1,04,68,529 December December December Fund 15,2018 14,2018 13,2019 Total 2,09,59,201
Thus, it is clear from these details given by the assesse that actual date of payments of these amounts in the PF is claimed to have been made on 12.11.2018 and 14.12.2018 which were mistakenly mentioned in the tax audit report in clause 20(b) as 14.11.2019 & 13.12.2019. These factual aspects have not been examined and considered by the CIT(A) and then by this Tribunal while passing the impugned order due to the reason that there was no appearance on behalf of the assesse/respondent. Therefore, there is an apparent mistake in the impugned order of the Tribunal so far as the crucial fact of actual date of payment made by the assesse towards employees contribution to PF has not been considered by the Tribunal while passing the order. Accordingly, in the facts and in circumstances of the case we recall the impugned order of the Tribunal and direct the registry to fix the appeal of the revenue for fresh hearing and adjudication on 17th August 2023. Since the date of hearing of the appeal is pronounce in open court and has been noted by both the parties therefore, no separate notice issued in this respect.
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ITA No.210/Ind/2022 Bridge Stone India P. Ltd. Page 3 of 7 3. Thus this appeal was listed for fresh hearing and adjudication. The revenue has raised the following grounds of appeal:
“The Ld. CIT(A) was not justified in deleting the addition made on account of disallowance of Rs.2,09,59,201/- under section 36(1)(va) while ignoring the legislative intent whereby the employer is required to deposit the employee's contribution by the date prescribed in the PF and ESI Rule.
The Ld. CIT (A) was not justified in deleting the aforesaid addition while deciding the matter conditionally in as much as the issue has been left for the A.O. to examine.”
We have heard the ld. DR as well as Ld. AR and carefully perused the impugned order of the Ld. CIT(A). The ld. CIT(A) allowed the claim of the assessee by following the judgments of Hon’ble High Courts and deleted the addition made by the AO u/s 36(1)(va) of the Act on account of delayed payment of PF & ESI to the extent of Rs.2,09,59,201/-. There is no dispute that the issue is now covered by the judgment of Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT-1 448 ITR 518 wherein the Hon’ble Supreme Court has decided this issue 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.
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ITA No.210/Ind/2022 Bridge Stone India P. Ltd. Page 4 of 7 52. 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 - 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.
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ITA No.210/Ind/2022 Bridge Stone India P. Ltd. Page 5 of 7 53. 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 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 Page 5 of 7
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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.”
However the Ld. AR of the assessee has pointed out that the disallowance was made by the AO due to the reason that a wrong/incorrect date of payment was mentioned in the Tax Audit Report as 14.11.2019 and 13.12.2019 instead of 12.11.2018 & 14.12.2018. Thus, he has submitted that there is a mistake of date of payment in the Tax Audit Report and the correct dates of the payment are reflected in the challans placed at page no.61 to 67 of the paper book. Ld. DR has not disputed the fact that as per the challans actual dates of payment are 12.11.2018 & 14.14.2018 instead of 14.11.2019 & 13.12.2019 as mentioned in the Audit Report and considered by the AO.
Having considered the relevant facts and particularly the actual dates of payment manifest from the challans as placed at page no.61 to 65 of the paper book we find that the actual details of payment are as under:
Sr. No. Nature of Sum received Actual date of Due date of fund from payment payment employees (Inr) 1 Provident 1,04,90,672 November 12,2018 15.11.2018 Fund 2 Provident 1,04,68,529 December 15.12.2018 Fund 14,2018 Total 2,09,59,201
Thus, it is clear that the payment made by the assessee towards the employees contribution to PF was within the due date as prescribed under the PF Act and therefore, there is no question of disallowance u/s 36(1)(va) of the Act. Accordingly when the payments are made before the due date, then the disallowance made by the AO based on the incorrect Page 6 of 7
ITA No.210/Ind/2022 Bridge Stone India P. Ltd. Page 7 of 7 fact is not sustainable and the same is liable to be deleted. Hence, in the facts and circumstances of the case as discussed above the appeal of the revenue fails and consequently dismissed.
In the result, the appeal of revenue is dismissed.
Order pronounced in the open court on 22.09.2023
Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member
Indore, 22.09.2023
Patel/Sr. PS
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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