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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member
ITA Nos. 578 & 579/Ahd/2023 Asst. Years: 2013-14 & 2014-15 Divyapalsinh Tejpalsinh The DCIT Jadeja, Circle-1(1)(1), 17-19, Gujarat Vs Vadodara Industrial Estate, Behind Roses Garden Nursary, Chhani Road, Gujarat-390002 PAN: AAMPJ2789H (Respondent) (Appellant) Assessee Represented: Shri Sunil Talati, A.R. Revenue Represented: Shri V.K. Mangla, Sr.D.R. Date of hearing : 01-05-2024 Date of pronouncement : 08-05-2024 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These two appeals are filed by the Assessee as against two separate appellate orders dated 21.04.2023 & 04.05.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2013-14 & 2014-15. Since common issue
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is involved in both the appeals, the same are disposed of by this common order.
The Registry has noted that the appeal is time barred by 14 days. The assessee submitted by way of Affidavit, the appellate order could not be downloaded due to technical issue and the delay of 14 days be prayed to be condoned. Ld. CIT-DR has no objection in condoning the delay. Therefore we hereby condone the delay of 14 days in filing these appeals by the assessee.
ITA No. 579/Ahd/2023 (A.Y. 2014-15) is taken as the lead case. The Brief facts of the case is that the assessee is an individual and Proprietor of M/s. Abhay Intelligence and Security Services and M/s. Divya Gas Agency. For the Asst. Year 2014-15, the assessee filed his Return of Income on 30.11.2014 declaring total income of Rs.26,25,370/-. The case was selected for scrutiny assessment and the Assessing Officer made disallowance u/s. 2(24)(x) r.w.s. 36(1)(va) of the Act on late payment of EPF and ESIC amounting to Rs.44,61,459/- and also delivery charges of Rs.4,25,787/-.
Aggrieved against the same, assessee filed an appeal before Ld. CIT(A) claiming though the employees’ contribution of EPF and ESIC were paid beyond the statutory due date, however the same were paid well before filing the Return of Income u/s. 139(1) of the Act, therefore considering the Explanation 2 and 5 of Section 43B of the Act, the disallowance made by the Assessing Officer is not correct in law. The Ld. CIT(A) considered the submissions of the assessee and dismissed the same following Hon’ble Supreme Court
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Judgment in the case of Checkmate Services Pvt. Ltd. Vs. CIT by observing as follows: “5.2 I have carefully gone through the grounds of appeal, facts of the case, assessment order passed by the AO and written submission uploaded by the appellant. The issue involved in the grounds of appeal present before me is addition of Rs.44,61,459/- on account of delayed payment for Employees contribution of EPF and ESIC (hereinafter referred as PF/ESIC) with respect to time limit prescribed in the respective Acts. It is observed that the issue involved is squarely covered by the Hon'ble Supreme Court's judgment in the case of M/s. Checkmate Services Pvt. Ltd. Vs CIT-1, dated 12/10/2022 in civil appeal number 2833 of 2016, wherein it was held that the due date for deductibility of employees contribution to PF. ESI funds etc. applies u/s 36(1)(va) of the Act and Section 43B of the Act does not cover employees' contributions to PF, ESI etc. deducted by the employer from salaries of employees for Assessment Years prior (hereinafter referred as "A.Υ.) to A.Y. 2021- 22. The relevant portion of this judgment as in para 52 to 55 is reproduced as under: "52. When Parliament introduced Section 438, 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 438 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 438 - 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 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,
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Section 438 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 entitie 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. 53. The distinction between an employer's contribution which is its primary liability under taw -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 le., 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 438. 54. 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 436 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 in 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 ability to deposit the employee's contribution on or before the due date as a condition for deduction.
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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." The case laws relied upon by the appellant were rendered prior to the decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs Commissioner of Income-tax- 1, therefore are not applicable to the present case. In view of the above, the addition of Rs.44,61,459/-made by the A.O. on account of delayed payment for Employees continuation of EPF and ESIC is upheld and the Ground no. 2 of appeal raised is dismissed.
3.1. Regarding the second ground of addition of Rs.4,25,787/- namely disallowing 30% of the expenditure on delivery charges and the same was deleted by the Ld. CIT(A).
Aggrieved against the Appellate order, the assessee is in appeal before us raising the following Grounds of Appeal: The appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals), NFAC, u/s 250 of the Act, dated 04/05/2023, presents this appeal against the said order on the following amongst other grounds 1. The order passed by the learned CIT(A) is bad in law, being contrary to the provisions of the Act and without considering the written submission of the appellant and therefore be quashed. 2 i) The learned CIT(A). NFAC has erred in confirming the disallowance of Rs. 44,61,459/- made u/s 36(1)(va) r.w.s 2(24)(x) of the Act duly made by the Ld. AQ, being delayed payment for employees contribution of EPF & ESIC beyond the time limit as prescribed under the respective Acts. ii) It is to be noted that the Ld. AO & Ld. CIT(A), NFAC has failed to appreciate the facts that though the aforementioned payment for employee's contribution of EPF & ESIC are made beyond the time limit as prescribed under the respective Acts but the same are paid on or before the due date of ing the return at provided u 139 of the Act and accordingly the same be allowable as deduction for the year under consideration Moreover, the appellant has also relied on the judgment of M/s Vinay Cement Ltd. CTR 268(SC) where in the apex court has held that "Employer's/Employee Contribution Whether where assessee made contribution to provident fund before due date of filing of return, it was entitled to claim benefit under section 438-Held, yes [In favour of assessee)".
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v) Without prejudice to the above, the mentioned facts & submission were also submitted to the Ld. AO as well as to the Ld. CIT(A), NFAC but both the office has not taken the cognizance of the same and merely has made disallowance of the aforementioned amount. v) It be held so now and the deduction as claimed u/s 438 of the Act be allowed in full. 3. i) The learned CIT(A), NFAC has erred in confirming the disallowance of expenditure of Rs. 4,25,787/- on account of adhoc disallowance of 30% of the total expenditure of Rs. 14,19,290/- incurred for delivery charges without ignoring the fact that the said expenditure is genuine in nature. ii) It is also submitted that the Ld. AO has made such disallowance on adhoc and estimated basis and without pointing out any cogent reason and accordingly the same be deleted. iii) Moreover, the appellant would like to draw attention of your honor that, there is no specific provision in the income tax Act to disallow any expenditure on adhoc and estimated basis particularly when no adverse remark is given in audit report. iv) Accordingly, the A.O be directed to allow the expenditure as claimed by the appellant in full as the same is rightly claimed The above facts were also submitted before the id. CITIA) during the appeal proceedings but were not considered and no cognizance have been taken while passing the order which is under appeal Your appellant craves for leave to alter/amend/withdraw/modify any of the above grounds and/or to add any ground before hearing
Ld. Counsel Shri Sunil Talati appearing for the assessee submitted before us that he is not pressing ground no. 2 & 3, hence the same are dismissed as not pressed. However he is pressing ground no. 1 that the disallowance made by the Assessing Officer is contrary to the provisions of the Act and in support of the same submitted that in the case of M/s. A S Construction challenged the virus in section 36(1)(va) of the Act read with Explanation 2 & 5 of Section 43B of the Act before the Hon’ble High Court of Gujarat, which was admitted by the Hon’ble High Court on 11.01.2022 and the matter is to be heard by the Hon’ble
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High Court for final hearing on 20.07.2024. Thus the Ld. A.R. of the assessee pleaded in the event of M/s. A S Construction is succeeded, the same benefit be allowed to the assessee herein also, as directed by the Surat Bench of the Tribunal in ITA No. 484/SRT/2023 dated 28.12.2023 in the case of Rameshkumar Lalan Tiwari vs. ITO.
Per contra Ld. Sr. D.R. Shri V.K. Mangla appearing for the Revenue supported the orders passed by the Lower Authorities and submitted that the Hon’ble Supreme Court passed the judgment in M/s. Checkmate Services Pvt. Ltd. Therefore the above plea of the assessee is not maintainable in law and requested to dismiss the same.
We have given our thoughtful consideration and perused the materials available on record including the case laws relied by the assessee Counsel. Assessee’s claim that M/s. A S Construction has challenged the virus in Section 36(1)(va) of the Act read with Explanation 2 and 5 of Section 43B of the Act before the High Court of Gujarat in T.C. No. 170 of 2022. No corresponding papers, interim order, etc. are not placed before us for our consideration, but mainly relied on the decision of the ITAT Surat Bench of this Tribunal in ITA No. 484/SRT/2023.
The Hon’ble Supreme Court passed the judgment on 12.10.2022 in the case of Checkmate Services Pvt. Ltd. which has become the law of the land under Article 141 of the Constitution of India. Further the claim of the assessee to give the benefit of the outcome in the case of M/s. A S Construction can be allowed to the assessee
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also is not appears to be in accordance with law. The assessee has not produced any interim order passed in the case of M/s. A S Construction by the Hon’ble High Court of Gujarat. Further this issue is already settled in favour of the Revenue by the judgment of the Jurisdictional High Court in the case of Gujarat State Road Transport Corporation in Tax Appeal No. 637 of 2013 wherein it was held that employees’ contribution to PF not covered by Section 43B is also allowable as deduction u/s. 36(1)(va) of the Act, if paid within the due date prescribed therein. Thus the claim made by the assessee to extend the benefit of the judgment to be pronounced by the Hon’ble High Court in the case of M/s. A S Construction cannot be given to the assessee.
In the result, the appeal filed by the assessee is hereby dismissed.
ITA No. 578/Ahd/2023 the only ground is similar to ITA No. 579/Ahd/2023 hence following reasons stated therein, this appeal filed by the assessee is hereby dismissed.
Order pronounced in the open court on 08-05-2024
Sd/- Sd/- (NARENDRA PRASAD SINHA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 08/05/2024 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A)
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DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद