BHUNESHWAR PRASAD SAHU, BALODA BAZAR,RAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CPC, JAO INCOME TAX OFFICER, BHATAPARA, BHATAPARA

आदेश / ORDER PER RAVISH SOOD, JM:

The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 21.03.2022, which in turn arises from the order passed by the Centralized Processing Centre (CPC)/A.O. u/s.154 of the Income-tax Act, 1961 (for short ‘Act’), dated 26.06.2019 for A.Y. 2018-19. The assessee has assailed the impugned order on the following grounds of appeal before us:

“In the facts and circumstances of the case and in law the id. Commissioner of Income-tax(Appeals) has erred in confirming the disallowance of Rs.21,97,161/- made out of Employees Contribution to ESI/PF paid before filing of return under section 139(1) of the Income-tax Act, 1961 by invoking provisions of section 36(1)(va) read with section 43B of the Act. 2) In the facts and circumstances of the case and in law the ld. Commissioner of Income-tax (Appeals) has erred in making disallowance of Rs.21,97,161/- while processing return of income under section 143(1)(a) of the Income-tax Act, 1961 overlooking the fact that impugned issue was debatable and cannot be adjusted under section 143(1) of the Act. 3) The impugned order is bad in law and on facts. 4) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice.

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Representative (for short ‘AR) on being confronted with the aforesaid facts admitted the aforesaid mistake which had inadvertently crept in while computing the appeal.

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“5.1 I have considered the statement of facts and submissions of the appellant made in course of this appeal. The appellant has assailed the order of rectification u/s 154 dated 26.06.2019 passed by the DCIT-CPC (hereinafter referred to as the AO') rejecting the appellant's request for the allowing of deduction of Rs.21,97,161/- which was earlier disallowed u/s 143(1)(a) vide order of intimation dated 18.05.2019. It appears that the appellant did not prefer an appeal against the order of intimation u/s 143(1) dated 18.05.2019 and the appeal has now been presented against the order of rejection of rectification request vide order u/s 154 dated 26.06.2019. Through the Ground No. 1 has contended that the A.O. has erred in making addition of Rs.21,97,161/- u/s 36(1)(va) of the Act on account of late deposit of employees' contribution to PF/ESI. Through the Ground No. 2, the appellant has contended that no adjustments can be made of debatable issues while processing the return of income u/s 143(1) of the Act and the intimation u/s 143(1) is invalid and bad in law. 5.2 Even a cursory look would indicate that through the instant appeal, the appellant is seeking to assail the original order of intimation u/s 143(1) dated 18.05.2019 against which no appeal has been filed, and the grounds taken in the instant appeal are not emanating from the order of rectification u/s 154 of the Act. Thus, the instant appeal is not maintainable. 5.3 Without prejudice to the above, it is to be noted here that the issue in this appeal is admissibility of deduction u/s 36(1)(va) of the Income-tax Act, 1961 of employees' contribution to provident fund and ESI if the employer deposits the same after the due date prescribed under the relevant Provident Fund/ESI Act. The bare reading of section 36(1)(va) makes it clear that deduction is available only if such sum is credited by the employer to the employees' account in the relevant fund or funds on or before the due date. The due date as per Explanation to the section 36(1)(va) means the date by which the assessee is required as a employer to credit the employees' contribution to the employees' account in the relevant fund under any Act, rule, order or notification issued thereunder. The relevant sections are reproduced for clarity : "Any sum received by the assesses from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation- For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise";

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The provisions of sub-clause (x) of clause (24) of section 2 are reproduced as under:- "Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees". 5.4 The Act is unambiguously clear that such contribution are allowed as a deduction u/s 36(1)(va) only if the employer credits the same to the employees' account in the relevant provident fund/ ESI Fund before the due date under the relevant PF/ ESI Act. However, some High Courts have allowed such deductions even if paid after the due date under the relevant Act but if paid before the due date of filing of the return of income. These Hon'ble High Courts have held that the provision of section 43B shall also apply to the provision of section 36(1)(va), that is, such deductions shall be allowed on actual payment basis. The ratio decidendi in these decisions is that both the employees' and the employers' contributions are covered u/s 43B. The following are some of the quoted decisions in support of this view:- 1. CIT Jaipur v/s M/s Rajasthan State Beverages Corn. Ltd. (2017) 250 Taxman 16 (SC) [ SLP preferred by the revenue was dismissed as " dismissal simpliciter" by the Hon'ble Supreme Court ] 2. CIT v/s. Ghatge Patel Transport Ltd Income Tax Appeal No. 1002 of 2012[2014] 368 ITR 749 (Born) 3. DCIT vs. Essae Teraoka Pvt. Ltd. (2014) 13 TMI 386 (Kar HC) 4. CIT vs. State Bank of Bikaner & Jaipur and Jaipur Vidyut Vitaran Nigam Ltd. (2014) 5 TMI 222 (Rajasthan HC) 5.5 However, it is also observed that there are contrary decisions by a few Hon'ble High Courts which have held that "Contribution" used in section 43B(b) of the Income Tax Act means the contribution of the employer and not that of the employee. The Hon'ble Courts have held that the provisions of section 43(B) could not apply to employees' contribution u/s 36(1)(va). This contrary view is supported by the decisions of the following Hon'ble High courts, amongst several others :- (i) CIT v/s Merchem Ltd. [2015]378 ITR 443(Ker) (ii) CIT v/s Gujarat State Road Transport Corporation (2014) 366 ITR 170(Guj.) (iii) CIT v/s South India Corporation Ltd.(2000) 242 ITR 114(Ker)

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(iv) CIT v/s GTN Textiles Ltd.(2004)269 ITR 282(Ker) (v) CIT v/s Jairam & Sons [2004]269 ITR 285(Ker) 5.6 It is pertinent to note that in view of such conflicting decisions, the Finance Act, 2021 has amended section 36, which reads as under • "In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely: — `Explanation 2.—For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;'." The finance Act, 2021 has also amended section 43B, as under- "In section 43B of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely: "Explanation 5.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies." The rationale of the amendment was explained by the memorandum to the Finance Bill 2021 as below:- "There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who miss utilize employee's contributions". 5.7 From the above amendments, it appears that the law is now clear i.e. Employees' contribution to provident fund and ESI will not be allowed as

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deduction if :here is delay in deposit even by a single day as per the due dates mentioned in the respective legislation. The language and rationale for these amendments clearly indicate that these amendments are retrospective in nature. The amendment to section 36(1)(va) specifically states that Explanation 2 to the said clause has been inserted to clarify that the provision of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under section 43B. Similarly, section 43B has been amended by the inserting explanation 5 to the said section to clarify that the provision of the section shall not apply and shall be deemed never to have been applied to any sum to which the provision of sub-clause(x) of clause (24) of section 2 applies. The words "shall be deemed never to have been applied" clarifies all doubts about the nature of the amendments. The memorandum to the finance bill clarifies that the amendments was introduced to protect the interest of the employees and ensure that the employers do not get unjustly enriched by keeping the money belonging to the employees. The above amendments are, therefore, clarificatory in nature indicating that it was never the intention of the legislature to include sums received by the employer from his employees, for which the provision of section 2(24)(x) applies in the list of deductions u/s 43B. 5.8 The Principles of Interpretation of Statutes do suggest that declaratory amendments only lay down the law as it was previously existing. In other words where substantive law originally enacted or amended is not able to clarify the intention of the Legislature, then in order to clarify the intention of the Legislature in bringing the law amendments are carried out to clarify the real intent. Such clarificatory or explanatory amendments are declaratory and they take effect from the date when the original provision was introduced. 5.9 Reference is made to the Supreme Court judgement in the case of Commissioner of Income Tax-I, Ahmedabad vs. Gold Coin Health Food Pvt. 6 Ltd. (2018) 9 SSC 622 wherein while dealing with a similar issue. Hon'ble Supreme Court in Para 15 of the decision has quoted the following: 0 "In Principles of Statutory interpretation, 11thEdn. 2008, Justice G.P. Singh has stated the position regarding retrospective operation of statutes as follows:- The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court. For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law or the meaning or effect of any statute. Such Acts are usually held to be retrospectives. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word ‘enacted', But the use of the words 'it is declared' is not conclusive that the

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Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to be substance rather than to the form. If a new Act is 'to explain' an earlier act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' or 'shall be deemed never to have included" is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the constitution came into force, the amending Act also will be part of the existing law. The presumption against retrospective operation is not applicable to declaratory statutes In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is "to explain" an earlier act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69). Where a statute is passed for the purpose of supplying an obvious omission in a former statute or to `explain' a former statute, the subsequent statute has relation back to the time when the prior Act was passed. The rule against retrospectively is inapplicable to such legislations as these are explanatory and declaratory in nature."- Zile Singh vs. State of Haryana, (2004) 8 SCC 1." 5.10 From the aforesaid discussions, it is vivid that the clarificator), amendment brought in by the Finance Act, 2021 applies to the issue at hand in the instant appeal also. The amendment declares that provisions of section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the "due date" under section 36(1)(va). 5.11 The aforesaid discussions clearly establish that the issue of allowability or disallowability of employees' contribution to PF/ ESI was always a

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debatable one at least till the clarificatory amendment brought into section 36(1)(va) referred to above. Even the appellant, though his written submissions as reproduced in the beginning, has fairly made out a case that the impugned issue of adjustment made u/s 143(1)(a) on account of section 36(1)(va) while processing the return is a debatable one. It is trite that a debatable issue of this nature cannot be brought within the ambit of section 154 which merely permits the rectification of a mistake apparent from the record. It is a settled law that powers of the AO to rectify an order u/s 154 are very limited and can be exercised only in a case where the Assessing Officer finds that a mistake apparent from the record had occurred. However, in the case of a debatable issue or where the lengthy arguments are needed to decide the issue, powers u/s 154 of the Act cannot be exercised to amend an already passed order. It is also well understood that even debatable points of law would not fall in the meaning of the expression "mistake apparent" for the purposes of section 154 of the Act. In the case of CIT vs. Mysore Breweries Ltd. (2013) 33 taxmann.com 351 (Kar.), the Hon'ble Karnataka High Court has held thus, "The opening words of section 154 of the Act, gives an indication of the scope of rectification proceedings. It is only with a view to rectify the mistake apparent from the record. The Income-tax authority may amend any order passed by it under the provisions of this Act or amend any intimation or deemed intimation under sub-section (1) of section 143. Therefore, this Section is very much limited. The error should be apparent from the record. If there exists a debatable issue, if two views are possible, it is not open to the authorities under this proviso to initiate proceedings and revise its opinion. All that it can do in these proceeding is to rectify the mistake apparent from the record. In the instant case, what the Assessing Authority has done is that it has re-appreciated the entire material on record and has come to a different conclusion than the conclusion which it had arrived at in the original Block Assessment order, Therefore, it is not a case of rectifying the error apparent from the record, it is only a case of reframing of the assessment giving reasons". Viewed thus and keeping in mind that the judicial opinions are divided on the subject-matter as discussed in para 5.4 and 5.5 above, it must be held that in the instant appeal, the grounds taken by the appellant are not sustainable and deserve to be rejected. Consequently, the grounds Nos. 1 and 2 are dismissed.”

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“154. (1) With a view to rectifying any mistake apparent from the record an income- tax authority referred to in section 116 may,— (a) amend any order passed by it under the provisions of this Act ;

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(b) amend any intimation or deemed intimation under sub-section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A; (d) amend any intimation under sub-section (1) of section 206CB. (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned— (a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee or by the deductor or by the collector, and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also. (3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor or the collector, shall not be made under this section unless the authority concerned has given notice to the assessee or the deductor or the collector of its intention so to do and has allowed the assessee or the deductor or the collector a reasonable opportunity of being heard. (4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned. (5) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor or the collector, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the collector. (6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor or the collector, the Assessing Officer shall serve on the assessee or the deductor or the collector, as the case may be a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly. (7) Save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. (8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee or by the deductor or by the collector on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,— (a) making the amendment; or (b) refusing to allow the claim.”

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On a careful perusal of the aforesaid statutory provision r.w. settled position of law as had been expounded in various judicial pronouncements, we find that it is only in a case where an order passed by the A.O is found to be suffering from a mistake which is glaring, patent, apparent and obvious from record that a recourse can be sought for rectification of the same u/s.154 of the Act. Our aforesaid view is supported by the landmark judgment of the Hon’ble Supreme Court in the case of T.S. Balaram ITO vs. Volkart Bros (1971) 82 ITR 50 (SC), wherein the Hon’ble Apex Court after deliberating at length on the scope and gamut of Section 154 of the Act had observed as under:

“From what has been said above, it is clear that the question whether S.17(1) of the Indian Income-tax Act, 1922 was applicable to the case of the first respondent is not free from doubt. Therefore the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income- tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under S.154 of the Income-tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde and ors. v. Millikarjun Bhavanappa Tirumale(1) this Court while Spelling out the scope of the power of a High Court under Art. 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-see Sidhamappa v.. Commissioner- of Income-tax, Bombay(2). The power of the officers mentioned in S. 154 of the Income-tax Act, 1961 to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record". In this case it is not necessary for us to spell out the distinction between the expressions 66 error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent.”

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Considering the limited scope of Section 154 of the Act, we are of the considered view that as the issue involved in the present appeal, i.e. disallowance u/s.36(1)(va) of the Act of the assessee’s claim for deduction of the delayed deposit of employees share of contribution towards ESI/PF at the relevant time was not free from doubts and debate, therefore, the same could not have been brought within the realm of rectification u/s.154 of the Act. Our aforesaid conviction is all the more fortified by the fact that as the assessee has assailed the order passed by the A.O u/s.154 of the Act, inter alia, on the ground that prior to the judgment of the Hon’ble Apex Court in the case of Checkmate Services (P) Ltd. Vs. Commissioner of Income Tax-1, (2022) 143 taxmann.com 178 (SC) there were two school of thoughts on the issue in hand, i.e. as to whether or not the delayed deposit of the employees share of contribution towards ESI/PF was allowable as deduction u/s.43B of the Act, therefore, for the said reason no disallowance of the same could have been made u/s.143(1) of the Act. The aforesaid contention of the Ld. AR takes the case of the assessee beyond the scope and ken of Section 154 of the Act. We, say so, for the reason that now when the issue in hand, i.e. allowability of the assessee’s claim for deduction of the delayed deposit of employee’s share of contributions towards ESI/PF, being a debatable issue could not have been summarily disallowed by the A.O vide his intimation issued u/s.143(1) of the Act, then the said issue admittedly being debatable in nature could not have been subjected to rectification u/s.154 of the Act. Accordingly, on

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the basis of our aforesaid deliberations, we are of the considered view that the application filed by the assessee before the A.O/CPC for rectification u/s.154 of the Act was in itself not maintainable.

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Order pronounced in open court on 10th day of August, 2023.

Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 10th August, 2023 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.