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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per Dr. M. L. Meena, A.M.:
The appeal filed by the assessee is directed against the order of the
ld. CIT(Appeal), National Faceless Appeal Centre, (NFAC), Delhi, in respect of the Assessment Year: 2019-20.
The assessee has raised the following grounds of appeal:
2 ITA No. 55/Asr/2022 Royal Furnishers v. AO “1. That on the fact and in the circumstances of the case the learned CIT Appeal is not justified in basing his finding by observing that there are conflicting decisions of various Benches of Tribunal and High Courts.
That on the facts and in the circumstances of the CIT Appeal should have given benefit of doubt to assessee and accepted his contention.
That basing his decision on misinterpretation of section 36(l)(va) and 43(b) which he has observed is retrospectively applicable is legally against the natural justice.
That the learned CIT Appeal has not pointed out any defect in the facts of the case, which he has accepted.
That since the return of Income has been filed u/s 139(1) and provident Fund has been deposited before filing the return, there was no occasion in not accepted the plea of the assessee.
That the learned CIT (A) should have understood that the provision of section 36(l)(va) as well 43(b) impose a liability on the assessee and therefore cannot be construed to the applicable retrospectively unless the legislature specially says so.
That the addition on account of EPF sustained by learned CIT(Appeal) may kindly be deleted.”
Briefly facts of the case are that the appellant runs an Industrial
undertaking engaged in the manufacturing of Furniture and Fixtures. For
the year under consideration, assessee filed its return declaring an Income
of Rs. 50,48,500/- which was processed u/s 143(1) of the act, at Rs.
56,87,990/- on account of disallowance of an amount of Rs. 6,39,490/-
towards contribution to ESI and Provident Fund.
3 ITA No. 55/Asr/2022 Royal Furnishers v. AO 4. In appeal, the ld. CIT(A) has observed that there are conflicting
decisions on the issue of amendment brought in the Finance Act 2021 in
section 36(i)(va) and 43B by way of inserting Explanation 2 and
Explanation 5 to these sections and the learned CIT(Appeals ) also
observed that these amendments to the Provisions are clarificatory in
nature and since these amendments are clarificatory in nature and are
curative so they are retrospectively applicable and the addition made in the
intimation u/s 143(1) of the act dated 01/05/2020 on account of delayed
payments of Employees contribution to Provident Fund and ESI account is
confirmed by observing as under:
5.3 The above amendments in the provisions are clarificatory in nature going by the words used therein. With regard to clarificatory amendments, the Hon'ble Supreme Court held in the case of Allied Motors V's CIT [1997] 91 Taxman 205that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an Obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. In this judgment the Hon'ble Court cited the observation of G.P. Singh in his Principles of Statutory Interpretation that it is well-settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended and held that the amendment would not serve its object in certain situations unless it is construed as retrospective. In the case of CIT vs Shree Manjunathesware Packing Products [1998] 96 Taxman 1, the Hon'ble SC, while dealing with Explanation-(b) inserted in section 263, once again held that the words "shall include and shall be deemed always to have included" have to be interpreted to be retrospective in nature. Similarly in the case of CIT vs Alom Extrusions Ltd [2009] 185 Taxman 416, it was held by Hon'ble SC that wherever the amendment is curative in nature, it is retrospective in operation.
4 ITA No. 55/Asr/2022 Royal Furnishers v. AO 5.4 In the light of the discussion, from the words "Provisions of section 43B shall not apply and shall be deemed never to have been applied" used in Explanations brought in sections 36(1)(va) and 43B by way of amendments through Finance Act, 2021, it has to be understood that these amendments are retrospective in operation. It is now made clear that the employees contribution to PF/ESI funds will not be allowed as deduction u/s 36(1)(va) if these contributions are not deposited within the due dates mentioned in the respective legislations. Hence, with due respect to the earlier decisions of Hon’ble Supreme Court and various Hon’ble High Courts cited by the appellant and in the light of the above discussion on the amendments brought in Finance Bill, 2021 in the sec. 36(1)(va) and sec. 43B of the IT Act i.e. the change in law, the addition of Rs.6,39,486/- made in the intimation u/s 143(1) of the Act, dated 01.05.2020 on account of delayed payment of Employees Contribution to PF ESI Account is confirmed.”
The Ld. Counsel submitted that the funds are allowable expenses u/s
36(ii)(v), and that the disallowance made amounting to Rs. 6,39,490/-
regarding PF and ESI late deposit as per provision of ESI and Provident
fund Acts, without appreciating the fact that the said deposits were made
before the due date of filing of return u/s 139(1).
The Ld. AR contended that the coordinate Bench in the case of
Glaxy Industries Vs. The Dy. Commissioner of Income Tax Circle -1
Jammu, in IT A No’s 118 and 119 / ASR/ 2021 has categorically held the
view that the amendments were made available to the statute vide the
Finance Act 2021, Explanation 5 to section 43B and Explanation 2 to
section 36(i)(va) are applicable w.e.f. 01-04-2021 onwards. Therefore, the
same would not have any bearing on the case of assessee. Accordingly, as
5 ITA No. 55/Asr/2022 Royal Furnishers v. AO per settled position of law as laid down per se the aforementioned judicial
pronouncement, the amendments made are applicable prospectively. The
ld. AR submitted that the issue of the employees’ contribution under PF &
ESI Acts is already settled by the Higher Judicial Forums in the cases of
CIT v. Vinay Cement Ltd. [2007] 213 CTR 268, CIT v. AIMIL Ltd. [2010]
188 Taxman 265/321 ITR 508, CIT vs Nuchem Ltd [2015] 59 taxmann.com
455 (Punjab & Haryana) and [2013] 40 taxmann.com 371 and Galaxy
Industries v. DCIT, Circle-1, Jammu (supra). Accordingly, he prayed that
disallowance of Rs. 6,39,490/- made to the returned income on account of
Provident Fund and ESI payments, made late but before filing the return
u/s 139(1) may kindly be deleted.
The Ld. DR stands by the impugned order.
We have heard both the sides and perused the material on record.
Admittedly, the addition was made in the intimation u/s 143(1) of the act
dated 01/05/2020 on account of delayed payments of Employees
contribution to Provident Fund and ESI account, as per PF and ESI Act,
although before the due date of filing of return of income u/s 139(1) of the
Act.
6 ITA No. 55/Asr/2022 Royal Furnishers v. AO 9. In the case of ‘Vinko Auto Industries Ltd Vs. DCIT’, CPC, Bangalore
in ITA No. 63 & 64/ASR/2021 dated 08/11/2021 the tribunal observed on a
specific query as regards to the amendments made available on the statue
vide the Finance Bill, 2021 i.e “Explanation 5” to Section 43B and
“Explanation 2” to section 36(1)(va) of the Act qua the adjudication of the
issue in hand, that as both of the said amendments were prospective in
nature and that were effective from 01.04.2021. Therefore, the same would
not be applicable to the present case of the assessee which pertained to a
period prior to the aforesaid amendments.
Thus, the amendments were made available on the statue vide the
Finance Act, 2021 i.e “Explanation 5” to Section 43B and “Explanation 2” to
Section 36(1)(va) were clarificatory in nature and would be applicable to the
earlier years, as was claimed by the department, or, were applicable
prospectively, as claimed by the assessee, had exhaustively been
deliberated upon and answered in favour of the assessee by the tribunal.
The ld. CIT(A) has merely stated that the issue has been highly
contentious and different High Courts have taken divergent views on the
same issue, out of which some are in favour of the assessee and some are
against the assessee. The ld. CIT(A) further observed that the judgments
and orders relied upon by the assessee have been rendered before the
7 ITA No. 55/Asr/2022 Royal Furnishers v. AO clarificatory amendments made in the Finance Act, 2021 and the Finance
Act, 2021 has put an end to this controversy.
Admittedly, there are plethora of judgments in favour of the
Assessee’s contention and of the Revenue. The controversy with regard to
divergent views of different High Courts, has been settled by the Hon'ble
Apex Court in the case of CIT Vs. M/s. Vegetables Products Ltd. (88 ITR
192) by laying the dictum that if two reasonable constructions of a taxing
provision are possible that construction which favours the Assessee must
be adopted. The Hon’ble jurisdictional High Court in the case of CIT Vs.
M/s Hemla Embroidery Mills (P) Ltd. (366 ITR 167) (P&H HC) and in the
case of CIT Vs. M/s Mark Auto Industries Ltd. (358 ITR 43) (P&H HC)
clearly held that the assessee is entitled to claim deduction of employee’s
share of ESI & PF u/s.43B of the Act, if the same has been deposited prior
to the filing of return of income u/s.139(1) of the Act. Admittedly, there are
no contrary judgements of the jurisdictional High Court against the
assessee on the aspect under consideration hence, first determination of
the Ld. CIT(A) qua non-applicability of the provisions of Section 43B of the
Act to the employee’s share qua PF & ESI, is unsustainable.
On the basis of our aforesaid deliberations, we are of the considered
view, that as the amendments made available to the statue vide the
8 ITA No. 55/Asr/2022 Royal Furnishers v. AO Finance Act, 2021 i.e “Explanation 5” to Section 43B and “Explanation 2” to
Section 36(1)(va) are applicable w.e.f 01.04.2021 i.e. from A.Y 2021-22
onwards, therefore, the same would not have any bearing on the case of
the assessee before us i.e for A.Y 2019-20. Accordingly, as per settled
position of law as laid down as per the aforementioned judicial
pronouncements, we, conclude, that since, the employee’s contributions to
PF and ESI of Rs. 6,39,490/- was deposited by the assessee before the
“due date” of filing of its return of income for the year under consideration,
and hence, in the instant case, the provisions of Sec. 43B of the Act are not
applicable, and accordingly, the disallowance of Rs. 6,39,490/- on account
of contribution of PF and ESI account not be approved.
In the backdrop of the aforesaid deliberation, we hereby set aside the
order of the ld. CIT(A) and delete the addition of Rs. 6,39,490/- made on
account of late payment of employee’s contribution to PF and ESI account.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11.08.2022.
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS*
9 ITA No. 55/Asr/2022 Royal Furnishers v. AO Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T.