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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per Shri Balakrishnan S, Accountant Member This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-1 [for short, “CIT(A)”], National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No.ITBA/NFAC/S/250/2020-21/10340540162(1) dated 30.07.2021 for the Assessment Year (A.Y.) 2018-19.
2 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
Brief facts of the case are that the assessee, a private limited
company, filed its return of income, admitting total income of
Rs.6,90,580/-. However, the Centralized Processing Centre (CPC) has
processed the return u/s 143(1) of the Income Tax Act, 1961 (in short
‘Act’), determining the total income at Rs.9,44,390/-. The CPC has
disallowed a sum of Rs.2,38,809/-, being late payment of Employee
contribution of PF and ESI under the respective Acts.
Aggrieved by the order of the CPC, the assessee filed appeal before
the CIT(A) which was migrated to the NFAC in terms of notification
No.76/2020 in S.O.No. 3296(E), dated 25/09/2020 from CBDT. The CIT(A)
held that the payment of employees contribution made after the due 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 as per the
Employees’ Provident Fund Scheme/Employees’ State Insurance Scheme is
liable to be added to the income of the assessee. The Ld.CIT(A) relied on the
decision of Hon’ble Gujarat High Court in the case of Gujarat State Road
Transport Corporation [2014] 41 taxmann.com 100, as held that
employees’ contribution not be paid within the due date specified under
PF/ESI is not to be allowed as per section 36(1)(va). The Ld.CIT(A) also
relied on the decision of Hon’ble Kerala High Court in the case of CIT Vs.
3 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
Merchem Ltd. (2015) 378 ITR 443 (Kerala) and the decision of Hon’ble
Madras High Court in the case of Unifac Management Services (India) P.Ltd.
(2018) 100 taxmann.com 244 (Madras). The Ld.CIT(A) also observed that
the Finance Act 2021 has also clarified by inserting explanation in section
36 of the Income Tax Act, 1961 to the above effects as under.
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.” 4. Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal
before the Tribunal and raised the following grounds of appeal. 1. That under the facts and circumstances of the case, the order passed u/s 143(1) of the I.T.Act is contrary to the provisions of the Act and facts of the case. 2. The Ld.Commissioner of Income Tax (Appeals), National Faceless Appeals Centre (in short “CIT(A), NFAC”) erred in confirming the addition of Rs.2,38,809/-, the payment of Employee’s share of ESI & PF, on the ground that the belated payment of employee’s contribution is not allowable u/s 36(1)(va) of the I.T.Act.
The “Ld.CIT(A), NFAC” ought to have held that PF contribution of Employees if paid within the due date of filing of return of income is allowable for deduction in view of the provisions of Sec. 36(1) (Va) and sec. 438 of the I.T. Act.
The "Ld. CIT(A), NFAC" before giving the verdict on the disputed issue failed to discuss/consider the various submissions made by the assessee vide submissions made on dt.06.01.2021. This way the order passed by "Ld. CIT(A), NFAC" is one sided and against all judicial norms.
The "Ld. CIT(A), NFAC" failed to appreciate that in view of the Memorandum of Explanation issued by CBUT, the Amendment made by Finance Act 2021 to section 36(1)(va) and 438 of the Act is only applicable only from 01-04-2021.
The "Ld. CIT(A), NFAC" failed to adhere to the judicial discipline as laid down by the Hon’ble Bombay and Andhra Pradesh High courts, reported in 156
4 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
ITR 11 & 169 ITR 564 respectively, for the proposition that when there are several judgements of different Hon'ble High Courts both in favor and against the assessee the view favorable to the assessee is to be followed. 7. For these and other reasons that are to be urged at the time of hearing of the case the appellant prays that the impugned disputed addition is to be deleted in the interest of justice.
The only issue involved in this appeal is as regards to the order of
ld.CIT(A) sustaining the disallowance of deduction claimed on account of
Employees’ contribution to PF & ESI by invoking the amended provisions of
section 36(1)(va) r.w.s. 43B of the Act, treating the amended provisions
applicability as retrospective.
Before us, the ld.counsel for the assessee admitted the factual
positions. The Revenue has not disputed the fact that the payment to
employees contribution to PF is well within the due date of filing of return
of income by the assessee u/s.139(1) of the Act. The assessee relied on the
decisions of ITAT, Visakhapatnam in the case of the Chodavaram Co-
operative Sugars Ltd, Visakhapatnam Vs. Asst.Director of Income Tax,
Bangalore in I.T.A Nos.25 & 28/Viz/2021 dated 23.09.2021 and DCIT,
Circle-1(1) Vs. M/s Andhra Trade Development Corporation, Guntur in
IT.A. No.434/Viz/2019 dated 05.05.2021. The assessee also contended that
amendment brought in by the Finance Act 2021 to section 36(1)(va) of the
Act especially the insertion of Explanation 2 should be construed only as
5 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
prospective in as much as the insertion of the amended provision should be
construed only w.e.f. 01.04.2021 i.e. for & from the assessment year 2021-
The CIT(A) erred in holding that the insertion of Explanation 2 inserted
by Finance Act, 2021 to Section 36(1)(va) of the Act is clarificatory, which
clarify that the definition of ‘due date’ as per Section 43B of the Act and
shall be deemed to have been applied for the purpose of employees
contribution.
On the other hand, the ld. DR only relied on the order of the CIT(A)
and stated that the CIT(A) has passed exhaustive order explaining all
provisions of the Act.
We have heard rival contentions and perused the relevant material
on record. Admitted facts are that the payment of PF contribution
regarding employees’ contribution is made within the due date of filing of
return of income. The Revenue has disputed that the employees’
contribution received by the assessee would be treated as income of the
assessee because the same has not been deposited in the Government
account within the due date as prescribed under the respective Acts. Now,
the question arises, whether by the Finance Act, 2021, the provisions of
Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act
6 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
have been amended, whereby it is clarified that the provisions of Section
43B of the Act shall not apply and shall be deemed or ought to have been
applied for the purpose of determining the due date under this clause. This
amendment has brought in the statute book to provide certainty about the
applicability of provisions of Section 43B of the Act in spite of belated
payment of employees contribution. We also noted from the memorandum
explaining the provisions to Finance Act, 2021, wherein relevant Clauses to
said memorandum clearly intended that the amendment shall take effect
from 01.04.2021 and will accordingly apply to assessment year 2021-22
and subsequent assessment years. The relevant Clauses 8 & 9 of the
memorandum explaining the provisions are reproduced as under:-
“Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date
Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head ‗Profits and gains of business or profession‘. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee 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
7 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
date. Explanation to the said clause provides that, for the purposes of this clause, "due date‖ to mean 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. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 40 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 mis-utilize employee‘s contributions. Accordingly, in order to provide certainty, it is proposed to – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the due date under this clause; and
8 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
(ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
In the present case also, before insertion of Explanation 2 to Section
36(1)(va) of the Act, there is ambiguity regarding due date of payment of
employees’ contribution on account of provident fund and ESI, whether the
due date is as per the respective Acts or up to the due date of filing of
return of income of the assessee. As noted by Hon’ble Supreme Court in the
case of CIT vs. Vatika Township Pvt. Ltd., 367 ITR 466, an amendment
made to a taxing statute can be said to be intended to remove hardship
only of the assessee and not of the Department. Imposing of a retrospective
levy on the assessee would cause undue hardship and for that reason
Parliament specifically chose to make the proviso affective from a
particular date. In the present case also, the amendment brought out by
Finance Act, 2021 by way of Explanation-2 to s. 36(1)(va) of the Act along
with Explanation-5 to s. 43B of the Act w.e.f. 01.04.2021 i.e. for and from
assessment year 2021-22, cannot be applied retrospectively.
Thus, from the above, it is clear that the amendment brought in the
9 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee’s appeal is allowed.
In the result, appeal of the assessee is allowed.
Order Pronounced in open Court on 07th April, 2022.
Sd/- Sd/- (दुव्िूरु आर.एऱ रेड्डी) (एस बाऱाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER ऱेखा सदस्य/ACCOUNTANT MEMBER Dated : 07.04.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाररती/ The Assessee– Lohman Castings Pvt. Ltd., C5 to C7, NH-5 Industrial Development Area, Anakapalle 2. रधजस्व/The Revenue – Income Tax Officer, Ward 1, Anakapalle 3. आयकर आयुक्त (अऩीऱ)/ The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi 4. Principal Commissioner of Income Tax 5. ववभधगीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, ववशधखधऩटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईऱ / Guard file
10 ITA No.140/Viz/2021, A.Y.2018-19 M/s. Lohman Castings Pvt. Ltd., Anakapalle
आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam