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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 15.01.2016, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 ( in short ‘the Act’) dated 28.03.2014 for assessment year 2011-12. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. On the facts and in the circumstances of the case, the Ld. Assessing Officer has erred in making disallowance of Rs.2,88,976/- relating to PF & ESIC contribution under sec.2(24)(x) of Income Tax Act, 1961. The disallowance is unjustified, unwarranted and uncalled for. 2. On the facts and in the circumstances of the case, the Ld. AO has erred in addition of Rs.13,29,277/- on account of inadmissible expenses u/s14A r.w.r.8D. The disallowance is unjustified, unwarranted and uncalled for. 3. The assesee reserves the right, to add, amend or alter any grounds of appeal at any time of hearing.”
Controversy involved in the present appeal hinges around two issues, viz. (i) the allowability of assesse’s claim for deduction of employees contribution towards PF & ESIC of Rs.2,88,976/- that was disallowed by the Assessing Officer by taking recourse to section
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36(1)(va) r.w.s.2(24)(x) of the Act; (ii) the sustainability of disallowance u/s.14A r.w.r. 8D of Rs.13,29,277/-.
Shorn of unnecessary details, the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 28.03.2014 had assessed the loss of the assessee company at Rs. (-) 37,87,77,727/-, i.e, after inter alia making the following disallowances:
Sr. No. Particulars Amount 1. Disallowance of assessee’s claim for Rs.2,88,976/- deduction of employees contribution towards PF & ESIC u/s. 36(1)(va) r.w.s.2(24)(x) of the Act 2. Disallowance u/s.14A r.w.r.8D Rs.13,29,277/-
Aggrieved the assessee assailed the assessment order before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material
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available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. As is discernible from the orders of the lower authorities, the Assessing Officer taking cognizance of the fact that the assessee had made investment of Rs.1,29,24,000/- in unquoted shares of Chhattisgarh Captive Coal Mining Limited, a joint venture company, thus, called upon the assesee to explain as to why corresponding expenditures may not be disallowed by triggering the provisions of section 14A r.w.r.8D. As the reply filed by the assessee did not find favor with the Assessing Officer, therefore, he worked out the disallowance u/s.14A r.w.r.8D at Rs.13,29,277/-.
Before us, it was submitted by the Ld. Authorized Representative (for short ‘AR’) that as the assessee has not earned any exempt dividend income during the year under consideration, therefore, no part of the expenditure in question could have been disallowed u/s.14A of the Act. It was claimed by the Ld. AR that now when the assessee company during the year under consideration had not earned any exempt income, therefore, the authorities below had erred in working
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out disallowance u/s 14A of the Act. After deliberating at length on the aforesaid issue in question, we find, that as stated by the Ld. AR, and rightly so, now when the assessee company had admittedly not received any exempt income during the year under consideration, therefore, no disallowance u/s.14A could have been made in its hands. Our aforesaid view is fortified by the following judicial pronouncements: (i) Cheminvest Ltd. Vs. CIT (2015) 378 ITR 33 ( Delhi) (ii) Pr. CIT Vs. Karnataka State Financial Corporation Ltd. (2021) 127 taxmann.com 115 ( Karnataka) (iii) Pr. CIT Vs. Kohinoor Project (P) Ltd. (2020) 425 ITR 700 ( Bom.) (iv) Pr. CIT Vs. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Bom.)
Backed by our aforesaid observations, we are unable to persuade ourselves to subscribe to the disallowance worked out by the Assessing Officer u/s.14A of the Act, i.e, de-hors any exempt dividend income having been earned by the assessee during the year under consideration. We, thus, direct the Assessing Officer to vacate the disallowance of Rs.13,29,277/- made by him u/s.14A r.w.r 8D. Thus,
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the Ground of appeal No.2 raised in appeal by the assessee is allowed in terms of our aforesaid observations.
Adverting to the disallowance of the assessee’s claim for deduction of the employees share of contribution towards PF of Rs.2,88,976/-, we find that the same had been disallowed by the Assessing Officer u/s.2(24)(x) of the Act, for the reason that the said amount was deposited beyond the stipulated time period that was prescribed under the said Employees Welfare Fund Act. Before us, it was claimed by the Ld. AR, that now when the aforesaid amounts were deposited by the assessee before the “due date” of filing of its return of income for the year under consideration, therefore, the same were allowable as a deduction u/s.43B of the Act. It was submitted by the Ld. AR that the lower authorities had misconceived the settled position of law and disallowed the aforementioned amounts, despite the fact that the same had been deposited prior to “due date” of filing of the return of income by the assessee company.
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In order to answer the issue as to whether or not the employees contribution to welfare funds falls within the scope and domain of Sec. 43B of the Act, we may herein draw support from the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Hindustan Organic Chemicals Ltd in ITA No. 399/12, dated 11.07.2014. In the said case, the Hon’ble High Court of Bombay was, inter alia, called upon to answer the following substantial question of law that was raised in the appeal filed by the revenue:-
“(A). Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal, in law, was right in allowing the claim of the Assessee on account of delayed payments of P.F. Of employees' contribution amounting to Rs.1,82,77,138/- by relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusion Ltd. (319 ITR 306) ?”
After referring to the amendments that were made available to Section 43B of the Act, the Hon’ble High Court answered the aforesaid question in the affirmative and upholding the order of the tribunal qua the aforesaid aspect dismissed the appeal filed by the revenue. Also, we find that a similar view had been arrived at by various Hon’ble High Courts, as under :-
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a. CIT Vs. Amil Ltd reported (2010) 321 ITR 508 (Delhi High Court) b. CIT Vs. Hemla Embroidery Mills (P) Ltd. (2014) 366 ITR 167 (P&H) c. Bihar State Warehousing Corporation Ltd.Vs. CIT 386 ITR 410 (Patna) d. Sagun Foundary Pvt. Ltd Vs. CIT 145 DTR 265 (All) e. CIT Vs. Mark Auto Industries (2008) 358 ITR 43 (P&H) f. CIt Vs. Jaipur Vidyut Vitran Nigam Ltd (2014) 363 ITR 307 (Raj) g. EssaeTeraoka Pvt. Ltd Vs. DCIT (2014)366 ITR 408 (Kar) h. CIT Vs. Vijay Shree Ltd (2014) 43 Taxmann.com 396 (Cal) i. CIT Vs. Kichha Sugar Co Ltd (2013) 356 ITR 351 (Uttarakhand) In the backdrop of the aforesaid settled position of law, we are of the considered view that no distinction is to be drawn between the employers as well as employees contribution to PF and ESI, as both are covered u/s 43B of the Act.
Before parting qua the aforesaid issue in hand, we think it apt to deal with the scope of applicability of the amendments that have been 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), i.e, as to whether those are applicable prospectively w.e.f A.Y 2021-22 onwards, or, are to be given a retrospective effect. Issue in hand is squarely covered by the order of a coordinate bench of the
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tribunal, i.e, ITAT, Amritsar in the case of Vinko Auto Industries Ltd. Vs. DCIT 2021 (12) TMI 636. In its aforesaid order, the Tribunal had after drawing support from the order of the ITAT, Hyderabad Bench in the case of the Value Momentum Software Services Pvt Ltd. Vs. DCIT in ITA No. 2197/Hyd/2017, dated 19.05.2021, had observed, that the amendments in section 36(1)(va) and section 43B of the Act, vide respective explanations that had been made available on the statue by the Finance Act, 2021, are applicable only from 01.04.2021 i.e. w.e.f A.Y 2021-22 onwards. For the sake of clarity the observations of the tribunal in its aforesaid order are culled out as under:-
“5.1 We may observe that the ld. CIT(A) in its order at para no. 7.15 itself has observed 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 clarificatory amendments made in the Finance Act, 2021 and the Finance Act, 2021 has put an end to this controversy. 5.2 Admittedly there is 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 HemlaEmbroidery 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
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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. From the above judgments of the Hon’ble jurisdictional High Court, it is clear that the Hon’ble Court has not drawn any distinction between the employee’s and employer’s share qua PF & ESI contributions. 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. 5.3 Now, coming to the second aspect/determination made by the CIT(A) to the effect that the amendment made in Section 36(1)(va) and 43B of the Act by Finance Act 2021 has to be considered as clarificatory in nature and having retrospective effects, therefore would be applicable to the previous assessment years as well. We may observe that various benches of the ITAT including Hyderabad Bench in the case of Value Momentum Software Services Pvt. Ltd. (ITA No.2197/Hyd/2017 decided on 19.05.2021), have taken into consideration the identical issue qua applicability of the amendment to Section 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Section 36(1)(va) & 43B of the Act w.e.f. 1st April, 2021, and Assessment Year 2021-21 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively. On the aforesaid discussion, the second aspect as considered/determined by the ld. CIT(A) qua retrospective application of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 qua employees’ share in respect of PF & ESI Act, is also unsustainable . 5.4 In view of the above discussions, the disallowances of Rs.5,88,203/- for A.Y.2018-2019 and Rs.60,540/- for A.Y.2019- 2020 made by the A.O. and confirmed by the CIT(A) are not sustainable and, hence, the same stands deleted.”
On the basis of our aforesaid deliberations, we are of the considered
view, that as the amendments made available on the statue vide the
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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 2011-12. Accordingly, drawing support from the aforementioned judicial pronouncements, we, herein conclude, that as the employees contributions to PF and ESI of Rs.2,88,976/-was deposited by the assessee before the “due date” of filing of its return of income for the year under consideration, therefore, the same being saved by the provisions of Sec. 43B of the Act could not have been disallowed by the A.O. We, thus, in the backdrop of our aforesaid deliberations set-aside the order of the CIT(A) and vacate the disallowance of Rs. 2,88,976/- made by the A.O. Thus, the Ground of appeal No. 1 is allowed in terms of our aforesaid observations.
Ground of appeal No.3 being general in nature is dismissed as not pressed.
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In the result, appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced in open Court on 30th day of March 2022.
Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 30th March, 2022 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-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�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.
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Date 1 Draft dictated on 10.03.2022 Sr.PS/PS 2 Draft placed before author 10.03.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order