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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE, SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.2244/Del/2022 (ASSESSMENT YEAR 2018-19) ITA No.2248/Del/2022 (ASSESSMENT YEAR 2019-20) Hisar Metal Industries DCIT Limited Circle Hisar Near Industrial Vs. Development Colony Delhi Road, Haryana-125 005 PAN-AAACH 3752P (Appellant) (Respondent)
Appellant by None Respondent by Mr. K.K. Mishra, Sr. DR Date of Hearing 04/07/2023 Date of Pronouncement 04/07/2023
ORDER PER BENCH:- Both appeals by Assessee are filed against the common
order of Learned Commissioner of Income Tax (Appeals), National
Faceless Appeal Centre (NFAC), Delhi [Ld. CIT(A)”, for short], dated
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
14/07/2022 for Assessment Years 2018-19 & 2019-20
respectively. Common grounds taken in both the appeals except
variance of figures which are as under:
ITA No.2244/Del/2022
“1. That the order of Learned CIT (A), NFAC in confirming sustaining the addition made towards belated payment of Employee's contribution to PF and ESI amounting to Rs.34,50,723-and of Rs 2,99.002 count of disallowance of amount to be allowed as per Section 438 (which was earlier disallowed) on account of reversal of excess provision of leave encashment is wholly unsustainable both on facts and in law. 2. That the Learned CITIA)NEAC failed to appreciate the fact that the no addition by way of adjustment while processing the return of income as 143(1) towards the delayed deposit of the employees's contribution towards ESI and PF [though deposited within the due date of filing of return wa 139(1)] or against debatable issues can be made. 3. The Learned CIT(A) has erred in upholding the order of 140, 0 who had made addition of Rs 34,50,723 under section 36(1) of the Act, being the employee's contribution to provident fund and ESI respectively which was deducted from the employee's salary and not remitted into the Government treasury within the period stipulated under the relevant Act. The order of the Ld CIT(A) failed to consider that the employees' contribution to EPF and ESI Rs 34,50,723 was duly paid before the due date of filing the return of income and thereby erred in disallowing the same. 4. That the Learned CIT(ALNFAC has misinterpreted context of amendment brought via Finance Bill 2021 to the Section 438 and Section 36(1)(va) and was unjustified in confirming the addition made by Learned Assessing Officer relying on the amendments made to section 36(1)(a) and Section 438 by the Finance Act 2021 Finance 2021 inserted an Explanation to Section 361val effective from 01.04.2021 which stated that provisions of section 438 shall not apply and similar explanation was inserted in Section 4388 which stated that provisions of said section shall not apply to a sum received by the assessee from his employees to which provision of sub clause b) of clause (24) of section 2 applies. Thus it is a prospective amendment and same does not apply for the assessment year in question.
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
That the Learned CIT(ALNFAC has erred in disallowing the O reversal of excess provision for leave encashment of Rs.2,99,002- made in the earlier year. The assessee already disallowed amount to the tune of Rs.2,99,002-in the earlier year, the reversal of same in this year is not taxable, hence reduced from total income for the FY 2017-18. Taxing same amount again result in double taxation of income. The assessee by mistake, failed to report such amount in form 3CD.
That the Learned CIT (A), NFAC erred in law in calculating the due date of deposit of contribution to EPF/ESI to concerned authorities as due date for depositing the employee's contribution towards PF/ ESI should be seen from the date of the payment (ie. 15 days from the close of respective months during which the disbursement of salary/wages was actually made) and not from the due date.
That the Learned CIT(A), NFAC failed to consider appreciate the submission of assessee dated 22.02.2022 in response to their notice u/s. 250 of the Act dated 08.02.2022 and proceeded with confirming the impugned addition without considering the documentary evidence submitted and explanation given in support of assesse's claim.
That the order passed by Authorities below is also erroneous, illegal and against the principals of Natural Justice and Equity and the well settled laws of the land.
That the appellant craves leave of the Honorable Income Tax Appellate Tribunal to add, alter, modify, substitute, delete any grounds of appeal at any stage of the proceedings before the honorable Income Tax Tribunal.”
None appeared for the Assessee though the power of attorney has been
filed by the assessee the representative of the assessee also remained absent,
when the Appeal is called. Considering the lis involved in the present Appeal
the matter is taken up for hearing, heard the Ld. DR and perused the material
on record.
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
The Ld. Departmental Representative submitted that the issues involved
in the present appealer are regarding addition made towards belated payment
of Employees Contribution of PF/ESI. Further submitted that the issue is now
covered against the assessee in the case of Checkmate Services Pvt. Ltd. vs.
CIT-1 in Civil Appeal No. 2833 of 2016, vide order dated 12/10/2022 by the
Hon’ble Supreme Court. Therefore, prayed for dismissal of the Appeal.
We have heard Ld. DR and perused the material available on record. The
Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT-1 in
Civil Appeal No. 2833 of 2016, vide order dated 12/10/2022 held that delayed
deposit of the contribution EPF & ESIC beyond the stipulated period prescribed
in the respective Acts are not allowable in following manners:-
“51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Court’s principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.
When Parliament introduced Section 43B, 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 43B, 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 43B - 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 isto be treated as deduction
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
(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, Section 43B 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 entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessee 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.
The distinction between an employer’s contribution which is its primary liability under law – 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 i.e., depositing such 33 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
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT
has to be borne while interpreting the obligation of every assessee under Section 43B.
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 43B 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 is 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 34 interpretation were to be adopted, the non-
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.
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.”
By respectfully following the ratio laid down by the Hon'ble Supreme Court of India we find no merit in the grounds of Appeal of the assessee, accordingly, the Grounds of Appeal of the assessee are dismissed and the Appeal filed in ITA No. 2244/Del/2022 for the Assessment Year 2018-19 and the Appeal in ITA No. 2248/Del/2022 for the Assessment Year 2019-20 are dismissed. Order pronounced in open Court on 04th July, 2023
Sd/- Sd/- Sd/- Sd/- (PRADIP KUMAR KEDIA) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 04/07/2023 Pk/R.N. Sr. ps
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ITA No.2244 & 2248/Del/2022 Hisar Metal Industries Ltd. vs. DCIT