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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
PER KUL BHARAT, JUDICIAL MEMBER: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 08.12.2021, pertaining to the
2018-19. The assessee has raised following grounds of appeal:
“1. The Ld. CIT(A) grossly erred on facts and in law in holding that there was no mistake apparent from record by the AO Centralized Processing Centre (CPC) while processing the income tax return under Section 143(1) of the Income-Tax Act, 1961 overlooking the judgments raised upon by the assessee.
However, alternative plea was made vide letter dated 27th October 2021 along with application for condonation of delay and mentioned that all the grounds of Appeal remained the same.
2. The the CIT(Appeals) grossly erred in upholding disallowance of Rs.24,53,910 by the AO Centralized Processing Centre (CPC) on the ground that there was delay in deposit of employees contribution under Section 36(1)(va) of the Income-Tax Act, 1961 disregarding the judgments of the Hon'ble Supreme Court and Jurisdictional High Court and Various other High Courts that Payment made before due date of filing income tax return u/s 13991) cannot be disallowed.
3. That the CIT(Appeals) grossly erred in holding that the new amendment in the finance Act 2021 is retrospective and overlooked the binding judgments in favour of the assessee and cited only the judgments against the assessee. He also erred in disagreeing with the Notes to the clauses and Memorandum explaining the provisions of the Finance Bill which clearly stated that the amendment will take effect from Ist April 2021 and subsequent
4. The CIT(Appeals) grossly erred in relying upon the judgments cited in the order and disregarding the judgments of the Hon'ble Supreme Court of India, Jurisdictional High Courts and various other High Courts relied upon the Assessee.
5. That the CIT(Appeals) grossly erred in upholding the charging of Rs.1,64,066 u/s 115BEE.
6. That the CIT(Appeals) grossly erred in upholding the levy of Rs.27,007 as Extra Educational Cess.
7. That the CIT(Appeals) grossly erred in upholding the levy of interest u/s 234A of Rs.7,00, Rs.1,50,136 u/s. 234B and Rs.39,906 u/s 234C.
8. That the CIT(Appeals) grossly erred in not adjudicating the following ground raised by the Assessee.
“That the nonspeaking order passed by the A.O Centralized Processing Centre (CPC) without application of mind and in a mechanical manner and without reasons is bad in law and wrong on facts and all the additions be deleted”.
To add, amend, vary or delete any of the grounds of Appeal”.
The facts giving rise to the present appeal are that assessee is a job work contractor and filed his return of income for assessment year 2018-19 on 04.10.2018 declaring total income of Rs.36,24,460. The same was processed and the assessee received a communication dated 10.05.2019 for adjustment to its income under Section 143(1)(a) of the Income-Tax Act, 1961 (the “Act”), thereby proposing the disallowance of Rs.24,27,426 on the ground that the said amount paid to ESI, PF authorities were deposited later than the due date prescribed under the corresponding Acts. Thereafter, Assessing Officer made adjustments.
The assessee had also filed an application seeking rectification of such adjustment under Section 154 of the Act. However, the same was not accepted. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who also sustained the disallowance and dismissed the appeal of the assessee.
Aggrieved against the order of learned Commissioner (Appeals), assessee is in appeal before this Tribunal. At the time of hearing, no one attended the hearing.
It is seen from the record that the assessee has not been attending the hearing, therefore, the appeal is taken up for hearing in the absence of the assessee and is being disposed of. However, it is seen that there is a letter written by the learned authorized representative of the assessee making certain submissions on behalf of the assessee in respect of the grounds of appeal. Therefore, the appeal is taken up for hearing in the absence of the assessee and is being decided on the basis of the material available on record.
Apropos to the grounds of appeal learned Departmental Representative supported the orders of the authorities below and submitted that the issue raised in this appeal by way of the grounds are squarely covered against the assessee by the judgment of the Hon'ble Supreme Court in the case of Checkmate Services P Ltd. vs. CIT (along with batch of appeals) and the issue whether such adjustments could have been made u/s 143(1) has been considered by the coordinate Benches of this Tribunal at Delhi.
We have heard the learned Departmental Representative and perused the material available on record. The issue raised in the grounds of appeal relates to the adjustment made by the Assessing Officer in ESI and PF contribution after the prescribed period as mentioned in their order.
Learned Commissioner (Appeals) has decided the issue by observing as under:
“10.22 In the instant appeal also, the issue involved had conflicting judgments from the different Hon'ble High Courts. The Finance Act, 2021 has brought out the amendments, as extracted above, which are purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. Based on the judicial pronouncements as extracted out, it can be safely concluded that the clarificatory amendment brought out by the Finance Assessee, 2021 will be applicable to the issue in the instant appeal for the earlier year also. It is also clear that the scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the taxpayer is entitled to deduction in respect of the sum belatedly paid towards such contribution especially when such sum is, admittedly a sum received by the taxpayer/employer from the employee. Therefore, for considering such question, application of Section 36(1)(va) read with Section 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). If the payment was not done within the stipulated time prescribed under the relevant enactment, the benefit of deduction cannot be claimed, since such belated payment is not a valid payment to attract deduction, under the purview of the Income Tax Act.”
We find that the Hon’ble Supreme Court in the case of Checkmate Services P Ltd. vs. CIT (supra), on the issue relating to payment of employees’ contribution towards PF and ESI, has ruled against the assessee, inter alia, by observing as under:
“52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(l)(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 is to be treated as deduction (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 assessees 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 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 has to be bome 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 bome 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 temis 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 interpretation were to be adopted, the non-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.”
9. Respectfully, following the judgment of the Hon'ble Supreme Court, the above binding precedent, we do not see any reason to interfere in the conclusion arrived at by the lower authorities. We hereby reject the grounds of appeal of the assessee and sustain the disallowance made by the lower authorities and the ground nos. 1 to 4 are dismissed.
10. Apropos to ground nos. 5 to 8, the assessee has not made any submission, therefore, the same are rejected.
In the result, the appeal of the assessee is dismissed.
Order pronounced in open court during the course of hearing on 30 .05.2023.