Income Tax Appellate Tribunal - Mumbai
Viswanathan Pudugramam Neelakantan, ... vs Ito -28(3) (4), Mumbai on 11 April, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH "F" MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER} ITA No, 1844/MUM/2021 Assessment Year: 2017-18 & ITA Na. 1845 /MUM/2021 Assessment Year: 2018-19 Viswanathan Padagramam Income Tax Officer Range 28(3}(4}, Neelakantan, Ys, Room Na. 310, 3° floar, Tower Na. C-323, Vikasini CHS Led, Sector 8B, 6, Vashi Railway Station, Vashi, Rebind YWCA, CBD Belapur, Navi Mumbai-400 703. Navi Mumbal-4.00 614. PAN No. AMPGG 7304 N Appellant Respondent Assessee by : Mr. Bharat Kamar, AR Revenue hy > Mr. SN. Kabra, BR Date of Hearing : 13/04/2022 Date of pronouncement ; 11/04/2022 ORDER PER OM PRAKASH KANT, AM
These two appeals by the assessee are directed against two Separate orders dated 19.08.2021 and 11.08.2021, passed by the National Faceless Appeal Centre, Delhi {in short 'the Ld. First LOM LLL ELD Se are N ee ante cease SSS 3 \ \ \ \ \ \ \ Viswanathan B, Neelakantan | 2 \ PTA Nos NEE & HAS VM 208s \ \ Appellate Authority') for assessment year 2017-18 and 2018-19 \ \ respectively, As common grounds of appeal are involved in these \ : ; \ \ appeals, therefore, these two appeals were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
s In both these a speals, the issue in dispute in relation ts py } disallowance of late payment of Employee Contribution to Provident Fund (PF) is involved,
3. We have heard rival submissions of the parties and perused the relevant material on record. In the assessment year 2017-18, the Assessing Officer made disallowance u/s 36(1){va) of the Income-tax Act, 1961 (in short 'the Act') for payment af employee's contribution to PF, which was paid after due date of filing under the relevant Act. The the assessee claimed that same has been paid before due date of filmg of the return of income, in terms of séction 43B of the Act and therefore, no disallowance for said payment should be made. The Ld. SSSR SN Viswanathan P. Neelakantan | A ITA Now Daas & J BISA PGE 2 I Assessing Officer however held that as far as employee's contribution to the Provident Fund is concerned, same is to be treated as income u/s 2(24){x} of the Act and if same is not credited to employee's account in relevant fund on or before the due date under the relevant Act, then same is liable for disallawance according to the provision af section 36(1}(va) of the Income Tax Act. In assessment year 2019-19 also similar disallowance for late payment of Provident Fund amounting to 296,93,723/- has been made by the Assessing Officer u/s 36{1}{va) of the Act. In both these assessment years, the Ld. CIT(A) has upheld the disallowance. The relevant finding of Ld. CIT(A} for assessment year 2017-18 is reproduced as under:
"? f Rave considered the facts and circumstances af the caze, submissions of the appellant, material available an record and various cose daws referred on the above matter. The sole issue relates fo addition of R3.62,74130/ on account of late papnient of Employees' contribution towards PF and ESIC ie ner deposited within the due date as per respective Act In the written submission, the appellant has relied upon several case laws wherein it was held that the deposit af PF and ESIC on or befere the due date af filing feture af iacome us 139(1} of the Act shail nat be considered as joie deposit and section 36{1) {va} of the Act shall nae apply.
NS nS ttc EOS EEA I Viswanathan P. Neelakantan | 4 ITA Nos. 1844 & PG4a SM 2021 | Ad Before proceedings to decide the issue of late deposit of PF and ESIC, | would fike to analyze the background af the provision of section 2(24){x} and 35(1} {va} of the Act as weil as the provisions of PR and ESIC Act.
72 As per indian Provident Fund Law, both the employer and employee have to contribute their part [12% of salary) fo Emplayee Provident Fund Organization (EPFO} as @ social security contribution, Employer deducts the employes Share from the salary of employee and it is the responsibility af employer to depasit the entire contribution with Government of India.
43 in order to penalize the emplovers who mis-utilize contributions to Provident Fund (PE) or any fund set up under the provisions af the Employee State insurance (E81) Act or any other fund for the welfare af employees, Finance Act 1997 had introduced section 2[24){x} which states that any sum received by the employer from his employees as contribution wo any provident fund or Superannuation fund or any fund set up under the provisions of ES! Act or any other fund for the welfare af such emplayees shall be treated as employer's income. Ay the same Act, section 36{7} fea} was introduced which provides that deduction of emplovee's contribution towards provident fund (PF), superannuation fund or Employee State insurance {ESI} ar ether employee funds, shall be allowed to the employer, provided such amount Is credited fe the emplosie © account in the relevant fund or funds on or before the 'due date' as prescribed uoder the relevant labor law flenislations 74 -- Explanation to the subject section defines the term 'due date as the date by which the assessee ts required as an employer to credit the employee's cantribution ta the employee's account in fhe relevant f 4 Sake > : Viswanathan P. Neelakantan {5 {VA Nox 1884 & 1845/8 2022 | fund. Sein case of PF and 88) fiund, the due date is the date as provided 3 ander the BF and ES! Aeta.
8 Ary sum payable hy the assessee, as an employer, by way of comtribution 2 ane provident fund or superannuation fund ar gratuity fund or any other fund for the welfare of employees, shall be alowed as deduction ja the year inwhich such sum is actually paid by the assessee as per section 438 af the Inceme Tax Act (The Act}, First Provise fo section 438 of the Act states that nothing contained in this section shall apply in relatian to any sum wich is actually paid by the assesses an ar before the due date applicable in bis cuse for furnishing the return of income under sub-section {1} of section 139 in respect of the previous pear in which the liability ta pay such sien was incurred as dforesaid and the evidence of such payment is furnished by the assessee dang with such retin. From the above enactments of the fenw, if has been understood that deduction shail be alowed in respect of any sum paid by the employer by way of contribution te anv provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees on ar before the due date for filing of return af income under section 139/12). However, deduction of employees' contribution towards provident fund superannuation flind or Employee State Insurance or other employee's fund shall be allowed to the emplover, provided such amount is credited te the employee's account in the relevant fund or funds on ar before the due date as provided under the PF and BS] Acts, Thus, ff employer depasits eniployees" contribution post-date as prescribed in PF and ESf act but before date of fillag of return of income under section 139f L} of the Act, thea employer caanot claim the deduction of the same.
Pb On the issue "whether the same shall he allawed as deduction or not under section $38 of the Act*, there are several decisions of POOLE LEED OLN Viswanathan P. Neelakantan | 6 LA Nas. 1844 & ease s2022 | Hig Court ia favour of the Revenue as well as appellant, Some of case laws in favour af Revenue are CIP Ve G warat State Read Transport Corporation (266 IT 170) (2014 J (Gujarat), CIT Vs Merchem Ltd (378 ITR 4483 }(2015) { Kerala}. Unifac Management Services (india) Pr Lid Vs OCIT (200 taxmann. cen gas aia} (Madras).
22 The Hon'ble Gujarat High Court in the case of CIT Vs 6 ufarat State Road Transpart Road Transport Corporation (2014) 41 faxmanncom 100 {Cui} has decided the issue in faveur of the Revenue as under:
& In view af the above and for the reasons stated above, and considering section 26{2}¢ va} of the Income Tax Act, 1961 read with sub-clause {x} of clause 24 of section 2. it is held that with respect to the sum received hy the assessee from any of his employees to which provisions of sub-clause {x} af clause (24) of section {2} applies, the assessee Shall be entitled to deduction in camputing dhe income F) referred to in section 28 with respect to such sum credited by the cssessee fo the employees' account in the relevant fund ar funds on or before the "due date' mentioned in explanation to section 36(1}iva uy Consequently, if is held that the learned -- tribunal has erred in deleting respective disallawances belag employees' contribution to PF Accaunt / EST Account made by the AO as, ax such, Suck sums were not credited by the respective assessee to the employees' accounts fe the relevant fund or funds fin the present case Provident Fund and/or ES! Fand on ar before the due date as per the explanation to section Sé6fI}iva} of the Act ia. date by which the concerned assessee was required as an emplover to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the BS] Fund under the BSI Act.
See ts :
Viswanathan FP. Neelakantan | ITA Nas, 1044 & 1085 Mt for! | REL inthe case of GTN Testile Lid 262 TR 202, Hon ide Kerala High Court has deliberated on this issue, ft has been clearly heid that due date is nat deductibte, Similarly, in the case of Popular Vehicles & Services Peet.
contribution f employees' gratuity fund after Ltd, 406 (PF 250. Hon'ble Nerala High Court has held that employer's contribution is alawable as deduction if the payment is made befare due date of Allag of return ufs 139{1}. Deduction in respect of emplayees' contribution to ES} and BPF is available only ifthe seme is paid within due date as specified under relevant statutes, in the case af The Kerala State Co-Operative Coir Marketing Federation Lid, ITA Na 464/Coch/z0t8, Hon'ble TAT Cochin has held similar view. in the case Merchem Lid, 273 ITR 443, Hon'ble Kerala High Court has het that employees' contribution to PF and ESI, if not paid within the due date mentioned in the respective statute cannot be allowed as deduction u/s 36{2} {va} of the IT Act. This judgment af Merchem Lid ais followed by Hon'ble Kerala High Court in the case of Aline Cornhill infarmation Services Put. Ltd. 466 IT $80. Hon'ble Kerala Righ Court has discussed the decisions of verious Courts against the Revere and still opined that deduction u/s 36{1) {va} is net allowable of eniplovees' contribution is not paid us per the due dates prescribed in PP Act.
78 Despite the above judicial pronouncements, Ge ambiguity continued due to difference in decisions of the various High Courts.
New finance Act, 2221 kas rationalized the above provision, The Memorandum of Finance Bill 2021 says thet there is a distinction between employer contribution and employees contribution tawards welfare fund. it may be soted that employees' contributian towards welfare funds is a mechanism ta ensure the compliance by the employer af the labor welfare haves Henee, if needs to be stressed that Viswanathan P. Neel akantan | 8 ITA Nas, 1844 & T845 M208 I the employer's contribution towards welfare funds such as Shand EP needs ta be clearly distinguished from the employee's contribution tiseards welfare funds. Bmplovee's contributian is employees' awn money and the emplover deposits Gus contribution an hehalf af the emplavee in fiduciary capacity. By tate deposit af employee coatribution, the employers get unjustly enriched by keeping the stoaey belonging to the employees.
"2 Arcerdingly, in order ta provide certatety and rationalize the above provision, fallowing insertions have been made in the Act:
i Expianation 2 to section 2é{i}{va} has been added te clarify thaé the provision of section 428 does nat apply and deemed te never have been applied for the purposes of determining Ure "due date. under this clause; ane wee 3 Explanation S$ to section 428 has been inserted to clarify that provisions of the acid section da not apply and deemed to never have been agplied to a sum received by the assessee fram anp af Ais emplarees to which provisions of sub-clause {x} of clause f24) of section 2 applies.
7.30 Pherefore. after the nlove insertion of explanations, it has been clarified that in arder to claim deduction af the emplovea's contribution by the employer, the same has te be deposited before the due date as mentioned in the PP and ES! Act. it is alse observed that the above insertions ure clarificatory in nature. Therefore ie all pendisg cases, late payment of employees' contribution cannat be alowed as deduction.
£ S Viswanathan P. Neelakantan | & IPA Nas P44 & IRIAIM 20:
FIL Appellant had tried to show that the werd 'contribution' tn section $38 covered beth employer's as well Gs empiayees' contribution, This view has been negated by various case jaws in parc #F af this order. Also Finance Act 2021 has clarified the positian completely on tins issue, 792 Appellant hes further submitted that disaifewance of employer's contribution ta PESESIC is nat cavered u/s 143(1}.
Appellant has taken recourse to memorandum relating ty Finance Gill 2016, Appellant states that auditor never indicates disallowaace an account of late payment of employees' centribution to PE Since auditor has not pated out, adjustment u/s 1432) cannot be made This view is not acceptable. By furnishing the dates of payment of employees' cantriinition to PF, auditer kas clearly submutied the figure ta be disallowed Thereafter the disallowance figure determined automatically. The case laws cited by the appellant de not help as they speak about the fact that oaly nan debatable prima facie adjustments can be made u's 143(1}. Details furnished by the auditor regarding non-payment of employees' contribution te PF are prima facia not allowable. } do net agree with the appellant's view. F423 In view af the above, it is held that the PC has correctly made disallowance af RS.62,748, 130/- u/s 36(1) fva} af the Act on account of delayed payment of PF and ESIC etc. being eniplavees' contribution and therefore the same is confirmed. Thus the ground of appeal Nas. 3 ta 3 af the appellant are dismissed We find that Hon'ble Bambay High Court in the case of CYT v. Ghatge Patil Transports Lid. [2025] 53 taxmann.com 141 iy iy = = ry y 2 £ g £ By £ 2 ae 138 Viswanathan F. Neelakantan IPA Nos, 1844 & 18a /Ms2te } {Bombay) following the decision of the Hon'ble Supreme Court in the case of Alom Extrusion Ltd. (supra) held that both the employees and employer contribution are covered u/s 43B of the Act. The Finance Act, 2021 has inserted an Explanation 2 below the provision of section 36(1){va) of the Act that employees contribution to ESI/PF will not be covered by section 43B of the Act. The relevant Explanation is reproduced as under :
"Explanation 2.--Far the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never ig have been applied for the purposes of determining the "due date"
ander this clause;"
4.2 This Explanation has been specifically made effective prospectively wef 01.04.2021. The present assessment year being prior to AY 2021-22, the said Explanation is not applicable over the facts of the case. The Tribunal Bangalore Bench in the case of Srinivas Achar Mohankumar v. ITO in [2022] 135 taxmann.com 129 {Bangalore-Trib.} has held this Explanation as prospective in nature. Therefore, issue in dispute is covered in favour of the assessce SSS Viswanathan P. Neelakantan | U1 {TA Nas, 1844 & 1888 /M S202] by the decision of Hon'ble Bombay High Court (supra). The grounds raised by the assessee are accordingly allawed for both the ASsessment years,
4. In the result, the appeals filed by the assessee are allowed. Order pronounced in the open Court on 11/04/2022. Sd /- Sd/-
(VIKAS AWASTHY) {QM PRAKASH KANT} JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai:
Dated: 11/04/2022 Rahul Sharma, Sr. PG.
Copy af the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CYT(A}-
4. CET :
5. DR, ITAT. Mumbai 6 Guard fle PDO BY ORDER, ff Trae Copy?
(Sr. Private Secretary) TTAT, Mumbai SSS SSS SSS SSS SS SSS oss ss so sso Ss ss ss susie