Income Tax Appellate Tribunal - Hyderabad
Dcit, Circle-2(2), Hyderabad, ... vs Tetrasoft India Private Limited, ... on 7 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 291/Hyd/2017
Assessment Year: 2012-13
Dy. Commissioner of Income- Vs. Tetrasoft India Pvt. Ltd.,
tax, Circle - 2(2), Hyderabad Hyderabad.
PAN - AACCT4313N
(Appellant) (Respondent)
Revenue by : Smt. Suman Malik
Assessee by : None
Date of hearing : 06-06-2017
Date of pronouncement : 07-07-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This is an appeal of the Revenue directed against the order of the learned Commissioner of Income-tax (A) - 2 Hyderabad, dated 30/12/2016 for AY 2012-13 wherein the revenue has raised the following substantial ground of appeal:
"In the facts and circumstances of the case, whether the CIT(A) is correct in law in holding that the payment of the employee's contribution towards EPF & ESI by the employer assessee, which is not in consonance with the explanation to section 36(1)(va) is entitled for deduction u/s 43B of the IT Act."
2. The AO has disallowed the PF contributions towards employees made by the assessee on the ground that the same were belatedly paid and were liable to be disallowed u/s 36(1)(va).
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and contended before the CIT(A) that 2 ITA No. 291/H/17 Tetrasoft India Pvt. Ltd., Hyd.
though the employee contributions of PF were not paid within the permissible time under the respective act but was paid before the due date of filing of return. He further submitted that the ITAT in assessee's own case for AYs 2008-09 and 2010-11 in ITA Nos. 218 & 219/Hyd/2015 vide order dated 03/06/2015 deleted the addition made by the AO towards belated contribution to PF.
4. The CIT(A) after considering the submissions of the assessee, deleted the disallowance following the decision of the ITAT in assessee's own case (supra).
5. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
6. At the time of hearing, none appeared on behalf of the respondent-assessee. However, we proceed to decide the appeal after hearing the ld. DR and on merits, as the issue in this appeal is covered by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC)
7. Considered the rival submissions and perused the orders of revenue authorities as well as material on record. The AO has invoked the provisions of section 36(1)(va) to disallow ESI & PF payments. We have carefully gone through the section 36(1)(va) with section 2(24)(x) and also gone through decision of the Hon'ble High Court of Allahabad in the case of Sagun Foundry (P) Ltd. Vs. CIT, [2017] 78 Taxmann.com 47 (All.) wherein the Hon'ble Court has observed as under:
Section 36(1)(va) permits deductions in respect to relevant fund of employees.
■ Section 43B permits deductions otherwise allowable under the Income- tax Act in case any sum payable by the assessee is paid actually before 3 ITA No. 291/H/17 Tetrasoft India Pvt. Ltd., Hyd.
the date of filing of return under section 139 and carves out an exception in this regard.
■ Explanation to section 36(1)(va) provides that deduction shall be allowed in respect to the sum paid by the assessee to employee's account, in the relevant fund, on or before due date, i.e., such date by which assessee is required to credit employee's contribution in the relevant fund, under any Act, Rule, Order or Notification issued therein. In the instant case, due date, therefore, shall be the date mentioned in the 1952 Act or 1948 Act or Rules framed thereunder, etc. by which contributions were to be made. Admittedly as per due date under the relevant Acts, contributions were not paid by the assessee. Section 36(1)(va) talks of only employee's contribution and allow deduction in respect thereto in computing 'income' under section 28.
■ So far as section 43B is concerned, it was inserted with effect from 1-4- 1984 to allow deductions provided payments are actually made before filing of return as per due date under section 139(1). 'Income' defined under section 2(24) includes 'profits and gains'. Under section 2(24)(x), any sum received by assessee from his employees as contribution to any provident fund/superannuation fund or any fund set up under Employees State Insurance Act, 1948, or any other fund for welfare of such employees, constitute 'income'. In respect to such contributions deduction was allowed under section 36(1)(va) when contributions received by employer is deposited within time prescribed, under relevant labour welfare statute. Prior to 1-4-1984, every assessee was entitled to deduction on mercantile system of accounting as a business expenditure by making provision in his books of account in that regard and this situation continued upto 1-4-1984. An assessee, if maintaining books on accrual system of accounting, even after collecting contribution from his employee, and even without remitting the amount to Regional Provident Fund Commissioner, he would have claimed deduction as 'business expense' by merely making a provision to that effect in his books of account. A similar discrepancy was noticed in the context of sales tax where assessee collected the same and other indirect taxes from his respective customers and claimed deduction only by making provisions in his books without actually remitting the amount to exchequer. To curb this practice, section 43B was inserted with effect from 1-4-1984, whereby mercantile system of accounting with regard to tax, duty and contributions to welfare funds stood discontinued. Now it became necessary for the assessee to account for the aforestated items, not onmercantile basis, but on cash basis. With effect from 1-4-1988 section 43B was again amended and a Proviso was inserted. It provided, inter alia, in the context of any sum payable by the assessee by way of tax, duty, cess or fee, if such an assessee pays such tax, duty, cess or fee even after 4 ITA No. 291/H/17 Tetrasoft India Pvt. Ltd., Hyd.
closing of accounting year but before date of filing of return under section 139(1), assessee would be entitled to deduction under section 43B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, was not made applicable to contributions made by the assessee to labour welfare funds. By Finance Act, 1988, with effect from 1-4-1988, Second Proviso came to be inserted. Second Proviso was further amended by Finance Act, 1989 with effect from 1-4-1989.
■ From the above provisions, now assessee becomes entitled to deduction only if contribution stand credited on or before due date, given in labour welfare statutes. However, Second Proviso again created certain difficulties. In many of the companies, financial year ended on 31st March did not coincide with accounting period of labour welfare statutes. In many cases, time to make contribution of funds ended after due date of filing of returns. On the representation of industries, again Parliament, vide Finance Act, 2003, with effect from 1-4-2004, made amendment by deleting Second Proviso and amending First Proviso.
■ The Supreme Court in the case of Alom Extrusions Ltd. (supra) considered the intent, purpose and object in the historical back drop of insertion of section 43B and its progress by way of various amendments and held that when the contribution had been paid by the assessee towards provident fund, etc. prior to filing of return under section 139(1), the assessee would be entitled for deduction under section 43B. [Para 27] ■ From the aforesaid judgment of the Supreme Court, the Bench finds that irrespective of the fact that deduction in respect of sum payable by employer's contribution was involved, but the Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of section 43B applied it to both the contributions, whether by employer or employee. It also observed clearly that section 43B is with a non obstante clause and, therefore, over ride even if, anything otherwise is contained in section 36 or any provision of the Income-tax Act.
■ In view of the aforesaid, the assessee was entitled to deductions under sections 43B and 36(1)(va).
7.1 After considering the ratio laid down by the Hon'ble High Court as above in the said case and respectfully following the same, we hold that no disallowance can be made towards PF/ESI contributions made by the assessee within the FY or before filing of the return. In 5 ITA No. 291/H/17 Tetrasoft India Pvt. Ltd., Hyd.
the given case, assessee has paid shortfall amount within the FY, hence, the assessee is allowed to claim the above payment as deduction in the same FY. Therefore, the AO is directed to delete the addition made.
8. Moreover, we have noticed that the AO has disallowed the remittance made by the assessee towards EPF & ESI with a delay of one day, which is uncalled for.
9. In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 7 th July, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 7 th July, 2017.
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Copy to:-
1) DCIT, Circle - 2(2), Room No. 513, 5 th Floor, Signature towers, Kondapur, Hyderabad.
2) M/s Tetra Soft India Pvt. Ltd., P. No. 18, H.No. 8-2-248/B/13, Road No. 3, Journalist Colony, Banjara Hills, Hyderabad - 500 034.
3) CIT(A) - 2, Hyderabad
4) Pr. CIT - 2, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File