Income Tax Appellate Tribunal - Kolkata
Jagatdal Jute & Industries Ltd. vs Dy. Cit on 21 July, 2004
Equivalent citations: [2004]1SOT210(KOL)
ORDER
C.L. Sethi, J.M. The assessee is in appeal against the order dated 4-4-2003 passed by the learned Commissioner (Appeal) in the matter of an assessment made under sections 143(3) and 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act) for the assessment year 1996-97.
2. The main issue involved in this appeal is with regard to the disallowance of the following amounts under section 43B of the Act:.
(i) Rs.12,47,552 as Provident Fund Contribution.
(ii) Rs.5,61,170 as Provident Fund Contribution (Pension Scheme)
(iii) Rs.5,14,124 (Rs.5,13,049 + 1,075) as contribution of E.S.I. All these payments are pertained to the month of March, 1996.
3. The effective ground on merit relating to these disallowances raised by the assessee is as under :
"For that on the facts and in the circumstances of the case, the learned Commissioner (Appeals) order upholding the disallowances made by learned assessing officer of the sum of Rs.12,47,522 as Provident Fund Contribution, of the sum of Rs.5,61,710 as Provident Fund Contribution (Pension Scheme) and of the sum of Rs.5,14,124 (Rs.5,13,049 + Rs.1,075) as contribution to ESI, all pertaining to March, 1996 but all paid before due date for furnishing the return of income for the year, is unsustainable in law particularly in view of amendments, introduced by Finance Act, 2003 in section 43B of Income Tax Act, 1961, which are to be treated as having retrospective effect covering the year under consideration in view of principles laid down by Honble Supreme Court in Allied Motors Pvt. Ltd. v. CIT (1997) 224 ITR 677 (SC)."
4. We have heard both the parties and have gone through the orders of the authorities below. On perusal of the assessing officers order, it is seen that the assessing officer has intiated reassessment proceedings under section 147 on the ground that the aforesaid payments pertaining to the month of March, 1996 were not paid by the assessee within the due date or within the grace period as specified under the provisions of respective P.F. Act & E.S.I. Act. On perusal of the Tax Audit Report submitted by the assessee along with the return of income, it was noted by the assessing officer that the payments pertained to the month of March, 1996 were paid on 31-5-1996, 4-6-1996 and 28-5-1996, and as such, they were not within the due date or within the grace period, and thus, disallowable by virtue of 2nd proviso to section 43B of the Act wherein it is stated that no deduction shall, in respect of any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund and or gratuity fund or any fund for the welfare of the employees be allowed, unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode or before the due date as defined in the explanation below clause (va) of sub-section (1) of section (36), and where such payment has been made otherwise than in cash, the sum has been realised within 15 days from the due date.
4.1. The 2nd proviso to section 43B has since been omitted by the Finance Act, 2003, with effect from 1-4-2004. Further, the 1st proviso to section 43B, before the amendment made by the Finance Act, 2003, with effect from 1-4-2004, provided that nothing contained in section 43B shall apply in relation to any sum referred to any sum referred to any clause (a) or clause (c) or clause (d) or clause (e) or clause (f), which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred and evidence of such payment is furnished by the assessee along with such return. On reading the 1st proviso to section 43B of the Act, as it stood prior to the amendment made by the Finance Act, 2003, with effect from 1-4-2004, it is clear that this proviso was applicable only to the sums which were referred to in clause (a) or clause (c) or clause (d) or clause (e) or clause (f) of section 43B of the Act. But now, as a result of the amendment made the Finance Act, 2003 with effect from 1-4-2004, any sum payable by the assessee as an employer by way of contribution to any provident fund or supernnuation fund or gratuity fund or any fund for the welfare of the employees referred to under clause (b) of section 43B shall also now be covered by the 1st proviso to section 43B of the Act. As a result of the aforesaid amendment made by the Finance Act, 2003, with effect from 1-4-2004, like the payment referred to in clause (a) clause (c), clause (d) or clause (e) or clause (f) of section 43B, the payment referred to in clause (b) of section 43B shall also be not disallowed if the same is paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment furnished by the assessee along with such return. At this stage, we may observe that the 1st proviso to section 43B covering the payments referred to clause (a) or clause (c) or clause (d) or clause (e) or clause (f) was inserted by the Finance Act, 1987, with effect from 1-4-1988, but the same was held retrospective in operation by the Honble Apex Court in the case of Allied Motors Pvt. Ltd. v. CIT (1997) 224 ITR 677 (SC) by holding that the said 1st proviso should be read as forming a part of section 43B from its inception, i.e. from 1-4-1984 when section 43B was inserted in the statute. Now, the 1st proviso has also been made applicable to the sums referred to clause (b) of section 43B i.e., the dues relating to the labours viz. Contribution to Provident Fund, superannuation fund, Gratuity fund or any other fund as referred to under clause (b) of section 43B of the Act. In this sense, therefore, the amended 1st proviso as amended by the Finance Act, 2003, covering all payments referred to in various clauses of section 43B, is to be treated as retrospective in operation and to be read as forming part of section 43B from its inception as the said amendment made by the Finance Act, 2003 is creative and remedial in nature and designed to eliminate unintended consequence causing undue hardships to the assessee.
4.2 The Income Tax Appellate Tribuanal, "B" Bench, Mumbai, in the case of Haffkine Ajintha Pharmaceuticals Ltd. Mumbai v. Joint CIT in ITA No. 3140/Mum/1999 pertaining to assessment year 1994-95 vide its order dated 29-9-2003, has held that the amendment brought by the Finance Act, 2003, is retrospective in operation by observing as under :
" We have heard rival submissions. The assessing officer observed that the payment was made beyond the due date. Hence it was not allowed. Our attention was invited on the first proviso to section 43B, as amended by Finance Act, 2003. By the said amendment among the other clauses, clause, (c) of section 43B, as appeared in the proviso was omitted. Therefore, this proviso carved an exception. It is stipulated that nothing contained in section 43B shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of previous year in which the liability to pay such sum was incurred and evidence of such payment is furnished by the assessee alongwith such return.
It was submitted that the amendment is retrospective and should be applied in relation to all pending cases in view of the decision of the Apex Court rendered in the case of Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC). In this case the Apex Court has held that "a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.
Having heard both the parties on the issue, we are of the opinion that the amendment in the first proviso to section 43 is clarificatory and retrospective. We, therefore, set aside the impugned order and restore it to the file of assessing officer with direction to decide it afresh, in accordance with the decision of the Apex Court, after providing adequate opportunity to the assessee of being heard."
4.3 Similarly, the Income Tax Appellate Tribuanal, G Bench, Mumbai, in the case of Joint CIT v. Devidayal (Sales) Pvt. Ltd. Mumbai, in ITA No. 778/Mum/99 for the assessment year 1996-97 vide order dated 29-10-2003, has also taken a similar view by holding as under :
"After considering the arguments of both the sides and the facts of the case, we find force in the argument of the learned counsel. The Honble Apex Court in the case of Allied Motors (P) Ltd. (supra) have held proviso to section 43B to be clarificatory and held that it should be treated as retrospective in operation. In section 43B, there were two separate concerning the payment with regard to Provident Fund, Superannuation Fund or Gratuity Fund, etc. The Finance Act, 2003 omitted 2nd proviso and the 1st proviso is made applicable with regard to all the payments including the payment for PF, Superannuation Fund, Gratuity, etc. The proviso when inserted was held to be clarificatory by the Honble Apex Court and, therefore, when the 2nd proviso is omitted and the 1st proviso is amended, the amended proviso should also be clarificatory and, therefore, applicable to all pending proceedings. We, accordingly, respectfully following the ratio of the decision in the case of Allied Motors (P) Ltd. (supra) hold that the 1st proviso as modified by the Finance Act, 2003 would be applicable to all pending proceedings. As per the 1st proviso, anything contained in section 43B would not apply in relation to any sum which is actually paid by the assessee on or before the due date for furnishing the return under section 139(1). Admittedly, the entire sum relating to ESIC and PF is paid by the assessee before the due date for filing of the return. Therefore, the disallowance made under section 43B is not called for. In view of above, we uphold the order of the Commissioner (Appeals) and dismiss the Revenues appeal."
5. In the light of the discussions made above and respectfully, following the decisions of the aforesaid coordinate Benches, we are, therefore, of the considered opinion that the amendment brought by the Finance Act, 2003 in the 1st proviso to section 43B of the Act and consequential omission of 2nd proviso to section 43B is to be treated as retrospective in operation, and consequently, any sum payable by the assessee as an employer by way of contribution to any Provident Fund or Superannuation Fund or Gratuity Fund or any other fund for the welfare of the employees is not to be disallowed by invoking provisions of section 43B of the Act, if the said sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay the said such sum was incurred as aforesaid and evidence of such payment is furnished by the assessee along with such return as provided in the amended 1st proviso to section 43B of the Act. In the case on hand, the liability to pay Provident Fund contribution, Provident Fund (Pension Scheme) and E.S.I. pertaining to the month of March, 1996 are incurred on 31-3-1996, and the same is paid on 31-5-1996, 4-6-1996 and 28-5-1996, i.e., before the due date applicable in the assessees case for furnishing return of income under sub-section (1) of section 139 for the assessment year 1996-97. The assessees case is, therefore, fully covered by the amended 1st proviso to section 43B of the Act. Be it stated here that the restrictions contained in 2nd proviso to section 43B of the Act, are no more in existence inasmuch as the 2nd proviso to section 43B has been omitted by the Finance Act, 2003, which should be given retrospective effect as discussed above. We, therefore, do not find any justification or basis in disallowing the assessees claim on account of payment towards Provident Fund Contribution and E.S.I. Contribution pertaining to the month of March, 1996. The order of the authorities below are, therefore, set aside with a direction to the assessing officer to allow the assessees claim on this count. The issue is, therefore, decided in favour of the assessee.
5.1 The assessee has also raised ground challenging the reopening of assessment made by the assessing officer under section 147 of the Act by contending that the assessing officer had initiated reassessment proceedings upon change of opinion and review of his original assessment order completed under section 143(3), on the same set of facts and materials.
6. We have heard both the parties and have gone through the orders of the authorities below. It is not in dispute that the original assessment was completed under section 143(3) of the Act. No disallowance on account of Provident Fund and E.S.I. Contribution in question was made in the original assessment. It is also not in dispute that the same set of facts and materials being the Tax Audit Report submitted by the assessee alongwith the return of income, has been made the basis for reopening the assessment under section 147 of the Act. It is also clear that the assessing officer initially initiated proceedings under section 154 of the Act with a view to disallow the payment of Provident Fund Contribution as well as E.S.I. Contribution, which proceedings were struck down by the learned Commissioner (Appeals). As per the observations made by the learned Commissioner (Appeals) in his order, the assessing officer initiated proceedings under section 147 of the Act as would be evident from the reasons recorded by the assessing officer for issuing notice under section 148 of the Act. We further find that the proceedings initiated by the assessing officer under section 154 of the Act has travelled upto the level of Honble Calcutta High Court whereby the proceedings initiated under section 154 were held to be without jurisdiction inasmuch as the matter in issue was found to be not covered by the provisions of section 154 of the Act as there were two opinions possible on the question. While deciding the appeal arising out of the proceedings under section 154, the Honble High Court has observed that neither from the subsequent order passed by the assessing officer of the learned Commissioner (Appeal) or the Tribunal, was any other record shown to be available before the assessing officer for exercising his power under section 154, implying thereby that there were no further material available with the assessing officer to form the opinion that the contributions towards Provident Fund and E.S.I. were paid after due dates. It is, therefore, clear that the assessing officer has initiated proceedings under section 154 of the Act on the same set of facts by reviewing his earlier order and on change of his opinion. It is well settled that initiation of reassessment proceedings on the same set of facts, merely on change of opinion, are not valid. In this view of the matter, therefore, the proceedings initiated under section 147, are found to be without jurisdiction and have not been validly initiated. The assessment order based on such initiation of proceedings under section 147, is, therefore, bad in law. The addition made by the assessing officer on account of Provident Fund contribution and E.S.I. contribution are, therefore, found to be without any merit for these reasons also.
In the result, the appeal filed by the assessee is allowed.