Income Tax Appellate Tribunal - Delhi
Ashirwad Carbonics (India) Private ... vs Circle-3(1), Delhi on 31 May, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: 'SMC' NEW DELHI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.1721/Del/2021
Assessment Year: 2019-20
M/s. Ashirwad Carbonics Vs. DCIT,
(India) Pvt. Ltd., CPC, Bangalore
15 th Floor, Eros Corporate
Tower, Nehru Place,
New Delhi
PAN :AAJCA4327J
(Appellant) (Respondent)
Appellant by Ms. Rashi Singhal, CA
Respondent by Sh. Om Prakash, Sr.DR
Date of hearing 31.05.2022
Date of pronouncement 31.05.2022
ORDER
This is an appeal by the assessee against order dated 23.09.2021 of National Faceless Appeal Centre (NFAC), Delhi, pertaining to the assessment year 2019-20.
2. The dispute in the present appeal is confined to disallowance of deduction claimed of Rs. 6,37,273/- for assessment year 2019-20 under section 36(1)(va) of the Income-
tax Act, 1961 (for short 'the Act') representing delayed payment of ITA No. 1721/Del/2021 AY : 2019-20 employees' contribution to Provident Fund (PF) and Employees State Insurance (ESI).
3. I have considered rival submissions and perused the materials on record. There is no dispute that the assessee has paid/remitted the employees' contribution to EPF and ESI before the due date of filing of return of income under section 139(1) of the Act. The only reason for which the amount has been disallowed is, they were not deposited within the time specified under the relevant statute in terms of Explanation to section 36(1)(va) of the Act. I find, the aforesaid dispute is squarely covered by the decision of the Coordinate Bench in ITA No.1392/Del/2021 and Ors. (Raj Kumar and Ors., dated 28.02.2022). The relevant observations of the Coordinate Bench in case of Raj Kumar (supra) are as under:
"5. We have heard the arguments of the parties concerned and also the arguments of the representatives of the Departmen t.
6. We have gone through amendments in the Income Tax Act inserted by Finance Act 2021, Memorandum, plethora of orders passed by the various benches of Tribunal and the judgments of Hon'ble High Courts of various Judicatures.
7. Co-ordinate Benches of the T ribunal have been taken vie w that the employee's contribu tion to PF and ES I, if paid bef ore the due date of f iling of the Income T ax Return u/s 139(1), is an allowable deduction and no disallo wance can be made. T o mention a f ew
2|Page ITA No. 1721/Del/2021 AY : 2019-20 Order of the IT AT, Hyderabad in the case of Crescen t Road ways Pvt. Ltd., vs., DCIT vide ITA.No.1952/ Hyd/2018 dated 01.07.2021.
Order of the IT AT , Delhi in the case of DCIT vs. Dee Development Engineers Ltd., vide ITA.No.4959/Del./2016 dated 08.04.2021.
Order of the IT AT, Delhi in the case of DCIT vs. Planman HR (P) Ltd., vide IT A.No.5152/ Del./2017 dated 15.07.2021.
Order of the IT AT , Chennai in the case of DCIT vs. T alenpro India HR Pvt. Ltd., vide IT A.No.265/ Chennai/2019 dated 09.04.2021.
Order of the IT AT , Agra in the case of Mahadev Cold Storage vs. Jurisdiction Assessing Off icer vide I.T.A. Nos. 20 & 21/Agra/2021 dated 14.06.2021.
Order of the IT AT, Chennai in the case of DCIT vs. Repco Home Finance Pvt. Ltd., reported in [2020] 183 IT D 782 IT AT -Chennai.
Order of IT AT in the case of Eagle T rans Shipping & Logistics ( India) (P.) L td. Vs ACIT in IT A No. 324/Del/2017 order dated 25.07.2019 wherein the issue has been ruled against the assessee based on the judgmen ts of Hon'ble High Court of Delhi in the case of CIT Vs. Bharat Hotels Ltd. 410 IT R 417.
Order of IT AT , Delhi in the case of Vedvan Consultan ts Pvt. L td. Vs. D CIT in IT A No. 1312/Del/2020 dated 26.08.2021 wherein the issue has been ruled against the assessee based on the judgmen ts of Hon'ble Madras High Court, Hon'ble Bombay High Court and Hon'ble Kerala High Court. T he said orders are examined which are as under:
MADRAS HIGH COURT : October 23, 2018 M/S. UNIFAC MANAGEMENT SERVICES ( IND IA) PRIVAT E LT D. VERSUS T HE DEPUT Y COMMISS IONER OF INCOME T AX, CORPORAT ION CIRCLE 3 (2) , CHENNA I T he scope of Section 43B and Section 36(1)(va) are diff erent and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedl y paid towards such con tribution, especially when such sum is, admittedly, a sum received by the assessee/employer f rom his employee. T heref ore, for considering such question, application of Section 36(1)(va) r. w.s. 2(24)(x) alone is the proper course and any other interpretation would only def eat the object and scope of both the provisions viz., 43B and 36(1)(va).
3|Page ITA No. 1721/Del/2021 AY : 2019-20 Accordingly, the writ petition fails and the same is dismissed.
KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015
T HE COMMISSIONER OF INCOME T AX, COCH IN VERSUS M/S MERCHEM L IM IT ED T he distinc tion dra wn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal inf irmity in classif ying the contribu tions of employees and employer in the matter of crediting the same to the appropriate statu tory authorities. Considering section 36(1)(va) of the Income T ax Ac t as it stands, with respect to any sum received by the assessee f rom any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amoun t in compu ting the income ref erred to in section 28 if such sum is not credited by the assessee to the employees' account in the relevan t f und or f unds on or bef ore the due date as per explanation to sec tion 36(1)(va) of the Act.
BOMBAY HIGH COUR T: [2014] 368 ITR 749 (Bom): October 14, 2014 T HE COMMISSIONER OF INCOME T AX VERSUS GHAT GE PAT IL T RANSPORT S LT D. T he employer assessee would be entitled to deduction only if the contribution to the employee's welf are f und stood credited on or before the due date and no t otherwise - f ollowing the decision in Commissioner of Income T ax V/s. Alom Ex trusions Ltd. [SUPREME COURT] - both employees' and employer's con tributions are covered under the amendment to Section 43B of I.T . Act - the T ribunal was right in holding that payments are subject to benef its of Section 43B.
8. We have examined the decision of the Hon'ble Gujarat High Court in the case of State Road T ransport Corporation (366 IT R 170) wherein the court has held the the payment were not allowable u/s 36(1)(va).It was held as under:
4|Page ITA No. 1721/Del/2021 AY : 2019-20 "Sec tion 43B, read with section 36(1)(va) of the Income T ax Act, 1961 Business disallo wan ce - Certain deductions to be allowed on actual paymen t (employee's con tribution)
- whether where an employer has not credited sum received by it as employee's contribu tion to employee's account in relevant f und on or bef ore due date as prescribed in Explanation to section 36(1)(va), assessee shall not be entitled to deduction of such amount though he deposits same bef ore due date prescribed under section 43B i.e. prior to f iling of return under sec tion 139(1). Held, yes - assessee State T ransport Corporation collected a sum being Provident Fund contribu tion f rom its employees. However, it had deposited lesser sum in Provident Fund account. Assessing Off icer disallowed same under section 43B. However, Commissioner (Appeals) deleted disallo wance on ground that employee's contribution was deposited bef ore filing return. Whether since assessee had not deposited said contribu tion in respective f und accoun t on date as prescribed in explanation to sec tion 36(1)(va), disallo wance made by Assessing Off icer as just and proper."
9. Similarly, the judgments of Hon'ble High Court of Delhi in the case of CIT Vs. Bharat Hotels Ltd. 410 IT R 417 held that the amounts were not allo wable u/s 36(1)(va). T he relevant portion is as under:
"7. T he issue here concerns the interplay of Section 2(24)(x) of the Act read with Sec tion 36(1)(va) of the Ac t alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especiall y Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. T he AO had brought to tax amoun ts which were deducted by the employer/assessee f rom the salaries and wages payable to its employees, as part of their contribu tions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Ac t is not an issue. The question the AO had to then decide was whe ther the amounts deduc ted f rom the salaries of the employees which had to be deposited with in the stipulated time (in terms of notif ication/circular dated 19.03.1964 which was modif ied on 24.10.1973), as f ar as the EPF contribution wen t and the period of three weeks as f ar as the ES I contribu tions wen t. T he AO made a tabular analysis with respect to the contributions deducted and actually deposited. T he cumulative eff ect of notif ications under the Employees' Provident Funds Act,
5|Page ITA No. 1721/Del/2021 AY : 2019-20 1952 and the Employees S tate Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited with in 15 days of the succeeding wage period with a grace period of 5 days; f or ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. T he CIT in this case conf irmed the additions - made by the AO based on the entire amounts that were disallowed. T he IT AT however granted complete relief .
8. Having regard to the specific provisions of the Employees' Provident Funds Act and ES I Ac t as we ll as the concerned notif ications which granted a grace period of 5 days (wh ich appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the IT AT 's decision in this case was not correct. T he assessee undoubtedly was entitled to claim the benef it and properly treat such amounts as having been duly deposited, wh ich were in f act deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace, period in terms of the extent notif ication). As f ar as the amoun ts constitu ting deductions f rom employees' salaries to wards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction f rom its returns.
9. In view of this discussion, th e Revenue's appeal is partly allo wed. T he AO is directed to examine the contribu tions made with ref erence to the dates when they were ac tually made and grant relief to such of them wh ich qualif ied f or such relief in terms of the prevailing provisions and notif ications. We also clarif y th at the assessee would be en titled to deduction in terms of Section 36(1)(va) of the Act."
10. We have also examined the decision of the Hon'ble Allahabad High Court in the case of Sagun Foundry Pvt. Ltd. Vs CIT 145 DT R 265 wherein it was held that as the payments have been made bef ore the due date specif ied u/s 139(1) and as such are f ully allo wable. T he Hon'ble High Court of Allahabad has considered the case of Gujarat State Road T ransport Corporation and held as under:
"17. We f ind that with respect to employees contribution to Provident Fund, as to whether disallowable or not with ref erence to Sec tion 36(1)(va) read with Section 43B, a similar question came up f or consideration bef ore Gujarat
6|Page ITA No. 1721/Del/2021 AY : 2019-20 High Court in Commissioner of Income-T ax v. Gujarat State Road T ransport Corporation, (2014) 366 IT R 170. T herein Assessee collected Rs. 51,06,02,712/- f rom its employees to wards provident f und contribu tion bu t deposited Rs. 21,16,61,582/- with provident f und trust. T hus there was a short f all of Rs. 24,89,41,130/-. T his amoun t of short f all was treated by Assessing Off icer as income of Assessee vide Section 2(24)(x) read with Section 36(1)(va) of Act 1961. Assessing Officer also added Rs. 1,93,55,580/being the amount of short f all towards employers contributory providen t f und and disallowed the same under Section 43B of Act 1961. He also disal lowed the said amount of Rs. 1,93,55,580/- f rom expenses claimed by Assessee f or the A.Y. in question i.e. 200506 as per provisions under Section 43B. Dissatisf ied with assessment order, Assessee pref erred appeal bef ore CIT (A) who vide order dated 25.06.2009 partly allowed the same and deleted disallowance of Rs. 24,89,41,130/- (short f all in employees con tribution to provident fund) and Rs. 1,93,55,580/- (short f all in employers contribution to providen t f und) observing that employees contribu tion/employers contribu tion was deposited bef ore f iling Return under Sec tion 139(1) of Act 1961 f or the relevan t period. Revenue, in its turn, pref erred appeal bef ore T ribunal. Relying on judgment in Commissioner of Income-T ax v. Alom Extrusions Ltd. (supra), T ribunal dismissed appeal and conf irmed order passed by CIT (A). T hat is ho w matter came bef ore High Court in appeal. Court considered following question, posed in para 7.01, reads as under:" Short question which is posed f or consideration of this court is with respect to the disallo wance of the amount being the employees contribu tion to the PF account/E SI contribution wh ich admittedly which the concerned assessee did not deposit with the PF Department/ESI Departmen t within due date under the PF Act and/or the ESI Act."
18. Gujarat High Court ref erred to Sec tion 2(24)(x) and f ound that any sum received by Assessee (employer) f rom his employees as contributions to any provident f und or superannuation f und or any f und set up under Act, 1948, or any other fund f or welf are of such employees, constitute income. However, Section 36 of Act 1961 provides f or deduction in computing income ref erred to in Section 28. T he relevant provision of Section 36 applicable to the case before Gujarat High Court was Section 36(1)(va) with wh ich we are also concerned. It en titl es an Assessee f or deduction in compu ting income ref erred to in
7|Page ITA No. 1721/Del/2021 AY : 2019-20 Section 28 with respect to any sum received by Assessee (employer) f rom his employee to wh ich Section 2(24)(x) apply, if such sum is credited by Assessee to employees accounts in the relevant f und before due date i.e. date prescribed in the relevan t statute applicable to the concerned f und. Court also noticed that Section 43B is in respect to certain deductions and applies only on actual payment. It held that amendmen t was made by deletion of Second Proviso of Section 43B only, but no corresponding amendment was made under Section 36(1)(va). It said: "It is required to be noted that as such there is no amendment in Section 36(1)(va) and even the Explanation to Sec tion 36(1) (va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to the employers contribution the second proviso to Section 43B which provided that even with respec t to the employers contribution (Section 43B(b)), the Assessee was required to credit the amount in the relevant f und under the PF Act or any o ther f und f or the welf are of the employees on or bef ore the due date under the relevant Act, is deleted, it cannot be said that Section 36(1)(va) has been deleted and/or amended."
19. T hat is how Gujarat High Court held that Sec tion 43B would not be attracted in a case where dispute relates to employees con tribution only. Section 43B would be conf ined only to employers contribu tion. It f urther said:
"T heref ore, with respect to the employees contribu tion received by the assessee if the assessee has not credited the said sum to the employees account in the relevant f und or f unds on or bef ore the due date mentioned in the Explanation to Section 36(1)(va), the assessee shall not be entitled to deductions of such amount in compu ting the income ref erred to in Section 28 of the Act."
20. Gujarat High Cour t distinguished judgment of Commissioner of Income-T ax v. Alom Extrusions L td. (supra) on the ground that therein actual dispu te relates to employers contribution and whether amendment in Section 43B by Finance Act, 2003 would operate retrospective or not, Supreme Court had no occasion to consider deduction with ref erence to Sec tion 36(1)(va). For the same reason Gujarat High Court dissented with the judgments of Rajasthan High Court in Commissioner of Income-T ax v. Udaipur Dugdh Utpadak Sahakari Sangh L td., (2014) 366 IT R 163, Punjab and Haryana High Court in Commissioner of Income-T ax v. Hemla Embroidery Mills P. Ltd., (2014) 366 IT R 167 , Himachal Pradesh High Court in
8|Page ITA No. 1721/Del/2021 AY : 2019-20 Commissioner of Income-T ax v. Nipso Ployf abriks Ltd., (2013) 350 IT R 327 and Karnataka High Court in Commissioner of Income-T ax v. Sabri Enterprises, (2008) 298 IT R 141.
21. Karnataka High Court had an occasion to consider, whether it should dissent with the view taken in the earlier judgments and f ollo w the view taken by Gujara t High Court in Commissioner of Income-T ax v. Gujarat State Road Transport Corporation (supra) and this occasion came in Essae T eraoka P. Ltd. v. Deputy Commissioner of Income-T ax, (2014) 366 IT R 408. Dispute relates to A.Y. 200809. Assessee f iled Return on 26.09.2008. Return was processed under Section 143(1) and thereaf ter on scrutiny, notice under Section 143(2) was issued. Assessing Off icer completed assessment by order dated 24.12.2010 under Section 143(3) disallo wing Rs. 12,51,737/under Section 36(1)(va) and also disallowing Rs. 1,04,621/under Section 14A read with Rule 8D. In appeal, CIT (A) reversed f indings of Assessing Off icer but on appeal pref erred by Revenue, T ribunal restored Assessing Off icers order and that is ho w matter came to Karnataka High Court. T he question up f or consideration was, "whe ther T ribunal was justif ied in aff irming f inding of Assessing Off icer and denying Assessees claim of deduction of employees contribu tion to PF/ESI alleging that the payment was not made by appellant in accordance with the provisions of Section 36(1)(va) of Act 1961." T he Assessees counsel relied on earlier judgment of Karnataka High Court in Commissioner of Income-T ax v. Spectrum Consultants P. Ltd., (2014) 2 IT ROL 622 while counsel f or Revenue attempted to pursue to take a different vie w f ollowing decision of Gujarat High Court. T he Division Bench judgmen t delivered by Honble Dilip B. Bhosale, (as his lordship then wa s) held, if the contribution of employees f und is deposited within due date the Assessee is straigh ta way entitled f or deduction under Section 36(1)(va). However Section 43B provides f or certain deductions allo wable only on actu al payment. It gives an extension to the employer to make payment of contribution to provident f und or any other f und, till due date applicable f or furnishing of Return under Sec tion 139(1) of Act 1961, in respect of previous year in which liabil ity to pay such sum was incurred, and evidence of such payment is f urnished by Assessee along with such Return. Court then said:
9|Page ITA No. 1721/Del/2021 AY : 2019-20 "In short, this provision states, notwithstanding anything contained in any other provision contained in this Act, a deduction other wise allo wable in th is Act in respect of any sum payable by the assessee as an employer by way of contribu tion to any f und such as providen t f und shall be allo wed if it is paid on or before the due date as contemplated under Sec tion 139(1) of the Income-T ax Act. T his provision has no thing to do with the consequences, provided f or under the PF Act/PF Scheme/ES I Ac t, f or not depositing the "contribu tion" on or bef ore the due dates therein."
(emphasis added)
22. It also said that the word "con tribution" used in clause
(b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribu tion is deposited on or bef ore due date f or f urnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is en titled f or deduction.
23. T hough in a short judgment, but Punjab and Haryana High Court in Commissioner of Income-T ax v. Hemla Embroidery Mills (P.) Ltd., (supra) not only f ollowed Commissioner of Income-T ax v. Alom Extrusions L td. (supra) but also its o wn earlier judgmen t in Commissioner of Income-T ax v. Rai Agro Industries Ltd., (2011) 334 IT R 122 , to hold that Section 43B shall apply to both contribu tions i.e. employers and employees.
24. Kerala High Court in recent judgmen t in Commissioner of Income-T ax v. Merchem Ltd., (2015) 378 IT R 443, has f ollowed the decision of Gujrat High Court in Commissioner of Income-T ax v. Gujrat State Road T ransport Corporation (supra) and dissented with the otherwise judgments of Rajasthan High Court in Commissioner of Income-T ax v. State Bank of Bikaner and Jaipur, (2014) 363 IT R 70, Karnataka High Court in Commissioner of Income-T ax v. Spectrum Consultan ts India P. Ltd. (supra) and Bombay High Court in Commissioner of Income-T ax v. Ghatge Patil T ransports Ltd., (2014) 368 IT R 749.
25. Bef ore f ollowing a particular view when there is divergence in views of diff erent High Courts, we f ind it appropriate to examine Supreme Court judgment in Commissioner of Income-T ax v. Alom Extrusions L td.
10 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 (supra) to f ind out whe ther it can be conf ined only in respect to employers contribu tion or is applicable to both contribu tions, whether by employer or employee.
26. T he question, whether benef it under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of Income- T ax v. Alom Extr usions L td. (supra). Court considered the intent, purpose and object in the historical back drop of insertion of Section 43B and its progress by way of various amendments. Ref erring Section 2(24)(x) it said, income is def ined under Section 2(24) which includes prof its and gains. Further in clause (x) of Section 2(24) any sum received by Assessee f rom employees as contribu tions to any provident f und/superannuation f und or any f und set up under Ac t 1948, or any other f und f or welf are of such employees constitute income. T his is the reason why every Assessee/Employer was en titled to deduction even prior to April, 1, 1984, keeping books on mercantile system of accoun ting, as a business expenditure, by making provision in his books of account in that regard. Assessee was capable of keeping money with him and just by men tioning in accounts, was able to claim deduction as business expenses. Section 43B was inserted to check this prac tise and it resul ted in discontinuing mercantile system of accounting with regard to tax, con tributions etc. With induction of Section 43B an Assessee could claim deduction on actual payment basis. By Finance Act, 1988 Parliament inserted f irst proviso w.e.f . 01.04.1988 which in ter alia provides that any sum payable by Assessee by way of tax, duty, cess or f ee, if payment is made af ter closing of accounting year bu t bef ore date of filing of Return under Section 139(1), Assessee would be entitled to deduction on actual payment basis. T his proviso did not include within its ambit, contributions under labour welf are statu tes. By Finance Act, 1988, Second Proviso thus Second proviso was f urther amended by Finance Act, 1989 w.e.f . 01.04.1989.
27. Court held that Assessee/employer thus would be entitled to deduction only if contribution stands credited on or bef ore due date given in the Act 1952 or Act 1948. Second proviso created diff iculties, inasmuch as under
Act, 1981, due date was af ter the date of f iling of returns and thus industries made representations to the Ministry of Finance. Court, looking to the history of amendments held, it is evident that Section 43B, when enacted in 1984, 11 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 commences with a non obstan te clause. T he underlying object being to disallo w deduc tions claimed merely by making a book entry based on the mercan tile system of accounting. At the same time, Section 43B made it mandatory f or the Department to grant deduc tion in computing income under Sec tion 28 in the year in wh ich tax, duty, cess etc. is actually paid. Parliament took cognizance of the f act that accounting year of a company did not al ways tally with the due dates under Provident Fund Act, Municipal Corporation Act (Oc troi) and other T ax laws. T heref ore, by way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or f ee by explicitly stating that if such tax duty cess or f ee is paid bef ore the date of f iling of the return under Act 1961, Assessee would than be entitled to deduction. T his relaxation/incentive was restric ted only to tax, duty, cess and f ee. It did not apply to contribu tions to labour welf are f unds. T he reason appears to be that the employer should not sit on the collected contribu tions and deprive workmen of the rightf ul benef its under social welf are legislations by delaying payment of contributions to the welf are f unds. But when implemen tation problems were poin ted out f or diff erent due dates, unif ormity was brought about in f irst proviso by Finance Act, 2003.
Hence, amendment made by Finance Ac t 2003 in Section 43B is retrospective, being curative in nature and apply f rom 01.04.1988. In the resul t when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled f or deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f . 01.04.1988.
28. From the af oresaid judgment, we f ind that irrespective of the f act that deduction in respect of sum payable by employer con tribution was involved, but Court did not restrict observations, f indings and declaration of law to that con tex t bu t looking to the objective and purpose of insertion of Section 43B applied it to both the contribu tions. It also observed clearly that Section 43B is with a non-obstante clause and theref ore over ride even if , anything otherwi se is contained in Sec tion 36 or any provision of Act 1961.
29. T heref ore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasth an, Punjab and Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both con tributions 12 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 i.e. employer and employee. Otherwise vie w taken by Gujarat High Court and f ollowed by Kerala High Court, with great respect, we f ind expedient to dissent therewith."
11. T hus, we f ind that the Judgmen t of Hon'ble Allahabad High Court has duly ref lected on the judgments of various Hon'ble Courts and taken a considered decision on this issue.
12. With regard to the preceden tiary value in deciding the issue bef ore us, we have gone through the f ollowing judgmen ts:
T he Hon'ble Allahabad High Cour t in K. N. Agar wal v. CIT 189 IT R 769 held that, "Indeed, the orders of the T ribunal and the High Court are binding upon the Assessing off icer and since he acts in a quasi judicial capacity, the discipline of such f unctioning demands that he should f ollow the decision of the T ribunal or the High Court, as the case may be. He cannot ignore merely on the ground that the T ribunal's order is the subject matter of revision in the High Court or the High Court's decision is under appeal bef ore the Supreme Court. Permitting him to take such a view would in troduce judicial indiscipline, which is no t called f or even in such cases. It would lead to a chaotic situation".
13. T he Hon'ble Apex Court in Baradakanta Mishra vs. Bhimsen Dixit AIR 1972 SC 2466 held that it would be anomalous to suggest that a T ribunal over which a High Court has superintendence can ignore the la w declared by it and if a T ribunal can do so, all the subordinate courts can equally do so, f or there is no specif ic provision as in respect of Supreme Court, making the la w declared by the High Court binding on subordinate Courts.
14. At this juncture, we would like to mention that there is no f ixed rule or direction as to what should be apposite course to resort in case of conflicting decisions of Hon'ble Jurisdictional High Court and non-jurisdictional High Court.
15. Article 141 of the Constitu tion lays down that th e "law declared" by the Supreme Court is binding upon all the courts with the territory of India. T he "law declared"
has to be construed as a principle of law that emanates 13 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 f rom a judgment, or an interpretation of a law or judgmen t by the Supreme Court, upon which, the case is decided. Hence, it f lows f rom the above that the "la w declared" is the principle culled out on the reading of a judgment as a whole in the light of the questions raised, upon which the case is decided. Ambica Quarry Works vs. State of Gujarat (1987) 1 SCC 213; and CIT vs. Sun Engg. Works (P) L td. (1992) 4 SCC 363.
16. T he Hon'ble Supreme Court in CIT vs. Ralson Industries Ltd. (288 IT R 322) observed that when an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline.
17. T he High Cour ts are Court of record under Article 215 of the Constitution. By virtue of the provisions of Article 227, the High Courts have po wer of superin tendence over all Courts and tribunals in their respective jurisdiction. T hus, it is implied that all Courts and T ribunals in the respective S tate will be bound by the decisions of the High Court.
18. In order to have f ixity, f inality and conclusiveness of the judicial proceedings, the 'precedents' have a remarkable role in the f ormation of judicial opinions, judicial orders and dispensation of justice. T he concept of "Stare decisis et non quieta movere", which translates as 'to stand by things decided and not disturb settled points'. T he doctrine of stare decisis, or binding precedent, is the principle by wh ich judges are bound by decisions of superior courts. T he principal abet in predictability, unif ormity and judicial f airness.
19. We have also given considerable thought to the words of the Hon'ble Judges of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd vs. Union of India 1985 AIR 1585 wherein it was held that, "T o perpetuate an error is no heroism. T o rectif y it is the compulsion of judicial conscience. In this we derive comf ort and strength f rom the wise and inspiring words of Justice Bronson in Pierce v. Delameter A.M.Y. at page 18: "a Judge ought to be wise enough to know that he is f allible theref ore everyday to learn: great and honest enough to discard all mere pride of opinion and f ollow truth wherever it may lead: and courageous enough to acknowledge his errors".
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20. T hus, we see a f ine balance between the f ixity and the f lexibility.
21. In this background, the various decisions of the Hon'ble Jurisdic tional High Courts have been perused.
22. In the case of CIT Vs. Bharat Hotels L td. 410 IT R 417, the question of law at serial no. 2 f ramed by the Hon'ble High Court reads as under: (order dated 06.09.2018) "2. Whether the payment of provident f und and employees state insurance dues deposited by the assessee within the grace period would qualif y f or deduction under Section 43B of the Income T ax Act, 1961?"
23. T he said question was dealt at para 7 & 8 of the order, it has been held that the assessee undoubtedly was entitled to claim the benef it and properly treat such amounts as having been duly deposited, wh ich were inf act deposited within the period prescribed (i.e. 15+5 days in the case of EPF and 21 days + any other grace period in terms of extent notif ication).
24. T hus, the Hon'ble Court has held that the employers contribu tion is an allowable deduction, if paid bef ore the due date answe ring the question of la w f ramed. T he Hon'ble Court went f urther and held that as f ar as the amounts constitu ting deductions f rom employee's salaries to wards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction f rom its returns.
25. We have perused the order of the Hon'ble Jurisdictional High Court in the case of CIT Vs. AIMIL L td. 321 IT R 508 vide order dated 23.12.2009 held that if the employees' con tribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed paymen t but can incur penalties also, f or which specif ic provisions are made in the Providen t Fund Act as well as the ESI Act. T herefore, the Act permits the employer to make the deposit with some delays, subject to the af oresaid consequences. Insof ar as the Income-tax Act is concerned, the assessee can get the benef it if the actual payment is made bef ore the return is f iled, as per the principle laid down by the Hon'ble Supreme Court in the case of Vinay Cement Ltd.
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26. T he brief f acts of such case are as under:
"2. T he case relates to the assessment year 2002-03. T he respondent assessee had f iled its return on 30-10-2002 declaring income at Rs. 7,95,430. During the assessmen t proceedings, the Assessing Off icer (AO) f ound that the assessee had deposited employers' contribu tion as well as employees' contribution to wards providen t f und and ES I af ter the due date, as prescribed under the relevant Act/Rules. Accordingly, he made addition of Rs. 42,58,574 being employees' contribution under section 36(1)(va) of the Ac t and Rs. 30,68,583 being employers' contribution under section 43B of the Act. Felt aggrieved by this assessment order, the assessee pref erred appeal bef ore the CIT (A) who decided the same vide orders dated 15-7- 2005. T hough the CIT (A) accepted the contention of the assessee that if the payment is made bef ore the due date of f iling of return, no disallo wance could be made in view of the provisions of section 43B, as amended vide Finance Act, 2003, he still conf irmed the addition made by the Assessing Of f icer on the ground that no documentary proof was given to support that payment was in f act made by the assessee. T he assessee f iled an application under section 154 of the Act bef ore the CIT (A) for rectif ication of the mistake. Af ter having satisf ied that paymen t had, in f act, been made, the C IT (A) rectif ied the mistake and dele ted the addition by holding that the assessee had made the payment bef ore the due date of f iling of the return, wh ich was a f act apparent f rom the record."
T he decision of IT AT :
27. T he Co-ordinate Bench of IT AT relied on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Vinay Cements Ltd. 213 CT R 268 to support its decision to the eff ect that if the employers' as well as employees' contribu tion to wards provident fund and ES I is paid bef ore the due date of f iling of return, no disallowance can be made by the Assessing Off icer.
28. T he relevan t part of the order of the IT AT relying on the CIT Vs. Vinay Cements Ltd. (supra) is as under:
"11. We have carefully considered the rival submissions in the ligh t of material placed bef ore us. In the assessment order ld. Assessing Off icer has categorically stated that what the amount due was f or which month in respect of 16 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 EPF, Family Pension, PF inspection charges and ES I deposits and wh at were the due dates f or these deposits and on wh ich date these deposits were made. T he dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. T he latest paymen t is made on 23rd April, 2002 and assessee being limited company had f iled its return on 20th October, 2002 which is a date not beyond the due date of f iling of the return. T hus, it is clear beyond doubt that all the payments which have been disallo wed were made much earlier to the due date of f iling of the return. The disallo wa nce is not made by the Assessing Off icer on the ground that there is no proof of making such payment bu t disallowance is made only on the ground that these payments have been made beyond the due dates of making these payments under the respective statu te. T hus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a f actual aspect then according to latest position of law clarif ied by Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. that no disallowance could be made if the payments are made bef ore the due date of f iling the return of income. T his issue came bef ore Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. which was a special leave petition f iled by the department against the High Court Order of 26th June, 2006 in IT A No. 2/05 and IT A No. 56/03 and IT A No. 80/03 of the High Court of Gu wahati, Assam and it is order dated 7 th March, 2007. A copy of the said order is placed on record. T he observations of their Lordships on the issue are as under :--
'In the present case we are concerned with the law as it stood prior to the amendment of section 43B. In the circumstances the assessee was entitled to claim the benef it in sec tion 43B f or that period particularly in view of the f act that he has contribu ted to provident f und bef ore f iling of the return.
T he special leave petition is dismissed."
29. T hus, we f ind that the Co-ordinate bench of IT AT and the Hon'ble Jurisdictional high Court of Delhi have relied on the judgment of Vinay Cements Ltd. (supra).
30. Further, the Hon'ble Jurisdictional High Court of Delhi in the case of PC IT Vs. Pro Interac tive Services 17 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 ( India) Pvt. Ltd. in IT A 983/2018 dated 10.09.2018 while dismissing the appeal of the Revenue held that "the legislative in ten t was/is to ensure that the amount paid is allo wed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ES I) as deemed income of the employer under Section 2(24)(x) of the Act."
31. Further, this issue has been examined in the Finance Act, 2021 which are as under:
"Sec tion 2 (24) (x) of the Income T ax Act, 1961 reads: "any sum received by the assessee f rom his employees as contribu tions to any provident f und or superannuation f und or any f und set up under the provisions of the Employees' S tate Insurance Act, 1948 (34 of 1948), or any other f und f or the welf are of such employees."
FINANCE ACT, 2021 [13 OF 2021] An Act to give eff ect to the f inancial proposals of the Central Government f or the f inancial year 2021-2022.BE it enac ted by Parliament in the Seventy-second Year of the Republic of India as f ollo ws:--
CHAPTER I PRELIMINAR Y Short title and commencement.
1. (1) T his Act may be called the Finance Act, 2021.
(2) Save as otherwise provided in this Act,--
(a) sections 2 to 88 shall come into f orce on the 1st day of April, 2021;
(b) sections 108 to 123 shall come into force on such date as the Central Government may, by notif ication in the Off icial Gazette, appoint.
Amendment of section 36.
9. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered 18 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 as Explanation 1 thereof and af ter Explanation 1 as so numbered, the f ollo wing Explanation shall be inserted, namely:--
'Explanation 2.--For the removal of doubts, it is hereby clarif ied that the provisions of section 43B shall not apply and shall be deemed never to have been applied f or the purposes of determining the "due date" under this clause;'. Amendment of section 43B.
11. In section 43B of the Income-tax Act, af ter Explanation4, the f ollo wing Explanation shall be inserted, namely:--
"Explanation5.--For the removal of doubts, it is hereby clarif ied that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee f rom any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.".
32. We have also perused the Memorandum Explaining the Provisions in the Finance Bill, 2021. Under the head "Provision relating to Direct T axes" with to rationalization of various provisions, the issue of clause (24) of Section 2 sub-clause (x), Section 36(1) clause (va), Sec tion 43B with regard to provisions of sub-Section (1) of Section 139 have been dealt at length. T he gist is as under:
"Rationalization of various Provisions Payment by employer of employee contribu tion to a fund on or bef ore due date Clause (24) of section 2 of the Act provides an inclusive def inition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee f rom his employees as con tribution to any provident f und or superannuation fund or any f und set up under the provisions of ESI Act or any other f und for the welf are of such employees.
Section 36 of the Act pertains to the other deductions. Sub-sec tion (1) of the said sectio n provides f or various deductions allowe d while computing the income under the head Prof its and gains of business or prof ession'.
Clause (va) of the said sub-section provides f or deduction of any sum received by the assessee f rom any of his employees to wh ich the provisions of sub-clause (x) of 19 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevan t f und or f unds on or bef ore the due date.
Explanation to the said clause provides that, f or the purposes of this clause, "due date to mean the date by which the assessee is required as an employer to credit an employee's con tribution to the employee's account in the relevan t f und under any Ac t, rule, order or no tif ication issued there-under or under any standing order, award, contract of service or otherwise.
Section 43B specif ies the list of deduc tions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum to wards employer's contribu tion to any provident f und or superannuation f und or gratuity f und or any other f und f or the welf are of the employees is actually paid by the assessee on or bef ore the due date f or furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible f or the accoun ting year. T his provision does not cover employee contribu tion referred to in clause (va) of sub-section (1) of section 36 of the Ac t.
T hough section 43B of the Ac t covers only employer's contribu tion and does not cover employee contribution, some courts have applied the provision of sec tion 43B on employee contribution as well. T here is a distinction between employer contribu tion and employee's contribu tion to wards welf are f und. It may be no ted that employee's contribution to wards welf are f unds is a mechanism to ensure the compliance by the employers of the labour welf are la ws. Hence, it needs to be stressed that the employer's con tribution towards welf are f unds such as ES I and PF needs to be clearly distinguished f rom the employee's contribu tion towards welf are f unds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in f iduciary capacity. By late deposit of employee con tribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-sec tion (1) of Section 36 of the Ac t was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-u tilize employee's contribu tions.
20 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 Accordingly, in order to provide certain ty, it is proposed to
-
(i) amend clause (va) of sub-section (1) of sec tion 36 of the Act by inserting another explanation to the said clause to clarif y that the provision of section 43B does not apply and deemed to never have been applied f or the purposes of determining the ―due date under this clause; and
(ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarif y that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee f rom any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.
T hese amendments will take eff ect f rom 1st April, 2021 and will accordingly apply to the assessment year 2021- 22 and subsequent assessment years."
[Clauses 8 and 9]
33. T hus, the matter has been f inally decided and the controversy has been put to rest.
34. Having gone through the Orders of the Co-ordinate Bench of Tribunal allo wing the delayed paymen t pertaining to employees contribu tion, Orders of the Co- ordinate Bench of T ribunal disallowing the delayed payment pertaining to employees contribution, Judgmen ts of various Hon'ble Courts disallowing the delayed payment, Judgments of various Hon'ble Courts disallo wing the delayed payment, provisions of Section 2(24)(x), Section 36(1)(va), Section 43B, Section 139(1) of the Income T ax Act, 1961, provisions of Finance Act 2021, Memorandum explaining the provisions in Finance Bill, 2021 and the specif ic amendments which will take effect f rom 01.04.2021, we hereby hold that no disallo wance is called f or belated payment of the employee's contribution to the respective ESI and EPF f und in the case of assessee who have deposited the same bef ore the due date of f iling of Income T ax Re turn.
35. In the result, the appeals of the assessee are allo wed and the appeals of the Revenue are dismissed."
3.2 Facts being identical, respectfully following the decision of the Coordinate Bench, as referred to above, I delete disallowance 21 | P a g e ITA No. 1721/Del/2021 AY : 2019-20 of Rs.6,37,273/- for assessment year 2019-20. Accordingly, ground is allowed.
4. In the result, the appeal is allowed.
Order pronounced in the open court on 31st May, 2022 Sd/-
(SAKTIJIT DEY) JUDICIAL MEMBER Dated: 31st May, 2022.
RK/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR Asst. Registrar, ITAT, New Delhi 22 | P a g e