EFFECTIVE ENTERPRISES, BHILAI,DURG V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BHILAI, DURG

ITA 416/RPR/2024

AI Insights

The case involves Effective Enterprises, a firm that filed an appeal against the order of the Commissioner of Income Tax (Appeals), which confirmed the disallowance of Rs. 46,26,564 claimed as deduction under section 36(1)(va) read with section 43B of the Income-tax Act, 1961. This deduction was in respect of amounts deposited towards employees' contributions to the provident fund and Employees State Insurance Scheme, which were initially rejected by the Assessing Officer (CPC) and later by the CIT(A). The main legal contention revolved around whether the deductions for employees' contributions to PF and ESIC, paid beyond the due dates specified by the respective Acts but before the due date of filing the return, were allowable under the Act. The ITAT, after considering the submissions and the relevant case laws, particularly the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, decided to restore the matter to the AO for a detailed examination of the actual payment dates and amounts.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 299024 (ITAT-RAIPUR)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-10-2024
• Assessment Year: 2019-2020
• Appeal Filed On: 11-09-2024
• Other Referred Cases: Checkmate Services Pvt. Ltd. Vs. CIT [2022] 143 taxmann.com 178 (SC), Gurumukh Singh Hora vs. ACIT ITA No. 45/RPR/2023, P.R. Packaging Services vs ACIT(3) 2022 (12) TMI 841 \\ ITAT Mumbai, M/s BPS Infrastructure Vs. ITO, Ward- 1(3), Raipur, Tax Case No, 87 of 2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA PATEL
• Assessee Lawyers: YOGESH SETHIA
• Keywords: Opportunity of being heard; Revised return
• Section: 250; 154; 43B

Judgement Text

"आयकर अपीलीय अिधकरण, रायपुर Ɋायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR ŵी रिवश सूद, Ɋाियक सद˟ एवं ŵी अŜण खोड़िपया, लेखा सद˟ क े समƗ । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM (आयकर अपील सं. / ITA No: 416/RPR/2024) (िनधाŊरण वषŊ / Assessment Year: 2019-20) Effective Enterprises, Shop No. 131, E-Market, Sector-6, Bhilai, 490023 V s Assistant Commissioner of Income Tax, Circle-1(1), Bhilai PAN: AABFE5943K (अपीलाथŎ/Appellant) . . (ŮȑथŎ / Respondent) िनधाŊįरती की ओर से /Assessee by : Shri Yogesh Sethia, CA राजˢ की ओर से /Revenue by : Dr. Priyanka Patel, Sr. DR सुनवाई की तारीख / Date of Hearing : 24.10.2024 घोषणा की तारीख/Date of Pronouncement : 29.10.2024 आदेश / O R D E R Per Arun Khodpia, AM: The captioned appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeal), NFAC, Delhi, [for short, “Ld. CIT(A)”], passed u/s 250 of the Income Tax Act, 1961 (in short, “the Act”), for the AY 2019-20, dated 30.07.2024, resulted from the order u/s of the Act passed by the Central Processing Centre (CPC), Bengaluru, [for short, “Ld. AO”], dated 24.06.2020. 2 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 2. The grounds of appeal assailed by the assessee in the present appeal are extracted as under: 1. In the facts and circumstances of the case and in law, learned Commissioner of Income Tax (Appeals), NFAC has erred confirming the disallowance of Rs. 46,26,564/- claimed as deduction under section 36(1)(va) read with section 43B of the Income-tax Act, 1961 in respect of amount deposited towards employee's contribution to provident fund and Employees State Insurance Scheme, rejecting the request for withdrawal of appeal because ethe claim was allowed by Assessing Officer on the basis of revised return and Appellant. 2. In the facts and circumstances of the case and in law, the action of learned Commissioner of Income Tax (Appeals), NFAC is arbitrary and unjustified. 3. The impugned order is bad in law and on facts. 4. The appellant reserves the right to add, alter, omit all or any of the grounds of appeal with the permission of the Hon'ble appellate authority. 3. Brief facts of the case are that the assessee herein is a firm, filed its return of income for the AY 2019-20 on 30.10.2019, declaring total income at Rs. 9,73,220/-, after claiming deduction of Rs. 46,26,564/- regarding deposits towards the employee’s contribution to Provide Fund (PF) and Employees State Insurance Scheme (ESIC). Subsequently, the return of assessee was processed by the CPC and an intimation in terms of provisions of section 143(1)(a) of the Act was issued, denying the aforesaid claim of the assessee to PF & ESIC. Considering the rejection of the claim for payment of employees contribution to PF & ESIC as an error on the part of AO (CPC), in order to rectify the said mistake, assessee filed an application for rectification u/s 154 of the Act 3 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai dated 28.05.2020. Assessee’s contentions that even if the employee’s contribution to PF & ESIC is paid beyond the due date under respective Acts, but if it was paid before by the due date of filing of return, the same is an allowable expenditure u/s 43B of the Act, was not accepted by the Ld. AO, CPC, and, therefore, the application u/s 154 was rejected through an order dated 24.06.2020. 4. Assessee preferred an appeal before the Ld. CIT(A), meanwhile the assessee has furnished a revised return wherein the due date for payment of PF- ESIC for all the months falling in the relevant AY are mentioned as on 30.09.2019, i.e., the date of filing of income tax return u/s 139(1), the revised return of income was processed by the CPC and assessee’s claim for deduction towards the PF- ESIC was allowed. Under such circumstances, the assessee has made a request before the Ld. CIT(A) to withdraw the appeal filed against the order u/s 154 dated 24.06.2020. However, the said request of the assessee was not accepted by the Ld. CIT(A) and have decided the issue against the assessee following the order of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT [2022] 143 taxmann. Com 178 (SC) (Civil Appeal No. 2833 of 2016), vide order dated 12.10.2022, the decision of Ld. CIT(A) rejecting the contentions of assessee in the appellate order are extracted hereunder for better appreciation of the facts: 4 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 6. Decision 6.1 In this case, the appellant has filed an application for withdrawal of appeal. It is seen that the present position of law on the issue of delayed payment of employees' contribution to PF decided against the appellant. Thus, the application for withdrawal of appeal is not accepted and the appeal is decided on merits. 6.2 Ground No. 2 and 3 are general in nature and do not require separate adjudication. Ground no. 1 relates to disallowance of deduction of Rs. 46,26,564/-, being employees' contribution to PF and ESIC, paid beyond the due dates specified in the respective Acts. It is the contention of the appellant that since the amounts in question have been paid before the due date for filing of return of income u/s 139(1), the same ought to be allowed as a deduction as per the case laws cited. From the facts on record, it is evident that the payments in question have been admittedly made beyond the due dates specified by the relevant Act. 6.3 It is seen that a three-member bench of the Hon'ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs. CIT [20221 143 taxmann.com 178 (SC) (Civil Appeal No. 2833 of 2016), vide order dated 12.10.2022, has decided the issue in favour of Revenue. Relevant paragraphs from the aforesaid decision are reproduced as under: \"37. It is evident that the intent of the law makers was clear that sums referred to in clause (b) of Section 43B, i.e., \"sum payable as an employer, by way of contribution\" refers to the contribution by the employer. 45. A reading of the judgment in Alom Extrusions, would reveal that this court did not consider sections 2(24)(x) and 36(1)(va). 48. One of the Rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. 53. 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 employer's income and the latter 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) 5 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai are satisfied i.e., depositing such amount received or deducted fem the employee on or before the due date. In other words, there is a markeå distinction between the nature and character of the twb amounts — (he employer's liability is to be paid out of its income whereas the second S deemed as income, by definition, since it is the deduction from the employees-income and field in trust by the employer. This marked distinction has to be bome while interpreting the obligation of every assessee U/s. 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that nonobstante 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 borne 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 assesses 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 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 terms 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 deduction. Thus, it is an essential condition for deduction that such amounts are deposited on or before the due date. \" 6.4 The Hon'ble Apex Court has clearly held that employees' contribution to ESI/EPF is deductible only if paid before the due date as per the relevant Acts. 6.5 It is also pertinent to note that a clarificatory amendment was brought in by the Finance Act 2021 by adding explanation 2 in Section 36(1)(va) and explanation 6 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 5 to section 43B. The language of these explanations clearly suggests that the amendment is retrospective and Intent of legislature was never to apply provisions of section 43B to the provisions of Section 36(1)(va). Those explanations are as under: 36. (1) (va)…… Explanation 2. — For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the \"due date\" under this clause. 43B……. Explanation 5.—For the removal of doubts, -it is hereby clarified that the provisions of this section shall no apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies. 6.6 The ITAT, Delhi in case of Vedvan Consultants Pvt. Ltd. ITA No. 1312/Del/2020 for A.Y. 2018-19 has held that the language of newly proposed explanation 2 to section 36(1)(va) and explanation 5 to section 43B makes it clear that the amendment is retrospective. 6.7 In view of aforesaid discussions, it is held that employees' contribution to PF and ESI cannot be allowed as a deduction if it is deposited beyond the due dates in the relevant Acts. Further, the provisions of section 43B do not apply and shall be deemed never to have applied to a sum received by the appellant from any of his employees as employees' contribution to PF/ESI. Thus it is held that the appellant is not entitled to claim deduction of employees' contribution to PF/ESI as the appellant failed to deposit the same within due dates specified in the respective Act by invoking provisions of section 36(1)(va) r.w.s. 2(24)(x) and provisions of section 43B are not applicable to the employees' contribution to PF/ESI. Accordingly, the appellant cannot be allowed the deduction of Rs. 46,26,564/- being delayed deposit of employee's contribution towards PF and ESIC and the action of the AO in disallowing this deduction in the impugned order is hereby confirmed. Ground No. 1 is hereby dismissed. 6.8 It is not out of place to mention here that deduction cannot be claimed by changing the due date to the date of return filing, in view of the aforesaid SC decision, which lays down the law of the land. 7 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 7. In the result, the appeal is treated as dismissed on merits. 5. Aggrieved with the aforesaid order of the Ld. CIT(A), assessee preferred an appeal before us, wherein a written synopsis showing actual date of payments towards employees contribution to PF & ESIC made before due date under respective Act and after due date are furnished before us along with copy of challans and Audit report in Form No. 10AB, synopsis so furnished before us is extracted hereunder for better appreciation of facts: 8 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 9 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 10 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 11 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 6. Based on aforesaid submission, it was the contention by Ld. AR that, Ld. CIT(A) has wrongly adjudicated assessee’s appeal even after the assessee had requested to withdraw the appeal, when the claim of assessee was allowed by the Ld. AO (CPC) on the basis of revised return. It is the submission that the order of Ld. CIT(A), NFAC, is arbitrary, unjustified, bad in law and facts, therefore, the same needs to be quashed. 7. On the other hand, Sr. DR, Dr. Priyanka Patel, vehemently and strongly supported the order of Ld. CIT(A). 8. We have considered the rival submission perused the material available on record and case laws relied upon by the parties. In this case, the assessee has placed his reliance on the order of ITAT, Raipur in the case of Gurumukh Singh Hora vs. ACIT in ITA No. 45/RPR/2023 and ITAT, Mumbai in the case of P.R. Packaging Services 1A vs ACIT(3) 2022 (12) TMI 841 – ITAT Mumbai, whereas this issue has been deliberated upon by the Hon’ble Jurisdictional High Court of the Chhatisgarh in the case of M/s BPS Infrastructure Vs. ITO, Ward- 1(3), Raipur, Tax Case No, 87 of 2024, dated 12.04.2024, wherein findings of Hon’ble Jurisdictional High Court have held that the issue on delayed payment of employees share of contribution towards ESI/PF is no more res integra in terms of principle of law laid down by the Hon’ble Apex Court in the case of Checkmate 12 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai Services Pvt. Ltd. (supra), the relevant findings of Hon’ble Jurisdictional High Court in the case of M/s BPS Infrastructure Vs. ITO (supra) are as under: 13. As far as the issue involved pertaining to claiming of deduction under section 36 (1) (va) of the IT Act 1961 on delayed payment of employees share of contribution towards ESI/PF of Rs. 19,84,415, in the instant case is concerned is no more res integra. The Hon’ble Supreme Court has decided the legal issue on merits in the matter of Checkmate Services P. Ltd. v. Commissioner of Income Tax-1, {Civil Appeal No. 2833 of 2016, decided on 12.10.2022}, wherein at paragraphs 51 to 54, it was observed as under: “51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. [2010] 321 ITR 508 (Delhi High Court); Commissioner of Income-Tax and another v. Sabari Enterprises [2008] 298 ITR 141 (Karnataka High Court).; Commissioner of Income Tax v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bombay High Court).; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. [2013] 35 taxmann.com 616 (Rajasthan High Court) and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the 8 other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(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, 13 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 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. 53. 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 14 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. 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 borne 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 terms 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.” 14. Looking to the facts and circumstances of the case and law laid down by the Hon’ble Supreme Court in Checkmates Services (supra), the present appeal filed by the appellant is not only devoid of merits but also barred by limitation as provided under Section 253 of the Act. The learned ITAT has rightly dismissed the appeal of the assessee. We, therefore, are not persuaded to differ with the view taken by the ITAT and the reason assigned thereof. 15 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 9. Respectfully following the aforesaid decision by Hon’ble Jurisdictional High Court, we are of the considered view that the decision of Ld. CIT(A) was justified well-reasoned and acceptable. However, entire deduction of Rs. 46,26,564/- was rejected considering that the payments were made after the due date prescribed in the respective Acts, whereas as per details furnished by the assessee before us, there are 2 categories of deposits, having instances of payments made before the due date stipulated under the respective Act and payments made after the due date. Since such facts of were not available before Ld. CIT(A), we can comprehend his difficulty while rejecting the entire claim of assessee in terms of law laid down by Hon’ble Apex Court in Checkmate Services Private Ltd. (supra), however, in the interest of justice, we find it appropriate and fair to restore the matter back to the file of Ld. AO to consider the details of actual payments made by the assessee during the year and allow the claim of assessee following the principle mandated in the case of Checkmate Services Private Ltd. (supra). 10. In backdrop of aforesaid observations, we are of the considered view that the issue raised by the assessee deserves to be restore to the file of Ld. AO for fresh adjudication. 16 ITA No. 416/RPR/2024 Effective Enterprises vs ACIT-1(1), Bhilai 11. Needless to say, that reasonable opportunity of being heard shall be provided to the assessee and liberty to furnish necessary information, explanations and evidence in support of his contentions 12. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 29/10/2024. Sd/- (RAVISH SOOD) Sd/- (ARUN KHODPIA) Ɋाियक सद˟ / JUDICIAL MEMBER लेखा सद˟ / ACCOUNTANT MEMBER रायपुर/Raipur; िदनांक Dated 29/10/2024 Vaibhav Shrivastav आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : आदेशानुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur 1. अपीलाथŎ / The Appellant- Effective Enterprises, Bhilai 2. ŮȑथŎ / The Respondent- ACIT, Circle-1(1), Bhilai 3. आयकर आयुƅ(अपील) / The CIT(A), 4. The Pr. CIT, Raipur (C.G.) 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 6. गाडŊ फाईल / Guard file. // स×याǒपत Ĥित True copy // "