GENESYS INTERNATIONAL CORPORATION LIMITED,MUMBAI V. DCIT CPC BANGALORE, BANGALOE

ITA 634/MUM/2024

AI Insights

Genesys International Corporation Limited appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the disallowance of employees' contributions to PF and ESIC made by the Assessing Officer. The disallowance was initially made under section 143(1) of the Income Tax Act, 1961, due to late deposit of contributions. The Tribunal considered various judgments, including the Supreme Court's decision in Checkmate Services (P) Ltd, which clarified that such contributions must be deposited by the due date under the respective welfare legislation to be deductible. However, the Tribunal also noted that the enhanced business income from such disallowances could be eligible for deduction under section 10AA if it pertains to an export-oriented unit.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34713 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2020-2021
• Other Referred Cases: Checkmate Services (P) Ltd. Vs. Commissioner of Income Tax-1, Coates of India Ltd vs. DCIT, Amdocs Development Centre Indid LLP vs. ACIT Circle-7, CIT vs. M/s Gem Plus Jewellery India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Deemed to accrue or arise in india; Benefit of exemption
• Section: 143(3); 250; 143(1); 11; 139(1); 22; 13; 139; 43B; 10AA; 260A; 20

Judgement Text

"Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE MS. PADMAVATHY S, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA NO. 634/MUM/2024 (A.Y: 2020-21) Genesys International Corporation Limited, 73-A, SDF III, 2nd Floor, Seepz, Maharashtra – 400 096 PAN: AAACA4528L Vs. DCIT CPC Bangalore, ACIT 1(3)(1), Aayakar Bhavan, New Marine Lines, Mumbai – 400 020 (Appellant) (Respondent) Assessee Represented by : Shri Nishit Gandhi, Ld. AR Department Represented by : Shri Pushkraj Bhange Patil, Ld. DR Date of conclusion of Hearing : 03.01.2025 Date of Pronouncement : 21.02.2025 O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals) / Addl. JCIT,-1, Lucknow [hereinafter referred to as the “CIT(A)”], passed under section 250 of the ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 2 Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 14.12.2023 for the A.Y. 2020-21. 2. The brief facts of the case are that the assessee filed the income tax return for the year under consideration on 20.02.2021 declaring total income at Rs. NIL. The return was processed u/s 143(1) of the Act on 30.11.2021 determining the total income at Rs. 2,26,36,690/-. The AO has assessed the total income as Rs. 2,26,36,692/- under the normal provisions of the Act by making disallowance on employees' share of PF and ESIC contributions on account of payment made after the due date prescribed under the respective funds as per section 36(1) (va) of the Act. It is stated that the assessee had paid Rs. 2,26,36,692/- towards employee‟s contributions to PF & ESIC after the due date prescribed under the respective funds, but before the due date of filing the return of income, therefore the said amount is to be allowed as deduction and should not be disallowed in terms of section 36(1)(va) of the Act. 3. Aggrieved by the said intimation order, the assessee filed the appeal before Ld. CIT (A) who has dismissed the appeal of the assessee while relying on the judgment of Hon'ble Supreme Court in Checkmate Services ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 3 (P) Ltd. Vs. Commissioner of Income Tax-1, [2022] 143 taxmann.com 178 (SC)/448 ITR 518 (SC) and observing as under: 2. “In view of the discussion as above, and respectfully following the judgement of the Hon’ble Supreme Court of India (discussed supra), I hold that the employees’ contribution to EPF and ESI should be remitted before the due date as per explanation to section 36(1)(va) of the I.T. Act, i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s 43B of the I.T. Act. Therefore, the disallowance on account oflate deposit of employee contribution to PF and ESI made by the Ld. Assessing Officer upheld. Ground No.3:- this ground is general in nature and does not require any adjudication. In the result, the appeal is dismissed.” 4. Aggrieved by the above order, assessee preferred the appeal before us raising the following grounds:- 1.0. On the facts and circumstances of the case and in law, the Learned Commissioner of Income tax (Appeals), National Faceless Appeal Center [the CIT(A)] erred in affirming the intimation passed u/s 143(1) by the CPC / Assessing officer without appreciating that an assessment order u/s 143(3) is passed in the present case and therefore, the intimation u/s 143(1) is withdrawn and cannot be given effect to and therefore any disallowances / adjustments made in the intimation u/s 143(1) cease to be so. 2.0. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that while framing the assessment order u/s 143(3), the Ld. AO ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 4 has himself not made the disallowances in respect of items mentioned in the intimation u/s 143(1) and therefore the said disallowance could not have been affirmed by the Ld. CIT(A). 3.0. Without prejudice to the above, in the alternative, it is submitted that, in case the disallowance is to be sustained then consequently the deduction u/s 10AA should also be increased by the amount of disallowance so made since it ultimately increases the business income of the Appellant which is admittedly eligible or deduction u/s 10AA of the Act. 4.0. The Appellant prays that it may be allowed to add, alter or amend the above grounds of Appeals. 5. The Ground No. 1 and 2 are interlinked and are being disposed of simultaneously. Ground No. 3 is in alternative and, if we found necessary shall decide it after deliberations on Ground no. 1 & 2. 6. Ld. AR on behalf of the assessee argued that the Ld. CIT (A) has wrongly applied the judgment of Hon‟ble Supreme Court in the case of Checkmate Services (P) Ltd (supra) because the said judgment pertains to the assessment order u/s 143(3) and not the intimation u/s 143(1) of the Act. It is further argued that Ld. CIT(A) has failed to consider and appreciate that the subsequent order u/s 143(3) of the Act has been passed in the present case and on that account the intimation order u/s 143(1) of the Act stands withdrawn and cannot be given effect to and therefore disallowance /adjustment made u/s 143(1) of the Act ceases to exist. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 5 7. Ld. AR relied on the decision of Coordinate Bench of ITAT in ITA No. 2376/Mum/2022 dated 07.12.2022 in support of his argument wherein the similar addition made by the AO was deleted holding that the decision of the Hon‟ble Supreme Court in the case of Checkmate Services (P) Ltd (supra), was referred in the context where the assessment was u/s 143(3) of the Act and not u/s 143(1) of the Act. 8. Ld. AR further relied on the decision of Hon‟ble Calcutta High Court in the case of Coates of India Ltd vs. DCIT dated 19.09.1994 [1995] 214 ITR 498 (CAL) wherein it was held that the order u/s 143(1)(a) of the Act is followed by a regular assessment u/s 143(3) of the Act, the order u/s 143(1)(a) in so far as it is contrary to the regular assessment u/s 143(3) of the Act, ceases to be executable and becomes ineffective. 9. Ld. AR further relied on the decision of Coordinate Bench of ITAT in ITA No. 354/Del/2024 dated 22.05.2024 and submitted that in this case also, the assessee not disputing the fact that the intimation/s 143(1) of the Act merges with the regular assessment when the proceeding are initiated u/s 143(3) of the Act. The relevant para no. 13 of the said order is reproduced below:- ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 6 13. Coming to the submissions of the Ld AR, the assessee also not disputing the fact that the intimation merges with the regular assessment when the proceedings are initiated u/s 143(3) of the Act. Therefore, the admitted fact that the appeal against the intimation is infructuous. The grievance of the assessee is that Ld CIT(A) has not stopped with the findings but gave findings on the merits. After considering the submissions, we are also of the view that the findings on allowability u/s 11 is uncalled. Particularly when the issue under consideration is under challenge before another Appellate Authority. 10. On the other hand, Ld. DR argued that since the assessee has failed to remit the amount of PF and ESIC within the prescribed time period under the relevant Acts, hence the case is squarely covered by the judgment of Hon‟ble Supreme Court in Checkmate Services (P) Ltd (supra) and therefore there is no substance in the grounds of appeal and the appeal is liable to be dismissed. Ld. DR also relied on the orders passed by the AO and Ld. CIT(A). 11. We have considered the rival submissions and carefully examined the records. In order to appreciate the controversy raised by the assessee in this appeal, order of Ld. CIT(A) from 5.1 to 5.5 and para 5.13 to 5.14 are relevant and reproduced below:- 5.1 The statement of facts, grounds of appeal, the order appealed against, submissions of the appellant have been thoroughly examined. The central issue for adjudication among all the grounds of appeal raised pertains to the sole issue ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 7 of disallowance of employees' share of PF, and ESIC contributions of Rs. 2,26,36,692/- on account of the payment made after the due date prescribed under the respective funds as per the section 36(1)(va) of the Act while processing the return u/s 143(1) of the Act. Therefore, all grounds of appeal are being clubbed and adjudicated together. 5.2 The appellant submitted that disallowance made u/s 36(1)(va) is a debatable issue and cannot be made while processing the return u/s 143(1). Further the employees' contribution though has been paid by the appellant after the due date mentioned in the respective Act but before the due date of furnishing of return of income u/s 139(1) of the Act, and the same should be allowed as deduction to the appellant. The appellant had relied upon the judgment of various authorities in this regard. 5.3 From the facts on record, it is evident that the disallowance of Rs 2,26,36,692/- has been made u/s.36(1)(va) of the Act on the basis of details reported in Tax Audit Report for the relevant period. Perusal of Tax Audit Report in Form No.3CA dated 26.11.2020 for A.Y 2020-21 filed by the appellant electronically shows that in clause 20(b) of the report, there is variance in due dates for payments u/s.36(1)(va) and actual payments of employees' contribution of PF/ESI etc. 5.4 As seen from the details furnished in the Tax audit report, a sum of Rs 2,26,36,692/- is liable to be disallowed on account of failure of the appellant to pay employees' contribution of PF/ESI within the prescribed due dates u/s. 36(a)(va). 5.5 Since these amounts were not disallowed in the Return of income filed by the appellant in ITR-6, the variance between Tax Audit Report and ITR has been duly flagged by the CPC in the computerized processing and disallowed u/s. 143(1)(a)(iv) of the Act on the basis of facts furnished by the appellant for audit. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 8 Therefore, the adjustments carried out were well within the ambit of the provisions of section 143(1)(a)(Iv) which reads as follows: \"Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or lo loss shall be computed after making the following adjustments, namely:- (1) any arithmetical error in the return; [***] (i) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub- section (1) of section 139; (iii) (iv) disallowance of expenditure Indicated in the audit report but not taken into account in computing the total income in the return;\" 5.6 xxx 5.7 xxx 5.8 xxx 5.9 xxx 5.10 xxx 5.11 xxx 5.12 xxx 5.13 Further, this issue of employees' contribution has now been well settled in view of the judgment dated October 12, 2022 of the Hon'ble Supreme Court in case of Checkmate Services Pvt. Ltd Vs. Commissioner of Income Tax -1 in Civil Appeal No 2833 of 2016. The relevant extract of this decision is reproduced below: ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 9 51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 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 other provisions of the Act. 52. 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, 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 ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 10 employees' share to their credit with the relevant fund isto 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 l.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 distinction has to be borne while interpreting the obligation of every assessee under Section 43B. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 11 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.\" 5.14 Keeping in view the amendments made by the Finance Act, 2021 in section 36 and section 43B of the Act and that these amendments are clarificatory in nature, and the judgment of the Hon'ble Supreme Court in case of Checkmate ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 12 Services Pvt. Ltd Vs. Commissioner of Income Tax -1 in Civil Appeal No 2833 of 2016, addition made by the AO on account of delayed payment of employee's contribution of PF/ESI is confirmed. Therefore all the grounds raised by the appellant are dismissed. 12. On perusal of Ground No. 1 & 2, we have observed that the assessee has not pointed any illegality in the impugned order and has simply elaborated the controversy by raising this ground in a new manner and the gist of grounds are the same that the Ld. CIT (A) has erred in affirming the order u/s 143(1) of the Act by the AO without appreciating that the assessment order u/s 143(3) is passed in the present case, hence intimation order u/s 143(1) of the Act stands withdrawn. It is further alleged in the ground no. 2 that the AO has himself not made the disallowance in respect of items mentioned in the intimation u/s 143(1) of the Act while framing the assessment order u/s 143(3) of the Act, therefore the same could not have been affirmed by the Ld. CIT(A). The points raised in these grounds are already examined and adjudicated in the decision of the Hon‟ble Supreme Court in the case of Checkmate Services (P) Ltd (supra). However, even the controversy raised by the assessee has been directly dealt with by the Hon‟ble Bombay High Court in the case of Rohan Korgaonkar vs. DCIT (2024) 159 taxmann.com 321 (Bombay) dated 07.02.2024 wherein decision of ITAT Mumbai Benches in M/s P. R. Packaging Services ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 13 vs. ACIT (supra) relied on by the assessee has also been dealt with by the Hon‟ble Jurisdictional High Court. The order of the Hon‟ble Jurisdictional High Court is extracted below:- 2. This is an appeal under section 260A of the Income Tax Act, 1961 (IT Act) to challenge the orders made by the Assessing Officer, CIT (Appeals) and the ITAT, disallowing an adjustment under section 141(1)(a)(iv) read with section 36 (1)(va) of the IT Act in respect of delayed remittance of employees' contributions to Employee State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018-2019. 3. The ITAT, in this case, has noted that the Assessee failed to deposit contributions to ESI and PF in the employees' accounts for the relevant assessment year before the due date under the PF/ESI Acts. However, such contributions were deposited before the Assessee filed returns under Section 139 (1) of the IT Act. The ITAT relying upon the decision of the Hon'ble Supreme Court in Checkmate Services (P) Ltd. v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/448 ITR 518 (SC) held that based upon such delayed deposits, no adjustments or deductions could be claimed. 4. In Checkmate Services (P.) Ltd. (supra), the Hon'ble Supreme Court considered the conflicting decisions on the subject and finally held that deductions or adjustments could be claimed only when the Assessee deposits the contribution before the due date provided under the Employees Provident Fund/Employee State Insurance Act. If the employees' contributions are deposited after the due date set out under the said Act, there is no question of deduction or adjustment on the ground that such contributions were deposited before the filing of returns under section 139(1) of the IT Act. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 14 5. The ITAT has relied upon Chekmate Services (P.) Ltd. (Supra), and its reasoning is entirely consistent with the law laid down in Checkmate Services (P) Ltd. (supra). Therefore, no case is made to interfere with the AO, CIT(appeals), and ITAT decisions. 6. However, Ms Kamat submitted that Checkmate Services (P) Ltd. (Supra)was a matter where the assessment was made under section 143(3) of the IT Act and not under section 143 (1) (a) as in the present case. She also relied upon P.R. Packaging Service v. Asstt. CIT [2023] 148 taxmann.com 153/199 ITD 724 (Mum. Trib) ITA No. 2376/MUM/2022, decided by the ITAT 07/12/2022 to support her contention. 7. Though the decision cited was that of the ITAT, we have considered the same. In our judgment, however, the fact that the assessment order in Checkmate Services (P) Ltd. (supra) was incidentally under section 143(3) and the assessment order in the present case is under section 143(1)(a) of the IT Act, makes no difference to the principle involved in this matter. The ITAT decision does not discuss why this circumstance constitutes a distinguishing feature based on which the ratio of Checkmate Services (P) Ltd. (supra) could be departed from. 8. Checkmate Services (P) Ltd. (Supra)holds that the deductions can be claimed or adjustments can be made under section 141(1)(a)(iv), read with section 36(1)(va) only when the employer deposits the contributions in the employees accounts on or before the due date prescribed under the Employees Provident Fund Employees State Insurance Act. In this case, admittedly, the contributions were deposited in the employees' accounts beyond the due date. The circumstance that the assessment order was made under section 143(1)(a) of the IT Act can make no difference. 9. Therefore, in our judgment, no substantial questions of law as proposed arise in this appeal. The concurrent decisions of the three authorities call for no interference. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 15 10. This appeal is, accordingly, liable to be dismissed and is, hereby, dismissed with no order as to costs. 13. It is evident from the order of the Hon‟ble Jurisdictional High Court that it makes no difference if the disallowance has been made u/s 143(1) of the Act and the subsequent order u/s 143(3) of the Act has been passed where the AO has not made additions while passing his order u/s 143(3) as those additions were already made u/s 143(1) of the Act. After the law laid down in the decision of the Hon‟ble Supreme Court in the case of Checkmate Services (P) Ltd (supra), the issue that the remittance of employee‟s contribution to ESI and PF is mandatory before the due date prescribed under the relevant Acts, is therefore no more debatable and the said amount has to be remitted on or before the due date prescribed under the relevant Acts i.e. PF & ESI Acts. For these reasons, we are of the considered opinion that both the grounds i.e. Ground No. 1 and 2 raised by the assessee have no substance and are accordingly dismissed. 14. The alternative Ground No. 3 is raised by the assessee wherein assessee has submitted that in case the disallowance has to be sustained, then the subsequent deduction u/s 10AA of the Act should have also been increased by the amount of disallowance so made since it ultimately ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 16 increases the business income of the assessee which is admittedly taxable u/s 10AA of the Act. 15. Regarding ground no. 3, it has been argued by the Ld. AR that in case the disallowance has to be sustained, then the deduction u/s 10AA of the Act should be increased by the amount of disallowance because the disallowance of the deducted amount shall increase the profit as well as business income of the assessee and the said business income of the assessee is taxable u/s 10AA of the Act. 16. Ld. AR has filed written submissions alongwith judgments of Hon‟ble Jurisdictional High Courts and the Coordinate Bench of ITAT Pune Bench and submitted that the disallowance with respect to PF & ESIC amount made by the AO shall tantamount to increase in profit and business income of the assessee because the employees contribution amount is part of salary and the salary of the employees has been paid from the export income earned by the unit. It is therefore submitted that the assessee shall be entitled to the deduction of the increased amount of business income /profit u/s 10AA of the Act. In support of his contention, he has referred to the judgment of Hon‟ble Jurisdictional High Court in the case of CIT vs. ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 17 M/s Gem Plus Jewellery India Ltd. 2010(6) TMI 65 (Bombay HC) wherein the question no. „b‟ enumerated as under:- b) Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assessing Officer to grant the exemption u/s 10A of the Act on the assessed income, which was enhanced due to disallowance of employer’s as well as employee’s contribution towards PF/ESIC. 17. The Hon‟ble Jurisdictional High Court has decided the question no. „b‟ as under:- 11. For the purposes of the appeal it is necessary to refer to the admitted position which is that the assessee had deposited both the employer's and the employees' contribution towards Provident Fund and ESIC, though beyond the due date including the grace period. The Assessing Officer added these payments to the total income of the assessee and made an addition in the amount of Rs. 71.59 lacs. However, for the deduction under Section 10A, the addition made on account of the employees' contribution was ignored in calculating the profits eligible for deduction on the ground that these receipts were not generated out of the manufacturing activity of the assessee company. 12. By reason of the judgment of the Supreme Court in Commissioner of Income Tax v. Alom Extrusions Limited¹ the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 18 assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards Provident Fund/ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under Section 10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employee's contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the Provident Fund/ ESIC payments has been made because of the statutory provisions - Section 43B in the case of the employer's contribution and Section 36(v) read with Section 2(24)(x) in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly stand answered against the Revenue and in favour of the assessee. 18. Ld. AR has also relied on the judgment of Coordinate Bench of ITAT Pune in the case of Amdocs Development Centre Indid LLP vs. ACIT Circle- 7 in ITA No. 559/Pun/2022 for A.Y. 2018-19 wherein the enhanced profit /income on account of disallowance of PF/ESI amount was held eligible for ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 19 deduction u/s 10AA of the Act. The relevant portion of the order of Coordinate Bench is extracted below:- 10. Ground of appeal no.3 challenges the direction of the Hon’ble DRP disallowing the deduction u/s 10AA in respect of disallowance made u/s 36(1)(va) of the Act. It is settled position of law that the inflated business profits on account of any disallowances also qualifies for deduction u/s 10AA in view of the decision of the Hon’ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd., 330 ITR 175 (Bom.) and subsequently followed by the Hon’ble Bombay High Court in the case of PCIT vs. Lionbridge Technologies (P.) Ltd., 86 taxmann.com 101 (Bom.), affirmed by the Hon’ble Supreme Court in the case of PCIT vs. Lionbridge Technologies (P.) Ltd., 96 taxmann.com 495 (SC). However, the material on record does not indicate that the disallowance of PF and ESI was made in relation to business profits of unit, whose profits are eligible for deduction u/s 10AA of the Act. Therefore, this matter is remitted to the file of the Assessing Officer to examine whether or not PF and ESI disallowance was made in respect of unit, whose profits are eligible for deduction u/s 10AA and if so found, such disallowance may be treated as eligible profit for the purpose of deduction of income u/s 10AA of the Act. Thus, this ground of appeal no.3 stands partly allowed. 19. Ld. AR in his written arguments has further submitted that the findings of Hon‟ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT in Civil appeal no. 2833 of 2016 (SC) dated 12.10.2022, cannot be invoked to deny the exemption u/s 10AA for the following reasons:- 1. The issue before the Supreme Court in Checkmate (supra) was as to whether the disallowance u/s 36(1) (va) could be made if the amounts are paid after the ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 20 due date in the respective statute but before the due date of filing the return u/s 139(1) of the Income Tax Act; 2. The issue before the Hon'ble Supreme Court was not as to under which head of section 14, the said disallowance would be classifiable; 3. The observations as regards deemed income made by the Hon'ble Supreme Court are only to the extent of adjudicating the issue before it and cannot be expanded to an extent never intended nor adjudicated upon by the Hon'ble Supreme Court; 4. Even assuming for a moment that the Hon'ble Supreme Court by way of a passing reference observed that the disallowance u/s 36(1)(va) should be treated as deemed income and the same could at all be applied in this case to classify such disallowance as income, still the said deemed income has to be classified under the head Profits and Gains of Business and Profession since the salary is of employees of the business undertaking. Such deemed income could in no way be taxed as Income from Other Sources. 20. Ld. AR vehemently argued that in view of the judgment of Hon‟ble Jurisdictional High Court as well as Coordinate Bench of ITAT Pune, the assessee is entitled to the benefit of exemption u/s 10AA of the Act. 21. On the other hand, Ld. DR opposed the arguments of Ld. AR and submitted that after the disallowance of the employees contributions of PF/ESIC for not depositing the same before the due date, the assessee cannot be allowed to claim the same amount as deduction u/s 10AA of the Act by stating that the business income of the assessee from the export ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 21 oriented unit stands increased and added to the total income of the assessee. It is further submitted that as per section 10AA of the Act, the benefit of exemption is allowed only in respect of profit and gains derived by assessee from export of articles or things or from services, and the amount of employee‟s contribution of PF/ESIC is not to be considered as business income of the assessee because the said amount has been deducted from the salary of the employees and in view of the ratio laid down in the case of Checkmate Services Pvt. Ltd. (supra), the said amount is income and monies of the employees and not the employer or the assessee and the said amount is deemed income for the purpose of ensuring the timely deposit of PF & ESI amount and it is kept in trust only by the assessee. It is further argued that the alleged increase in the income for not depositing the amount of employee‟s contribution to PF/ESI amount as per provision of section 36(1)(va) r.w.s. 2(24)(x) of the Act, the said addition of the income is solely due to operation of law and is not the real receipt of income of the assessee and therefore the assessee cannot be extended benefit of section 10AA of the Act. Lastly, it is submitted that in case the assessee is given benefit of section 10AA of the Act, it would effectively reward a non-compliant employer by increasing its tax benefits u/s 10AA of the Act which would be an outcome diametrically opposed to the intended ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 22 deterrent nature of section 36(1)(va) of the Act and the Parliament had never intended such scenario where a statutory infraction yields an enlarged tax concession. Therefore, Ld. DR strongly opposed the arguments of Ld. AR and stated that ground no. 3 should be dismissed. 22. We have carefully examined the rival submissions of Ld. AR and Ld. DR and we are of the considered opinion that the ratio laid down by the Hon‟ble Jurisdictional High Court in the case of CIT vs. M/s Gem Plus Jewellery India Ltd. (supra) is squarely applicable in the facts and circumstances of the case. Section 10A provides „Special provision in respect of newly established industrial undertakings in the free trade zones. —(1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee.\" and Section 10AA provides tax exemptions to new businesses in Special Economic Zones (SEZs). By providing tax concessions, the provisions of Section 10AA aim to encourage the creation of more export-oriented units in SEZs and increase investments from both domestic and overseas sources. The amount in dispute in both the cases i.e. Hon‟ble Jurisdictional High Court and the case in hand is of PF/ESIC which has not been deposited before the due date as provided under the relevant Acts. The case of the assessee is also supported by the judgment of Coordinate Bench of ITAT ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 23 Pune in the case of Amdocs Development Centre Indid LLP vs. ACIT Circle- 7 (supra) where benefit of section 10AA was considered to be available with respect to such amount of PF/ESIC which was not deposited on due date. We are also convinced by the submissions of Ld. AR that question of allowing the amount of delayed payment of PF/ESIC as deduction u/s 10AA of the Act was not directly under consideration before the Hon‟ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra). We are of the considered opinion that in the given facts and circumstances, the reliance placed by Ld. AR on the judgment of Hon‟ble Jurisdictional High Court in the case of CIT vs. M/s. Gem Plus Jewellery India Ltd. (supra) and the judgment of Coordinate Bench of ITAT Pune in the case of Amdocs Development Centre Indid LLP vs. ACIT Circle-7 (supra) seems to be apt and apposite. 23. While considering the arguments of Ld. AR, we are conscious of the fact that the legislature has given benefit to the newly established units in special economic zones by giving exemption from tax regarding profit and gains derived from the export of articles or things or from services for a particular period. The said benefit is granted by the legislature and can be withdrawn only by the legislative mandate and no such provision has been ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 24 brought in our knowledge wherein benefit of section 10AA cannot be extended in similar situation and the Hon‟ble Jurisdictional High Court has already held that „no statutory provision to that effect having been made, the plain consequences of the disallowance made by the Assessing Officer must follow‟. We accordingly direct the AO to examine whether the enhanced business income of the assessee for the relevant year is eligible for exemption under section 10AA of the Act on account of the salary having been paid to the employees out of business income of export oriented unit. In case the AO is satisfied about above facts, the assessee be extended benefit of section 10AA of the Act accordingly. Resultantly, Ground no. 3 raised by the assessee is allowed for statistical purposes. 24. In the result, appeal filed by the assessee is partly allowed for statistical purposes in above terms. Order pronounced in the open court on 21.02.2025 Sd/- Sd/- (PADMAVATHY S.) (RAJ KUMAR CHAUHAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai / Dated 21.02.2025 Dhananjay, Sr.PS ITA No. 634/Mum/2024 Genesys International Corporation Limited Page | 25 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mumbai "