GOLDENRAY,SERVICES V. ITO, WARD-1, GURGAON

ITA 579/DEL/2024

AI Insights

The case involves Goldenray Services, the appellant, contesting the additions made to their income for the assessment years 2018-19 and 2019-20 due to alleged late deposits of employees' contributions to Provident Fund and ESI Fund. The Income Tax Officer (ITO) initially made these additions, which were later confirmed by the CIT(A), NFAC. The appellant argued that the contributions were made before the due date of filing the return as specified under section 43B(b) of the Act, and cited various judicial pronouncements and amendments to the Act to support their case. However, the Tribunal found that the Supreme Court's decision in Checkmate Services (P) Ltd. vs. CIT, which clarified the law as it existed, supported the additions made by the ITO.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 37366 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2024
• Assessment Year: 2019-2020
• Appeal Filed On: 09-02-2024
• Other Referred Cases: Checkmate Services (P) Ltd. vs. CIT, Indian Geotechnical Services vs. ACIT, M/s. Adama Solution P. vs. The Asst. Director of Income Tax, Vikram Sujitkumar Bhatia vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KRISHNA RAMAVAT
• Assessee Lawyers: RAJEEV KUMAR
• Keywords: Retrospective amendment
• Section: 250; 143(1); 64; 132; 13; 153C; 234B; 43B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘B’ BENCH, NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 578/DEL/2024 [A.Y 2018-19] ITA No. 579/DEL/2024 [A.Y 2019-20] Goldenray Services Vs. The Income-tax Officer 615, Sector -15, Part -1 Ward – 1, Gurgaon Gurgaon PAN: AAEFG 4452 C (Applicant) (Respondent) Assessee By : Shri Rajeev Kumar, CA Department By : Shri Krishna Ramavat, Sr. DR Date of Hearing : 11.09.2024 Date of Pronouncement : 24.10.2024 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- The two separate appeals by the assessee are preferred against the orders of the ld. ADDL/JCIT(A)-1, Jaipur dated 14.12.2023 pertaining to A.Y 2018-19 and AY 2019-20. 2 2. Since both the appeals relate to the same assessee and identical issues are involved, these are being heard together and are disposed of by this common order for the sake of convenience and brevity. 3. The assessee has raised the following grounds of appeal in both the assessment years as follows: 1. That on the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre(hereinafter referred to as the Ld. CIT(A), NFAC}is bad both in the eye of law. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has erred in law in confirming the addition ofRs.55,59,830/- made by the AO(CPC) u/s 36(1)(va) of the Income Tax Act, 1961(hereinafter referred to as the Act} on account of alleged late deposit of employees' contribution towards Provident Fund and ESI Fund. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the disallowance of Rs. 55,59,830/-ignoring the contention of the appellant that employees' contribution towards Provident Fund and ESI Fund would qualify for deduction u/s 36(1)(va) of the Act even if paid after due date prescribed under Provident Fund Act and ESI 3 Act but before due date of filing of return specified under section 43B(b) of the Act read with its first proviso. 4. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred law in confirming the addition of Rs. 55,59,830/-by ignoring the various jurisdictional and other judicial pronouncements in favour of the appellant on the issue. 5. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition of Rs. 55,59,830/- byrelying on the decision of Hon'ble Supreme Court dated 12.10.2022 in Civil Appeal No. 28.33 in the case of Checkmate Services (P) Ltd. vs. CIT-1143 taxmann.com 178 (SC), which is not applicable in the instant case. 6. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition Rs. 55,59,830/- by ignoring the provisions of Explanation 2 inserted by the Finance Act, 2021 in section 36(1)(va) of the Act which is applicable prospectively w.e.f. 1.4.2021. 7. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition Rs. 55,59,830/- by ignoring the provisions of Explanation 5 inserted by the Finance Act, 2021 in section 43B of the Act which applicable prospectively w.e.f. 1.4.2021. 4 8. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition Rs. 55,59,830/- by observing in Para 6.16 of the impugned order passed u/s 250 that \"amendments are only declaratory / clarificatory in nature are therefore applicable with retrospective effect by necessary intendment of deeming nature by ignoring that the said amendments were made prospectively w.e.f. 1.4.2021. 9. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition Rs. 55,59,830/- by ignoring the settled law that an interpretation, which may frustrate the very object ofthe Act / Statute shall be avoided by the Court. 10. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has grossly erred in law in confirming the addition Rs. 55,59,830/- by not appreciating that the enforcement of the amendments in section 36(1)(va) and section 43Bw.e.f. 1.4.2021 were necessitated to remove uncertainty prevailing in implementing these provisions for last 35 years since 1988, and providing relief to the assessees. 11. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has erred in law in dismissing the ground pertaining to charging of Interest Rs. 17,209/- u/s 234A of the Act. The interest deserves to be deleted. 5 12. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has erred in law in dismissing the ground pertaining to charging of Interest Rs. 3,26,971/- u/s 234B of the Act. The interest deserves to be deleted. 13. That on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC has erred in law in dismissing the ground pertaining to charging of Interest Rs. 86,905/- u/s 234C of the Act. The interest deserves to be deleted. 14. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 3.1 Though the assessee has raised as many as 14 grounds of appeal, the sum and substance of the grievances of the assessee is that the ld. CIT(A) erred in confirming the disallowance on account of delay in deposit of PF/ESIC beyond due date u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961, as follows: (1) Assessment year 2018-1955,59,830/- (ii) Assessment year 2019-2057,68,740/- 6 4. Briefly, the facts of the case are that the assessee filed its return of income of Rs 50,94,734/- for AY 2018-19 on 16.10.2018 and Rs 42,12,226/- for AY 2019-20 on 04.10.2019. An opportunity to explain as to why the adjustment u/s 143(1)(a)(iv) on account of employees contribution to Provident/ESI Fund should not be made, was given vide email dated 25.02.2019 for AY 2018-19 and vide email dated 09.01.2020 for AY 2019-20 respectively. As no response was furnished, the return was processed u/s 143(1) on 16.10.2019 and 06.05.2020 respectively and a disallowance/adjustment have been made u/s 143(1)(a) of the Act on the basis of reporting of the same in item No. 20b of the Form No, 3CD of Tax Audit report. The disallowance has been confirmed by ADDL/JCIT(A)-1, Jaipur. 5. The assessee is now aggrieved and is before us on account of the disallowance. 6. The ld AR of the assessee vehemently argued that the decision of Hon'ble Supreme Court (Supra) in the case of Checkmate Services (P) Ltd.[2022] 143 taxmann.com 178 (SC)should be applied prospectively keeping in view the provisions of Explanation 2 in section 36(1)(va) and 7 Explanation 5 in Section 43Binserted by the Finance Act, 2021 w.e.f. 1.4.2021. 7. It is submitted by the ld AR that though the Explanations 2 and Explanation 5 inserted in section 36(1)(va) and section 43B very clearly reveals the intentions of the legislature that the employee's contribution to which the provisions of section 2(24)(x) applies, should be paid/deposited within the due dates specified under the respective welfare enactment in order to claim deduction thereof u/s 36(1)(va),the legislature enforced the amendments with prospective effect w.e.f. 1.4.2021 and not retrospectively. The ld AR of the assessee relied on decision of the jurisdictional Delhi Benches in the case of : (i) Indian Geotechnical Services, vs. ACIT, Circle-61(1) in ITA No.622/DEL/2018 (Assessment Year 2014-15) dated 27.8.2021. (ii) M/s. Adama Solution P. vs. The Asst. Director of Income Tax in ITA.No. 1800/Del./2020 (Assessment Year 2018-2019) dated 13.10.2021 for the proposition that the amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. 8 8. It was further argued that in the case of Checkmate Services (P) Ltd. (supra), the amendments made vide the Finance Act, 2021 were not referred/considered/discussed, despite the fact that the Explanations were on statute books w.e.f. 1.4.2021 and the decision in the case of Checkmate (supra) came on 12.10.2022. In that case Hon'ble Supreme Court had dealt with the law/provisions as applicable prior to the amendment brought by Finance Act 2021 w.e.f. 1.4.2021. It is submitted that in the case of Checkmate (supra), Hon'ble Supreme Court did not make a new law in respect of section 36(1)(va) r.w.s. 2(24)(x) of the Act but has clarified the law as it existed w.e.f. 1.4.1988 on the statute book, ie. Income Tax Act, 1961. Since the Explanation 2 in section 36(1)(va) and Explanation 5 in section 43B were inserted w.e.f. 1.4.2021 with the intention and objective to remove uncertainty in interpretation of \"due date\" for the purpose of section 36(1)(va) and section 43B, they cannot be ignored. It is further submitted that if the same are ignored due to the decision of Checkmate (Supra), it will frustrate the very objective and purpose of amendment of the statute and any interpretation, which may frustrate the very object and purpose of the Act/Statute, shall be avoided by the Court as held in\"ITO vs. Vikram Sujitkumar Bhatia 149 tахmапn.com 23 (SC) dated 6.4.2023\". 9 9. Per contra, the ld DR relied on the decision of Checkmate(supra) submitting that issues of law of section 36(1)(va) and section 43B has been decided and made applicable from the time of inception. The ld DR argued that the assessee is holding the funds of the employees in fiduciary capacity and is obliged to pay tax under I T Act on the amount of PF/ESI contribution withheld and not deposited in the state exchequer as mandated in law. The ld DR submitted that the decision in the case of Indian Geotechnical Services (supra) and M/s. Adama Solution P Ltd (supra) was rendered before the Supreme Court’s judgement of Checkmate and hence not applicable. 10. We have heard the rival submissions and have perused the relevant material on record. 11. We find that the assessee whole argument is based on the insertion of Explanation 2 in section 36(1)(va) and Explanation 5 in section 43B inserted by the Finance Act, 2021 w.e.f. 01.04.2021. The basic theme of the assessee argument is that the amendment in section 36(1)(va) and in section 43B provides for the disallowance of unpaid employees contribution towards PF/ESI before “due date” and since the amendment is prospective in nature, the disallowance has to be made from AY 2021- 22 onwards. 10 12. The controversy that the assessee is arguing is that the decision of Supreme Court in Checkmate, which did not consider the amendment in 36(1)(va) and in section 43B w.e.f. 01.04.2021, will therefore be not applicable before the AY 2021-22 even though it clarifies the law since 01.04.1988. The argument that by virtue of Explanation 2 in section 36(1)(va) and Explanation 5 in section 43B inserted by the Finance Act, 2021, any disallowance of amount that remains undeposited in the PF/ESI Funds within the ‘due dates’, as prescribed in the relevant funds will be effective only from 01.06.2021 is unsustainable in law. 13. With law as laid down by the Hon’ble Supreme Court in the judgement of Checkmate Services P Ltd (supra), the issue of allowability/disallowability of unpaid employees contribution towards PF/ESI before “due date”, is no longer res-integra. The judgement is quoted as below: “51. The analysis of the various judgments cited on behalf of the assessee i.e.,CIT v. Aimil Ltd. [2010] 188 Taxman 265/321 ITR 508 (Delhi); CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.); CIT v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bom.); CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second 11 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 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, 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. 12 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 13 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 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 14 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. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 14. It is a settled principle of law that when the Hon’ble Supreme Court decides a matter, it is not as if it is making any new law but it is as if it is only restating what the law has always been. The reliance in this respect can be placed on the decision of the Hon'ble Supreme Court in the case of \"Ramdas Bhikaji and Choudhary vs. Sadananda\" (1980) 1 15 SCC 550 and on the recent decision of the Hon'ble Supreme Court in the case of \"Manoj Parihar and Ors. Vs. State of Jammu & Kashmir and Ors\" SLP(C) No.11039 of 2022 vide order dated 27.06.2022; \"PV Goerge vs. State of Kerala\" (2007) 3 SCC 557; Assistant Commissioner vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 14 SCC 171, wherein, the Hon'ble Supreme Court has held that judges do not make law, they only discover and find the correct law. Even, that where an earlier decision of the court operate for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which were earlier not correctly understood. 15. The Hon’ble Supreme Court in Checkmate Services P Ltd above, has laid down the law on the subject of section 36(1)(va) r.w.s 2(24)(x) and 43B of the Income Tax Act as it existed w.e.f. 01.04.1988. We are therefore of the considered opinion that the assessee’s argument that the amendments made vide the Finance Act, 2021 were not referred/considered/discussed in the order of Checkmate (supra) dated 12.10.2022, despite the fact that the Explanations were on statute books w.e.f. 1.4.2021, and therefore the decision of Supreme Court is to be followed from AY 2021-22,is not legally permissible. Similarly, the reliance on the decision of ITAT in the case of Indian Geotechnical Services (supra) and M/s. Adama Solution P Ltd (supra) does not assist 16 the assessee’s case as they were rendered before the Supreme Court’s judgement of Checkmate. 16. So far as the reliance of the ld. Counsel of the assessee on the decision of the Hon'ble Supreme Court in the case of Vikram Sujit Kumar Bhatia (supra) is concerned, we find that the said decision do not assist the present case but favours the revenue’s case. In fact, the case of Vikram Sujit Kumar where the Hon’ble Supreme Court was dealing with the question as to \"Whether the amendment brought to Section 153C of the Income Tax Act, 1961 vide Finance Act, 2015 would be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of amendment?\", was answered in favour of the Revenue and against the assessee. The issue was whether substituting the words \"belongs or belong to\" with the words \"pertains or pertain to\" in section 153C would take the assessee out of the ambit of section 153C despite the existence of the incriminating materials. In this context, the Hon’ble Supreme Court held that if such an interpretation is adopted, the very object and purpose of the amendment to Section 153C, would be frustrated. Similarly, if the incorporation of Explanation 2 in section 36(1)(va) and Explanation 5 in section 43B by the Finance Act, 2021 is understood to mean that the same would be effective from 17 01.04.2021, the whole law in respect of sections 2(24)(x), 36(1)(va) and 43B, laid down since 01.04.1988, by Checkmate Services P Ltd (supra) would become inoperative and redundant which would be contrary to the legal principles as enunciated above. In view of the above discussion, the grounds no 1 to 10 of the assessee is rejected for both the years. 17. The ground no 11 to 13 relates to charging of interest u/s 234A, 234B and 234C of the Act. The same are consequential in nature. 18. In the result, the appeals of the assessee in ITA No. 578/DEL/2024 and ITA No. 579/DEL/2024 are dismissed. The order is pronounced in the open court on 24.10.2024. Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 24th OCTOBER, 2024. VL/ 18 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order "