Mahaveer Bulk Carriers, Bangalore V. Assistant Director of Income Tax, CPC, Bangalore

ITA 1000/BANG/2022

AI Insights

The case involves Mahaveer Bulk Carriers, which appealed against the disallowance of deduction for employees' contributions to PF/ESI that were not deposited within the due dates. The Income Tax Department had initially disallowed these deductions, leading to an increased taxable income for the assessee. The Tribunal considered the arguments and case laws presented, including a significant Supreme Court decision in Checkmate Services (P.) Ltd. vs CIT-1, which clarified that such contributions must be deposited within the due dates specified under the relevant welfare legislation to be deductible. The Tribunal found no reason to deviate from the established legal position and dismissed the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108357 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-12-2022
• Assessment Year: 2019-2020
• Appeal Filed On: 16-10-2022
• Other Referred Cases: Checkmate Services (P.) Ltd. Vs CIT-1, AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax, M/s. IV Sanctum vs Asstt. Director of Income Tax CPC Bengaluru, Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax, IV Sanctum vs Asstt. Director of Income Tax CPC Bengaluru
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 43B; 80P

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL “SMC-B’’ BENCH: BANGALORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.1000/Bang/2022) Assessment Year: 2019-20 MAHAVEER BULK CARRIERS 207, III Floor, Elegance Royalle, II A Cross, Sindhi Colony, J.C. Road Banglore , 560002 PAN No. AAJFM4868P Vs. Asst. Director of Income Tax , CPC, Bangalore APPELLANT RESPONDENT Appellant by : None Respondent by : Shri Ganesh R Ghale, Standing Counsel (DR.) Date of Hearing : 20.12.2022 Date of Pronouncement : 06.01.2023 O R D E R 1. The brief facts of the case are that the assessee filed return of income on 31.10.2019 declaring income from business or profession at Rs.42,93,530/-, and the due date for filing the return of income was 31.10.2019. The return was processed u/s 143(1)(a) on 06.05.2020 by disallowing u/s 36(1)(va) r.w.s. 2 (24)(x) of the I.T. Act. 1961 for Rs. 6,09,097/- for delayed deposit of the employees’ Contribution to PF / ESI, accordingly the income was determined at Rs. 49,02,630/-. Aggrieved from the above order, the assessee filed appeal before CIT(A) and the assessee has also flied detailed reply and relied on some case laws, which have been considered by the ld. CIT(A) & dismissed the appeal of the assessee. Aggrieved from the order of the CIT (A), ITA No.1000/Bang/2022 Page 2 of 8 the assessee filed appeal before the Income Tax Appellate Tribunal. The sole issue involved in all the ground Nos.1 to 4 is disallowance for delayed deposit of PF/ESI for employees’ contribution, disallowed u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T.Act. 2. None was present on behalf of the assessee. Therefore, I proceed to dispose off this appeal after hearing the learned DR. The ld. DR submitted that the latest decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC), wherein the Hon’ble Apex Court has held that Section 43B(b) does not cover employees' contributions to PF/ESI etc. deducted by employer from the salaries of employees and that employees’ contribution has to be deposited within the due date u/s 36(1)(va) of the Act i.e. due dates under the relevant employees welfare legislation like PF/ESI Act etc., failing which the same would be treated as ‘income in the hands of the employer’ u/s.2(24)(x) of the Act. Therefore, the order of lower authorities should be restored. 2.1 He further submitted that the adjustments u/s 143(1)(a) of the Act can be made, it is very clear that which type of adjustments can be made. He also relied on judgment of the Hon’ble Madras High Court in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax reported in (2022) 138 taxmann.com 571, wherein he also relied on the decision of the coordinate bench of the Tribunal in the case of M/s. IV Sanctum vs Asstt. Director of Income Tax CPC Bengaluru, in ITA No. 986/Bang/2022 vide order dated 24.11.2022 for the AY 2019-20.. 3. After hearing the Ld. D.R. and perusing the documents available on records and orders of the authorities below and grounds of appeal cited supra, I notice that the Hon’ble Supreme Court in the case of Checkmate Services (supra) has considered the interpretation of deduction/exemption ITA No.1000/Bang/2022 Page 3 of 8 provisions and issue of whether the employees’ contribution paid before due date for filing the return of income u/s.139(1) of the Act otherwise allowable u/s.43B of the Act and putting to rest the contradicting decisions of various High Courts. The relevant extract of the decision is as under:- 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 Eagle Flask Industries Ltd. v. CCE 2004 taxmann.com 350 (SC)/2004 Supp. (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v. Ambay Cement 2005 taxmann.com 1352 (SC)/[2005] 1 SCC 368 as follows: "23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein." This was also reaffirmed in a number of judgments, such as CIT v. Ace Multi Axes Systems Ltd. [2017] 88 taxmann.com 69/[2018] 252 Taxman 274/400 ITR 141 (SC)/[2018] 2 SCC 158. 50. The Constitution Bench, in Commissioner of Customs v. Dilip Kumar & Co. [2018] 95 taxmann.com 327/69 GST 239 (SC)/[2018] 9 SCC 1 endorsed as following: "24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ "265. Taxes not to be imposed save by authority of law.—No tax shall be levied or collected except by authority of law."] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. ** ** ** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 ITA No.1000/Bang/2022 Page 4 of 8 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as "Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]", for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.'" . . . . . “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, isevident 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 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 ITA No.1000/Bang/2022 Page 5 of 8 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 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. 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.” 3.1 In the above judgment the Hon’ble Apex Court has upheld that the deduction for employees’ contribution can be claimed deduction in terms of section 36(1)(va) r.w.s. 2 (24)(x) of the I.T. Act. and the amendment by the Finance Act. 2021 in section 43B has been incorporated in “para 05” of this ITA No.1000/Bang/2022 Page 6 of 8 judgment. Keeping in view of the decision of the Hon’ble Supreme Court, I uphold that the addition can be made in respect of the employees’ contribution in regard to PF/ESI, which has not been deposited within the stipulated date as per the respective Acts, since in the case on hand, the assessee has not deposited the employees’ contribution within the due date as per the respective Acts. Therefore, the disallowance can be made as per section 36(1)(va) r.w.s. 2(24)(x) of the Act. Hence, respectfully following the judgment of Hon’ble Supreme Court cited (supra), the grounds raised by the assessee is not acceptable. 4. The assessee has also raised on the issue that the disallowance/addition cannot be made u/s 143(1)(a) of the Act. Before the CIT(A), the statement of facts were submitted and on perusal of it, it was noticed that the Tax Auditor had reported in Form 3CD under clause 20(b) that the assessee did not deposit the employees’ contribution within the due date. Form 3CD is a summary of informations, which is utilized by the Revenue authorities for processing of returns / making the correct assessments. Section 143(1)(a) has specified the prima facie adjustment can be made on the basis of informations available with the return of income along with the necessary documents. A similar issue has been decided by the coordinate bench of the Tribunal in ITA No.188/Coch/2021 for the AY 2016- 17 vide order dated 28.07.2022 and also following the judgment of the Hon’ble Madras High Court, in which it has been held that the addition can be made u/s 143(1)(a) of the Act, the relevant para is as under: _ In this case the assessee filed his return of income belatedly and return was processed under Section 143(1)(a) of the Act by observing that “in schedule Chapter VI-A, under Part-C deduction in respect of certain incomes, in Sl.No. 2.1 deduction is claimed under Section 80P however return is not filed within due date”. Against this observation the assessee filed writ petition before the Hon’ble Madras High Court and the writ petition has been dismissed by observing as under: - “7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act. ITA No.1000/Bang/2022 Page 7 of 8 5. Respectfully following the above judgments, we reject the contention raised by the assessee. 6. In the result, the appeal of the assessee is dismissed. Order pronounced in the court on 06 th January , 2023 Sd/- (Laxmi Prasad Sahu) Accountant Member Bangalore, Dated 06 th January, 2023. Devadas Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar/ITAT, Bangalore.