Sunrays Engineers Private Limited, New Delhi V. ITO Ward 24(1), New Delhi

ITA 1106/DEL/2023

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The case involves Sunrays Engineers Pvt. Limited, the appellant, contesting the addition of Rs.3,89,656 to their income for the assessment years 2018-19 and 2019-20, due to late deposit of employees' contributions to ESI & PF. The Income Tax Officer, Ward 24(1), New Delhi, was the respondent. The primary legal issue was whether the late deposit of employees' contributions to PF/ESI could still be deducted under section 36(1)(va) of the Income Tax Act, 1961, despite being paid before the filing of the income tax return. The Tribunal's decision was influenced by a Supreme Court ruling which clarified that such contributions, if not deposited by the due date, do not qualify for deduction.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113291 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-09-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 16-04-2023
• Other Referred Cases: Checkmate Services P. Ltd. Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 43B

Judgement Text

I.T.A. Nos. 1106 & 1107/Del/2023 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “G” : DELHI ] BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER A N D SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A Nos. 1106 & 1107/Del/2023 िनधाᭅरणवषᭅ/ Assessment Years: 2018-19 & 2019-20 Sunrays Engineers Pvt. Limited, A-2/172, Janakpuri, New Delhi – 110 058. बनाम Vs. Income Tax Officer, Ward : 24 (1) New Delhi. PAN No. AAJCS1436L अपीलाथᱮ / Appellant ᮧ᭜यथᱮ / Respondent िनधाᭅᳯरतीकᳱओरसे /Assessee by : N o n e; राज᭭वकᳱओरसे / Department by : Shri Anuj Garg, Sr. D. R.; सुनवाईकᳱतारीख/ Date of hearing : 20/09/2023 उ᳃ोषणाकᳱतारीख/Pronouncement on : 25/09/2023 आदेश / O R D E R PER C. N. PRASAD, J. M. : 1. These two appeals are filed by the assessee against separate orders of the ld. Commissioner of Income Tax (Appeals) [hereinafter I.T.A. Nos. 1106 & 1107/Del/2023 2 referred to CIT (Appeals)]/National Faceless Appeal Centre [NFAC] both dated 15.03.2023 for assessment years 2018-19 and 2019-20. 2. The assessee has raised the following substantive common grounds of appeal (except for the amounts):- ”1. On the facts and circumstances of the case and in law, the order passed by the Ld. CIT(A) (NFAC) is erroneous and bad in law. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) (NFAC) has erred in confirming the addition of Rs.3,89,656/- made by the Ld. ADIT (CPC) vide intimation order u/s 154 dated 05/12/2019 on account of late deposit of employees' contribution towards ESI & PF u/s 36(1) (va) of Income Tax Act, 1961 though deposited before filing the return of income for A.Y. 2018-19. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) (NFAC) has erred in confirming an addition of Rs.3,89,656/-vide order u/s 154 dated 05/12/2019 on account of late deposit of employees' contribution towards ESI & PF u/s 36(1)(va) of Income Tax Act, 1961, on the basis of information provided in Tax Audit Report which is not covered as mistake apparent from records. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) (NFAC) has erred in confirming the disallowances of Rs.3,89,656/- being employees' contribution towards ESI & PF though paid late but before furnishing the return of income, on the ground that the explanations introduced through Finance Act, 2021 u/s 36(1)(va) and section 43B with effect from 01/04/2021 being applicable retrospectively, the deduction cannot be allowed. 5. Without prejudice to ground 2,3,4, it is prayed that the ESIC and PF of Rs.3,89,656/- may please be allowed in the year the payment is made. “ I.T.A. Nos. 1106 & 1107/Del/2023 3 3. Notice issued through Speed post with acknowledgement due returned un-served on assessee with the endorsement of Postal authorities that the assessee ‘LEFT’ without address. As the issues in these appeals are decided by the Hon’ble Supreme Court the appeals are disposed of on merits after hearing the ld. DR. 4. The issue of whether the employees’ contribution to PF/ESI is allowable expenditure under section 36(1)(va) of the Act if it is paid beyond the due date specified under PF/ESI Act came up befor the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT in Civil Appeal No. 2833 of 2016 (dated October 12, 2022) and the Hon’ble Supreme Court decided the issue against the assessee, holding as under:- “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 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 I.T.A. Nos. 1106 & 1107/Del/2023 4 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. 24 Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court). 25 Commissioner of Income-Tax and another Vs. Sabari Enterprises, [2008] 298 ITR 141 (Karnataka High Court). 26 Commissioner of Income Tax Vs. Pamwi Tissues Ltd., [2009] 313 ITR 137 (Bombay High Court). 27 Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd., [2013] 35 taxmann.com 616 (Rajasthan High Court). 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 I.T.A. Nos. 1106 & 1107/Del/2023 5 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 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 I.T.A. Nos. 1106 & 1107/Del/2023 6 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.” 5. The decision of the Hon’ble Supreme Court applies to the facts of the case. Respectfully following the above decision, we hold that the employees’ contribution to PF/ESI remitted beyond the due date specified under PF/ESI Act are not allowable as deduction under section 36(1)(va) of the Act. Therefore, we see no I.T.A. Nos. 1106 & 1107/Del/2023 7 merit in the grounds of appeal of the assessee for both the years and the same are rejected. 6. In the result both the appeals of the assessee are dismissed. Order pronounced in the open court on : 25/09/2023. Sd/- Sd/- (PRADIP KUMAR KEDIA) ( C. N. PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 25/09/2023. *MEHTA* Copy forwarded to 1. Appellant; 2. Respondent; 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi. Date of dictation 20.09.2023 Date on which the typed draft is placed before the dictating member 20.09.2023 Date on which the typed draft is placed before the other member 25.09.2023 Date on which the approved draft comes to the Sr. PS/ PS 25.09.2023 Date on which the fair order is placed before the dictating member for pronouncement 25.09.2023 I.T.A. Nos. 1106 & 1107/Del/2023 8 Date on which the fair order comes back to the Sr. PS/ PS 25.09.2023 Date on which the final order is uploaded on the website of ITAT 25.09.2023 Date on which the file goes to the Bench Clerk 25.09.2023 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