Prisma, Moradabad V. ITO,Ward-1(1), Moradabad

ITA 1197/DEL/2022

AI Insights

The case involves an appeal by the assessee, Prisma, against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, which disallowed Rs. 456,402 under section 43B of the Income Tax Act for delayed payment of employees' contributions to PF and ESI. The assessee argued that the contributions were made before the due date of filing the income tax return, citing various judicial precedents in their favor. However, the Tribunal referenced a Supreme Court decision which clarified that such contributions are only deductible if paid within the statutory due dates. The Tribunal directed a verification of the assessee's claim regarding the timely payments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113133 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 29-11-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 24-05-2022
• Other Referred Cases: Sagun Foundry (P) Limited Vs. CIT Kanpur, ADIT Vs. Shri Gopala Krishna Aswini Kumar, Indian Geotechnical Services Vs. ACIT, Checkmate Services P. Ltd. Vs. CIT, Principal Commissioner of Income Tax vs. Rajasthan State Beverages Corporation Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IMPOSING TAX; BUT IT
• Keywords: Business expenditure
• Section: 2; 43B; 143(1); 139(1)

Judgement Text

I.T.A. No. 1197/Del/2022 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “S.M.C.” : DELHI ] BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER, S.M.C. आ.अ.सं./I.T.A No. 1197/Del/2022 िनधाᭅरणवषᭅ/ Assessment Year: 2018-19. Prisma, Behind Hotel 24, Delhi Road, Moradabad, Uttar Pradesh – 244 001. बनाम Vs. Income Tax Officer, Ward : 1 (1), Moradabad. PAN No. AARFP4612N अपीलाथᱮ / Appellant ᮧ᭜यथᱮ / Respondent िनधाᭅᳯरतीकᳱओरसे /Assessee by : N o n e; राज᭭वकᳱओरसे / Department by : Ms. Indu Bala Saini, Sr. D. R.; सुनवाईकᳱतारीख/ Date of hearing : 30/11/2022 उ᳃ोषणाकᳱतारीख/Pronouncement on : 31/01/2023 आदेश / O R D E R PER C. N. PRASAD, J. M. : 1. This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) [hereinafter referred to I.T.A. No. 1197/Del/2022 2 CIT (Appeals)]/National Faceless Appeal Centre, Delhi, dated 24.12.2021 for assessment year 2018-19. 2. The assessee has raised the following substantive ground of appeal :- “1. That on the facts and the circumstances of the case the honourable CIT (Appeals) as well as CPC processing centre has wrongly disallowed Rs.456402.00 u/s 43B on account of delayed payment of employees’ contribution to PF and ESI. 2. That on this issue there are number of judicial Pronouncements in favour of the assessee, including & delivered by the Hon’ble High Court of Allahabad, being the jurisdictional High Court in the matter of Sagun Foundry (P) Limited Vs. CIT Kanpur followed by ADIT Vs. Shri Gopala Krishna Aswini Kumar ITA. No. 359-Bang/2021 and Indian Geotechnical Services Vs. ACIT ITA. No. 622/Del/2018 delivered after consideration of the insertion of explanation 2 to section 36(1)(va) by the Finance Act 2021 employer’s contribution to PF and ESI paid on or before the due date of filing of ITR under section 139(1) is allowable under section 43B of the Income Tax Act. No. disallowance is therefore required. 3. That the assessee deposited PF ESI before the due date of filing of ITR hence on the facts and circumstances the entire disputed amount is allowable as business expenditure.” 3. In spite of issue of notice, none appeared on behalf of the assessee nor any adjournment was moved. On perusal of the record it is observed that the assessee has filed written submissions, which are as under:- I.T.A. No. 1197/Del/2022 3 “Assessee's submissions. That during the year assessee has deposited total PF and ESI amount Rs.1094364.00 the details of which are as follows: Employee's Contribution EPF is Rs.420669.00 Employer's Contribution EPF is Rs.335183.00 Employee's Contribution ESI is Rs.91275.00 Employer's Contribution ESI is Rs.247237.00 Total Rs. 1094364.00 That the assessee deposited late EPF and ESI of employees contribution amount total Rs.456402.00 That out of the employee's contribution Rs. 6599.00 was deposited within time and Rs.456402.00 deposited late but before the date of filing of return. In the intimation us 143(1) the entire amount disallowed Rs. 456402.00 of employee contribution. . 1 PRISMA (AY 2018-2019) ESI Month Due Date Date of Employer Employee Total Remarks Payment Contribution Contribution I May 21.06.2017 29.06.2017 20417 7535 27952 LATE June 15.07.2017 29.07.2017 16788 6201 22989 LATE July 15.08.2017 19.08.2017 19084 7045 26129 LATE August 15.09.2017 05.10.2017 17582 6492 24074 LATE I September 15.10.2017 01.11.2017 17518 6468 23986 LATt:: October 15.11.2017 18.01.2018 16725 6172 22897 LATE November 15.12.2017 19.12.2017 15614 5765 21379 LATE December 15.01.2018 31.01.2018 28180 10403 38583 LATE January 15.02.2018 05.03.2018 27809 10266 38075 LATE February 15.03.2018 31.03.2018 27910 10298 38208 LATE March 15.04.2018 27.04.2018 21746 8031 29777 LATE 229373 84676 314049 I.T.A. No. 1197/Del/2022 4 PRISMA (2018-2019) EPF Month Due Date Date of Employer Employee Total Remarks Payment Contribution Contribution April 15.05.2017 19.05.2017 32741 31427 64168 Late May 15.06.2017 29.06.2017 32903 31583 64486 Late June 15.07.2017 02.08.2017 34410 33029 67439 Late July 15.08.2017 19.08.2017 34773 33379 68152 Late August 15.09.2017 07.10.2017 31377 30119 61496 Late September 15.10.2017 01.11.2017 31560 30296 61856 Late October 15.11.2017 18.01.2018 29958 26755 56713 Late November 15.12.2017 27.12.2017 14902 26239 41141 Late January 15.02.2018 05.03.2018 24458 46507 70965 Late I February 15.03.2018 31.03.2018 24257 46364 70621 Late March 15.04.2018 25.04.2018 18512 36029 54541 Late 309851 371727 681578 The assessee has paid the employees contribution some part on time and some part with delay but before filing of return date, delay was due to various business emergencies which could be condoned. Copy of deposited challans are enclosed. The intention of the assessee was never malafide and he always thought about the welfare of employees as they all are part of his extended business family. The intention of legislature is also not to penalize the assessee by imposing tax, but it motivates to deposit tax in time, and assessee did major times this, only few times was delay, hence the addition by way of disallowance of this amount is liable to be deleted. In the case of Principal Commissioner of Income Tax. vs. Rajasthan State Beverages Corporation Ltd Hon'ble Supreme Court has dismissed the SLP and held" Whereby the High Court held that no part of PF Contribution/ESI, if payment was remitted beyond due date prescribed under the relevant act, but before due date of filing return of income, could be disallowed u/s 43B or u/s 36(1)(va) whether it was employee's contribution or employer's contribution. The Supreme Court dismissed the SLP. " This case was related to Ass. Year 2009-10, i.e. after the amendment in section 43B in 2003.Copy of judgement is enclosed.” I.T.A. No. 1197/Del/2022 5 4. The assessee in the written submissions also placed reliance on various decisions. On careful consideration of the written submissions it is noticed that the assessee submits that out of total employees’ contribution, an amount of Rs.6,599/- was deposited within time specified under PF/ESI Act and an amount of Rs.4,56,407/- was deposited before the due date of filing the return. The issue of whether the employees’ contribution 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 I.T.A. No. 1197/Del/2022 6 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. 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 I.T.A. No. 1197/Del/2022 7 employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked 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 I.T.A. No. 1197/Del/2022 8 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.” 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 I.T.A. No. 1197/Del/2022 9 the due date specified under PF/ESI Act are not allowable as deduction under section 36(1)(va) of the Act. However, the contention of the assessee in the written submissions was that certain amounts were deposited within the due date specified under PF/ESI Act. Therefore, the Assessing Officer is directed to verify the above contention of the assessee and in case if it is found that the employees’ contribution were remitted before the due date specified under the PF/ESI Act, the same may be allowed as deduction while computing the income of the assessee. 6. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on : 31/01/2023. Sd/- ( C. N. PRASAD ) JUDICIAL MEMBER Dated : 31/01/2023. *MEHTA* Copy forwarded to :- 1. Appellant; 2. Respondent; 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi. I.T.A. No. 1197/Del/2022 10 Date of dictation 30.01.2023 Date on which the typed draft is placed before the dictating member 30.01.2023 Date on which the typed draft is placed before the other member 31.01.2023 Date on which the approved draft comes to the Sr. PS/ PS 31.01.2023 Date on which the fair order is placed before the dictating member for pronouncement 31.01.2023 Date on which the fair order comes back to the Sr. PS/ PS 31.01.2023 Date on which the final order is uploaded on the website of ITAT 31.01.2023 Date on which the file goes to the Bench Clerk 31.01.2023 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