Adani Enterprises Ltd., Ahmedabad V. The DCIT CPC, Banglore

ITA 12/AHD/2022

AI Insights

The case involves Adani Enterprises Ltd. appealing against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, which confirmed certain disallowances made by the Deputy Commissioner of Income Tax, CPC, Bengaluru. The disallowances pertained to contributions made by the company to the National Pension Scheme and other welfare funds, which were initially disallowed under Sections 36(1)(va) and 43B of the Income Tax Act. The Tribunal found merit in the assessee's argument regarding the timing of the NPS contributions and restored this issue for further examination, while upholding the disallowance related to Section 43B.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125713 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 10-09-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 09-01-2022
• Other Referred Cases: Hitech India (P) Ltd. Vs Union Of India
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH; G. M. THAKOR
• Section: 43B; 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .1 2/ A h d / 2 02 2 ( A s se ss m e nt Y e a r : 20 19- 20 ) Ad an i E nt er p ri s e s Ltd ., Ad an i C o r po r a te H ou s e , Sh a nt ig r a m, S . G . H igh wa y, N ea r Va i s h no D e v i C i r c l e , K h od i ya r , Ah me da bad - 3 82 42 1 Vs . De pu t y C o m mi s s io ne r o f In c o me Ta x , B a ng a lo r e [ P AN N o. A A BC A 2 8 0 4L ] (Appellant) .. (Respondent) Appellant by : Shri Biren Shah & Shri G. M. Thakor, A.Rs. Respondent by: Shri M. Anand Kumar, Sr. D.R. D a t e of H ea r i ng 11.09.2023 D a t e of P r o no u n ce me nt 19.09.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2021-22/1037080353(1) vide order dated 20.11.2021 passed for Assessment Year 2019-20. 2. The assessee has taken the following grounds of appeal:- “1. In law and on the facts in the circumstances of the Appellant’s case, the Ld. CIT(A) has erred in making disallowance of Rs. 1,08,40,882/- on account of payment of employees contribution to National Pension Scheme when the entire payment is made before due date of filing return of Income. 1.1 In law and on the facts and in the circumstances of the Appellant’s case, the Ld. CIT(A) has erred in treating employees contribution to National ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 2– Pension Scheme as Employees contribution to Provident Fund and ESIC. The Ld. CIT(A) ought to have appreciated that no due date of payment is prescribed for payment of such employees contribution to NPS. 1.2 In law and on the facts and in the circumstances of the Appellant’s case, the Ld. CIT(A) has erred in not following decision of CIT(A) rendered in other group cases and relied upon by appellant in appellate proceedings. 2. In law and in the facts and the circumstances in the case of the appellant, the Ld. CIT(A) has grossly erred in making disallowance u/s 43B amounting to Rs. 64,31,272/- as the same has been rightly claimed by the appellant while filing return of income. 2.1 In law and on the facts and in the circumstances of the Appellant’s case, the Ld. CIT(A) has erred in treating contribution to Bonus as Employees contribution to Provident Fund and ESIC without appreciating the fact that same was actually paid in the current year and was duly disallowed in earlier years. 3. In law and in the facts and the circumstances in the case of the appellant, the Ld. CIT(A) has erred in not considering the submissions and replies filed by the assessee explaining and justifying the submitted grounds in detail. 4. The Appellant craves leave to add, amend, alter and/or withdraw any ground or grounds of appeal before or at the time of hearing of the appeal.” 3. The brief facts of the assessee’s case are that the assessee filed its return of income declaring total income of Rs. 184.08 crores and claimed the refund of Rs. 3.15 crores for the year under consideration. The Department issued notice under Section 143(1)(a) of the Act on 14 th June 2020, in which the following adjustments were made: Particulars Amount (in Rs.) Total Income as per Return of Income 1,84,08,87,980/- Add: Disallowance u/s 43B of the act 64,31,273/- Add: Disallowance u/s 36(1)(va) 1,08,40,882/- Total Assessed income 1,85,81,60,135/- ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 3– 4. The aforesaid disallowances were confirmed by Ld. CIT(Appeals), with the following observations: “6. Ground no. 2 & 3 are related to the addition of Rs. 64,31,2737- & Rs. 1,08,40,882/- under section 43B & under section 36(1)(va) on account of other welfare fund. Brief facts as noted from impugned CPC intimation under section 143(1) that an addition has been made by Deputy Commissioner of Income Tax, CPC, Bengaluru account of delay in depositing the other welfare fund. 7. I have carefully considered the facts of the case and submission filed by appellant, during the appellate proceedings. I have gone through the contentions of the appellant, and material available on record. It is noted that the appellant has mainly contested the ground on the plea that the relevant contribution of ESI and PF has been made after the due date of deposit as prescribed under the relevant provisions but before the due date of filing of return of income. 8. In this connection, it relevant to mention, the recent amendment made by Finance Act, 2021, which makes it amply clear that there is a distinction between the employees share of contribution u/s 36(1)(va) and employer's share of contribution u/s 43B. The amendment is as follows:- “Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assesses from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Subsection (1) of the said section provides for various deductions allowed while computing the income under the head Profits and gains of business or profession. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 4– Explanation to the said clause provides that, for the purposes of this clause, "due date to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of subsection (1) of section 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer's contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. Accordingly, in order to provide certainty, it is proposed to – 1. amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 5– been applied for the purposes of determining the —due date under this clause; and 2. amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years” 9. Accordingly, the relevant extract of amendments made to section 36(1)(va) and section 43B by the Finance Act, 2021 are reproduced hereunder for clarity and immediate relevance: 1. Amendment of section 36 “In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely: — Explanation 2.—For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;” 1. Amendment of section 43B “In section 43B of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely: — Explanation5.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.” 10. The usage of expressions ‘For the removal of doubts’, ‘it is hereby clarified’ and ‘the provisions of this section shall not apply and shall be deemed never to have been applied’ in the newly inserted ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 6– Explanation by means of the above mentioned amendment categorically remove any ambiguity, if at all it was there, in the interpretation of these provisions of sub-clause (x) of clause (24) of section 2 and clause (va) of sub-section (1) section 36 of the Income- tax Act. Further, the expressions "For the removal of doubts" and "it is hereby clarified" makes it evident that the aforementioned amendment was to remove all doubts as to the meaning of existing law and to correct a construction considered erroneous by the Legislature. Hence, the said amendment is to be taken to be retrospective. It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is intended. 11. In this regard, reliance is placed on the decision of Hitech India (P) Ltd. Vs Union Of India reported 227 ITR 446 wherein the Hon'ble court interalia held thus:- Under section 2(24)(x), any sum received by an assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the ESI Act, or any other fund for the welfare of such employees, would be 'income' under section 2(24)(x) in his hands and that would be allowed as permissible deduction under section 36(1)(va) in computing business income under section 28 provided the assessee credits it to the relevant fund. Under section 436, the sum referred to in clause ( b) is treated differently as it relates to the sum payable by the assessee as an employer which includes the employer's as well as the employee's contribution. Such contributions which are payable to any provident fund or superannuation fund or any other fund, if paid within due date, the employer will be able to avail the benefit of deduction under section 43B. Though the general rule embodied in section 43B is one of allowability of deduction based on actual payment, the rule contained in the second proviso is an exception to the general rule. There the actual payment is not enough, the payment should also be made within the due dates specified therein. This is to ensure that beneficial legislations for the welfare of employees are complied with strictly. If the payment is not made within the due date, there is contravention of the provisions of the EPF and the ESI Act for which provision is made by way of payment of interest, damages ana prosecution. But under the Income-tax Act, the defaulter loses the benefit of deduction otherwise allowable to him. There is no substance in the contention of the petitioner that this would result in double jeopardy because the provisions deal with ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 7– different aspects and different benefits. Whereas the relevant beneficial legislations in favour of the employees provide for compliance on the pain of payment of interest, damages and prosecution, the Income-tax Act provides for compliance by denying the benefit of deduction which is otherwise available. There was also no substance in the contention of the petitioner that the provisos (I) and (2) to section 43B were discriminatory inasmuch as the sum referred to in clause (b) was treated differently from the sums referred to in clauses (a), (c) and (d). Article 14 cuts at the root of discrimination either by legislation or by administrative action. The rule of equality contained in this article, though prohibits class legislation, permits classification. For permissible classification two conditions have to be satisfied, one that it must be founded on intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and two that differentia must have a rational relation to the object sought to be achieved by the impugned Act. There is indeed a reasonable classification between the sums dealt with within clause (b) and clauses (a), (c) and (d) of section 438. Clause (b) deals with the sum payable by the assessee as an employer by way of contribution. The employer, who is in a dominant position, deducts the employees' contribution from the wages/pay at the time of disbursement and retains the amounts with hint beyond the permissible period; further, he is not discharging his obligation by paying the employer's contribution which ought to have been parted with by him to form the total contribution. Thus, he is unauthorizedly retaining the total amount of contributions as the employer. Such is not the position with reference to sums covered by clauses (a), (c) and (d). The classification has nexus with the object soght to be achieved by the provisos (I) and (2) of section 43B and Explanation to section 36(1)(va) and that is to ensure strict compliance with the beneficial legislation dealing with worker’s right and benefits. Therefore, there was no discrimination as alleged by the petitioner and the writ petition was to be dismissed. 12. In view of above amendment, there is no scope & reason to interfere with the addition made. 13. In view of above, and the amendment as discussed in above paras, the addition of Rs. 64,31,237/- & Rs. 1,08,40,882/- made u/s 43B & under section 36(1)(va) in confirmed. Therefore, ground no. 2 & 3 are decided in negative and against the appellant. The judicial precedents relied upon by appellant are on their own footings and distinguishable on facts.” ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 8– Disallowance of Rs. 64,31, 273/- under Section 43B of the Act 5. Before us, the counsel for the assessee submitted that the assessee has claimed deduction of Rs. 3,45,68,571/- under Section 43B of the Act as the same has been paid during the year under consideration and has been disallowed by the assessee in preceding assessment years. Out of the aforesaid amount, it was submitted that the Assessing Officer-CPC has granted a sum of only Rs. 2,81,37,288/- under Section 43B of the Act and thereby disallowed a sum of Rs. 64,31,273/-. The Assessing Officer-CPC while passing the intimation order under Section 143(1)(a) of the Act has disallowed the aforesaid amount of Rs. 64.34 lakhs by stating the following two reasons: (a) amount disallowed in any preceding previous year, but allowable during previous year under schedule-BP is inconsistent with the amount disclosed under the schedule-OI (b) amount disallowed in preceding years but allowed in the previous year is inconsistent with the amount reflected in Tax Audit Report 6. Before us, the assessee submitted that in the return of income, the assessee has claimed deduction of preceding years amounting to Rs. 64,31,273/- pertaining to bonus under Section 43B of the Act, as the same was actually paid in the previous year under consideration. Further, such claim is duly certified by the tax auditor in the Tax Audit Report. Further, screenshot of relevant part of Tax Audit Report was also produced before us for reference, wherein the aforesaid amount of Rs. 64,37,273/-has been certified by the tax auditors. Further, the Counsel for the assessee submitted that the assessee has also claimed the same amount by filing the return of income (screenshot of the relevant part of the tax return was reproduced before us for ready reference). ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 9– Accordingly, it was submitted before us that there is no inconsistency in amount reported in the tax audit report and the amount claimed by the assessee in its return of income. Accordingly, it was submitted that the reason provided by the Assessing Officer-CPC while making disallowances incorrect and the assessee is entitled to deduction of Rs. 64,31,272/- under Section 43B of the Act. 7. In response, the Ld. DR relied on the observations made by Ld. CIT(Appeals) in the appellate order. 8. We have heard the rival contentions and perused the material on record. On going to the facts placed before us, we observe that the tax auditor in their Tax Audit Report has specifically pointed out that sum of Rs. 64,31,273/- pertains to claim of bonus under Section 43B of the Act, and that the said liability pre-existed on the first day of the previous year and that the same was actually paid by the assessee during the previous year under consideration. Accordingly, it is seen that the tax auditor himself has certified that amount of Rs. 64,31,273/- under Section 43B of the Act as a pre-existing liability which was paid by the assessee during the previous year and the assessee has also claimed the above amount while filing the return of income. Accordingly, looking into the facts of the instant case, this ground of the assessee’s appeal is allowed. 9. In the result, ground number 2 of the assessee’s appeal is allowed. Disallowance of Rs. 1,08,40,882/-on account of payment of employee’s contribution to National Pension Scheme ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 10– 10. The brief facts in relation to this ground of appeal are that the Assessing Officer-CPC while processing the return of income, made an addition of Rs. 1,08,40,882/- on account of delayed payment of employee’s contribution to “any other welfare fund”, which is employee’s contribution to National Pension Scheme. The Ld. CIT(Appeals) dismissed the appeal of the assessee (the relevant extracts have been reproduced in the preceding paragraphs of the order). Before us, the counsel for the assessee submitted that on perusal of the Tax Audit Report for the year under consideration, it is evident that all the payments have been made within the due date and hence there is no ground for disallowance of such contributions, when all payments have been made within the due dates mentioned in the Tax Audit Report for the year under consideration. The Counsel for the assessee submitted that “any other welfare fund” mentioned in the tax audit report refers to payment of the employee’s contribution to National Pension Scheme. Further, the payment to the Scheme has been duly made within the due date as has been mentioned in the Tax Audit Report as well. Further, the counsel for the assessee submitted that NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA) and the PFRDA Act, 2013 applies to it. It was submitted that there is no due date prescribed by the PFRDA as to the due date when payment is required to be made to the NPS account. Hence, the impugned adjustment made by the Assessing Officer-CPC is not justified as there is no due date prescribed in the respective Act in respect to employee’s contribution to National Pension Scheme and the payment has been made before the filing of return of income as per Section 139(1) of the Act, for the year under consideration. ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 11– 11. In response, the Ld. DR placed reliance on the observations made by Ld. CIT(Appeals) in the appellate order. 12. We have heard the rival contentions and perused the material on record. We observe that Ld. CIT(Appeals) has made disallowance of the aforesaid amount under Section 36(1)(va) of the Act by observing that the relevant contribution to the ESI and PF have been made after the due date of deposit as prescribed under the relevant provisions, although before the due date of filing return of income. However, before us, the counsel for the assessee submitted that as per Tax Audit Report, the payment to the National Pension Scheme (referred to as “any other welfare fund” in the Tax Audit Report at the Sr. No. 25 to 36, clause 20 (b)) has been made by the assessee within the due date as mentioned Tax Audit Report. Accordingly, we observe that there is an apparent discrepancy between the findings of Ld. CIT(Appeals) (wherein he has dismissed the appeal of the assessee on the ground that the payments have been made by the assessee beyond the due date prescribed under the relevant Act) and submissions made by the assessee before us, wherein it was submitted that all the payments have been made before the due prescribed date as per the Tax Audit Report. Further, we observe that Ld. CIT(Appeals) also made no observation on the contention of the counsel for the assessee that payments to National Pension Scheme are governed by PFRDA Act, 2013 wherein no due date has been prescribed for the deposit of the aforesaid amount as employee’s contribution to National Pension Scheme. Accordingly, looking into the facts of the instant case, in interest of justice, the matter is being restored to the file of Ld. CIT(Appeals) for de novo consideration, and to specifically look into the contention put forth by the counsel for the assessee that the tax auditor in the Tax Audit Report has specifically stated that all the aforesaid payments ITA No. 12/Ahd/2022 Adani Enterprises Ltd. vs. DCIT Asst.Year –2019-20 - 12– have been made within the due prescribed date. Further, the contention of the assessee that under the PFRDA Act 2013, no due date has been prescribed and hence there is no question of any disallowance for employee’s contribution to National Pension Scheme once the payment has been made before the due date of filing of return of income, may also be looked into while passing the order. 13. In the result, this issue is being restored to the file of Ld. CIT(Appeals) with the aforesaid directions. 14. In the result, Ground No. 1 of the assessee’s appeal is allowed for statistical purposes. 15. The other grounds of appeal raised by the assessee are general in nature and do not require any specific adjudication. 16. In the combined result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 19/09/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 19/09/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad