Excel Phosphates Private Limited, Meerut V. ADIT, CPC, Bengaluru

ITA 1258/DEL/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5429 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2019-2020
• Appeal Filed On: 27-09-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Deemed to accrue or arise in india; Retrospective amendment; Question of law
• Section: 6; 43B; 139; 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.1258/Del/2021 [Assessment Year : 2019-20] Excel Phosphates Pvt.Ltd., 195-196, Shatabdi Nagar, Delhi Road, Meerut, Uttar Pradesh-250103 PAN-AACCE3927B vs ADIT, CPC, Bengaluru. APPELLANT RESPONDENT Appellant by None Respondent by Sh. Om Prakash, Sr.DR Date of Hearing 30.12.2021 Date of Pronouncement 30.12.2021 ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2019-20 is directed against the order of National Faceless Appeal Centre (“NFAC”), Delhi dated 18.08.2021. No one appeared on behalf of the assessee at the time of hearing. 2. The assessee has raised following grounds of appeal:- Ground 1. “That the addition of INR 2,84,286/- in the order passed by DCIT (CPC -Bengaluru) ("AO") u/s 143(1) of the Income Tax Act, 1961 is against the law and facts of the case. Ground 2: That on the facts and circumstances of the case, CPC Bangalore erred in facts and in law, in making the adjustment of 2,84,286 on a debatable issue for deposit of employee's contribution to provident fund and ESI, after the date prescribed in the relevant statute but before the due date of furnishing of the return of income. Page | 2 Ground 3: That on the facts and circumstances of the case, Ld. Commissioner of Income Tax (Appeals) erred in facts and in law in holding that the amendment to section 36(1)(va) is with retrospective effect. Ground 4: That on the facts and circumstances of the case, Ld. Commissioner of Income Tax (Appeals) erred in not adjudicating the appeal "ground-wise" and collectively dismissing all the grounds without discussing the individual grounds on their merit. Ground 5: That on the facts and circumstances of the case, Ld. Commissioner of Income Tax (Appeals) erred in facts and in law in not affording an opportunity of being heard to the Appellant and passing an order in a hasty manner. Ground 6: The Appellant craves to add, delete, modify any grounds of appeal during the course of proceedings.” 3. Facts giving rise to the present appeal are that the assessee is a limited company and is engaged in the business of manufacturing of pesticides and fertilizers. The assessee filed its return of income at gross income of Rs.33,92,801/- for Assessment Year 2019-20 dated 31.10.2019. The return was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”) and while processing the return of income, the Assessing Officer disallowed a sum of Rs.2,84,286/- being delayed payment of employees contribution to PF and ESI within due dates and intimation u/s 143(1) of the Act was passed on 06.07.2020. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), confirmed the addition. 5. Now, the assessee is in appeal before this Tribunal. Page | 3 6. Ld. Counsel for the assessee submitted that the issues raised in this appeal are squarely covered in favour of the assessee. He placed reliance on the decisions of Hon’ble Delhi High Court rendered in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 and in the case of CIT vs AIMIL Ltd. 321 ITR 508 and stated that that these binding precedents have been followed by the various Benches of the Tribunal. 7. Per contra, Ld. Sr. DR vehemently opposed these submissions and submitted that law is clear in this respect and he relied upon the decision of Ld.CIT(A). He further relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Bharat Hotels Ltd. [2019] 103 Taxmann.com 295 (Delhi) wherein the Hon’ble High Court has decided the issue in favour of the Revenue by observing as under:- 8. “Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.” Page | 4 8. I have heard the rival submissions and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A) has decided the issue by observing as under:- 5.2. “Decision-The order u/s 143(1), the statement of facts, and the submissions furnished by the appellant have been considered. 5.3. In this case, the appellant has contended that CPC has erred in the payment to ESI and PF was duly made within the due date as per see 139(1), hence addition to be deleted and payment made to the funds to be allowed as required by sec 36(1)va. The appellant also contended that the judgment of Honorable Bombay High Court in the case of CIT vs Ghatge Patil Transports Ltd (2014) 368 ITR 749 and in CIT vs Hindustan Organics Chemicals Ltd (2014) 399 ITR and the judgment of honourable Supreme Court in CIT vs Alom Extrusion Ltd. (2009) 319 ITR 306 held that the amount paid to PF and ESIC shall be allowed as deduction if the sum is actually paid by the assessee on or before the due date applicable in case of furnishing the return of income U/s (1) of 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the appellant along with such return. The appellant has given the details of payment of the said contributions as below: Provident Fund Page | 5 The appellant argued that in view of the omission of the second proviso section 43B by the Finance Act, 2003, the amounts including employees contribution to PF/ESI remitted before due date for filing of the return specified in Section 139(1) are eligible for deduction as business expense. Hence, even if the payment of employees contribution is made after due date as per relevant Welfare laws but if it is made before due date for filing of the return specified in Section 139(1) then deduction of the sum of is available. From the record, it is seen that the payments of employee's contribution has been made after the due dates in the relevant Acts. In this regard, as per Income-tax Act, 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 will include 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 provisions of ESI Act or any other fund for the welfare of such employees. Page | 6 Section 36 of the Act pertains to the other deductions, Sub-section (1) of the Sec 36 provides for various deductions allowed while computing the Income under the head "Profits and gains of business or profession", Clause (va) of Sec 36 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. Explanation to this 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 sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution. However, several courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 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 Page | 7 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, 8y 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. However, in several case laws, Hon'ble courts held that if such payment (Employee's Contribution) is made before the due date of filing of Return of Income, no disallowance should be made u/s 36 of the Act. 5.7 This view of several courts has been negated by the amendments brought in the Finance Act 2021. As per the Finance Act 2021 in section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation was numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation was 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;" Similarly, in section 43B of the Income-tax Act, after Explanation 4, the following Explanation was inserted, namely: "Explanation 5.-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. " Thus, after passing of the Finance Act 2021, it has been clarified that definition of due dates as per Sec 43B is deemed never to have been Page | 8 applied for the purpose of Employee's Contribution. Therefore, the payment of employee's contribution made after the due date by which the appellant is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under Employee Provident Fund Scheme is liable to be disallowed and to be added to the income of the appellant. Further, though addition was made u/s 143(1 )(a) of the Act, but appellate proceedings are extension of assessment proceedings. Therefore, in view of the amended provisions of the Act, as discussed above, addition made by the AO is confirmed and Ground NO.1 ,2 & 3 of the appellant are DISMISSED. 6. GROUND No.4:- In this ground, the appellant has craved leave to add, alter or amend any of the grounds on or before the hearing. No such option was exercised by the appellant during the appellate proceedings, and as such, this ground is treated as dismissed.” 9. I find merit in the contention of Ld. Counsel for the assessee that the issue is covered by the judgement of Hon’ble Delhi High Court rendered in the case of AIMIL Ltd. (supra) wherein it has been held:- 17. “We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).” Page | 9 10. Further, Ld. Counsel for the assessee placed reliance on the judgement of Hon’ble Delhi High Court rendered in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 held as under:- “In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.” Therefore, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court in the above-mentioned binding precedents, I hereby direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee are allowed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 30 th December, 2021. Sd/- (KUL BHARAT) JUDICIAL MEMBER *Amit Kumar* Page | 10 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI