Active Group Securitas, New Delhi V. DCIT, CPC, Bengaluru

ITA 1286/DEL/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5427 (ITAT-DELHI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2018-2019
• Appeal Filed On: 29-09-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GURJIT SINGH
• Keywords: Deemed to accrue or arise in india; Retrospective amendment; Question of law
• Section: 6; 43B; 143(1); 205; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.1286 & 1287/Del/2021 [Assessment Year : 2018-19 & 2019-20] Active Group Securities, NU-104A, Pitampura, New Delhi-110088. PAN-AAMFA9256G vs DCIT, CPC, Bengaluru. APPELLANT RESPONDENT Appellant by Sh. Gurjit Singh, CA Respondent by Sh. Om Prakash, Sr.DR Date of Hearing 28.12.2021 Date of Pronouncement 28.12.2021 ORDER PER KUL BHARAT, JM : Both appeals filed by the assessee for the assessment years 2018-19 & 2019-20 are directed against the orders of National Faceless Appeal Centre (“NFAC”), Delhi both dated 29.07.2021. Since identical grounds have been raised, both appeals were taken up together for hearing and are being disposed off by way of consolidated order for the sake of brevity. 2. First, we take up assessee’s appeal in ITA No.1286/Del/2021 pertaining to Assessment Year 2018-19. The assessee has raised following grounds of appeal:- 1. “1. Because the action is under challenge on facts & law for increasing income amounting Rs. 18,00,520/ - u/ s 143(1). 2. Because the action for making disallowance of Employees Provident Fund amounting & Employees ESI amounting Rs. 13,73,715/ - u/ s Page | 2 143(1)(a) is under challenge on facts and law as the addition is outside the scope of section 143(1)(a). 3. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI amounting Rs. 13,73,715/- amounting Rs. u/s 36(1)(va) overlooking that the said amount has been deposited before the filing of return u] s 139(1). 4. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI amounting Rs. 13,73,715/- amounting Rs. u/ s 36(1)(va) considering the amendment made by Finance Bill 2021 as explanatory in nature and the question of being prospective or retrospective does not arise whereas per assessee, the said amendment is applicable from AY 2021-22. 5. For any consequential relief and/ or legal claim arising out of this appeal and for any addition, deletion, amendment and modification in the grounds of appeal before the disposal of the same in the interest of substantial justice to the assessee.” 3. Facts giving rise to the present appeal are that the return of income was filed by the assessee on 04.10.2018 declaring total income of Rs.4,26,804/-. Intimation u/s 143(1) of the Income Tax Act, 1961 was processed on 15.12.2019. The Assessing Officer made addition of Rs.13,73,715/- u/s 36(1)(va) of the Income Tax Act, 1961 (“the Act”). 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. 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 Page | 3 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.” 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:- Page | 4 5. Decision: • The submissions of the appellant have been carefully considered. It is the case of the appellant that several courts have held that the employee's contribution to PF/ESI even if paid late under the respective Act, is to be allowed as a deduction u/s 43B, as long it is paid within the time available u/s 139(1). This is based on the reasoning that employee's contribution to PF/ESI is covered u/s 43B (b). The appellant has further submitted that his case is covered by the decisions of the various High Courts and ITATs and therefore the disallowance made by the CPC should be deleted. However the Act has now been amended. • The Finance Act 2021 has amended sec 43B as well as see 36(1)(va) by insertion of Explanations to those sections. Explanation 5 to Section 43B, reads as under: 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. Explanation 2 to section 36(1)(va) reads as under: 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. • It may be noted that both the explanations use the phrase "shall not apply and shall be deemed never to have been applied". This indicates that in respect of employees' contribution to PF & ESI, the provisions of sec 43B shall deemed to have never applied. • The present amendment to see 43B through insertion of Explanation 5 and to sec 36(1)(va) through insertion of Expl. 2, serve to only reiterate and reinforce this intention of the Legislature. As discussed earlier in this order, Page | 5 the language of the Explanations make it evident that see 43B shall be deemed to have never applied . • It is imperative to peruse the Explanatory notes to Finance Bill 2021 to seek insight into the minds of the Law makers. The Explanatory notes to this amendment state as under Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provides that income to include any sum received by the 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. Section 36 of the Act pertains to the other deductions. Sub-section (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. 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 Page | 6 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, 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 - (i) 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 been applied for the purposes of determining the -due date under this clause; and (ii) 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. Page | 7 • It is evident from the above that the Legislature never intended that see 43B would apply to employees' contribution. The language of Expl. 5 to see 43B, Expl. 2 to sec 36(1)(va) and that of the above Memorandum explaining the Finance Act 2021, make it abundantly clear that employees contribution is out of the ambit of sec 43B. In fact, the present amendments and the corresponding explanatory notes to finance act 2021, only seek to reinforce and reiterate the original intention of the legislature in 1983. • Admittedly, the employees' contribution to PF & ESI are included in the definition of income u/s 2(24)(x) and form income of the appellant. Whenever the appellant pays this to the PF/ESI authorities, a deduction for the same is allowed to him. The question therefore is whether provisions of sec 43B would apply to such payments. It is evidently clear from the above Explanations inserted in sections 43B and 36(1)(va), that sec 43B would expressly not apply to the employees' contribution. • However a plain reading of sec 43B alongwith clause (b) covers only EMPLOYERS contribution and not employees' contribution. • It remains to decide whether the Explanation 5 to sec 43B &Expl 2 to sec 36(1)(va) would apply to the present AY. To decide this, a little history of sec 43B and subsequent amendments would be in order. Sec 43B was brought into the statute book w.e.f 01.04.1984, thereafter, the proviso to sec 43B was inserted w.e.f 01.04.1988, while Explanation 2 to that proviso was inserted w.r.e.f 01.04.1984 by the Finance Act 1989. 8efore the insertion of the proviso and Explanation 2, the words 'any sum payable' was interpreted by various high courts to mean that 'to attract the provisions of section 43B it is not sufficient to have incurred the liability. Rather the payment has also to be come due. E.g. Sales tax collected for March ending quarter does not become due by 31st March and though by collection of such sales tax in the last quarter, liability stands incurred, the same does not fall due by 31st March and hence no disallowance can be made u/s 43B in respect of such sales tax'. This was the interpretation of sec 43B before insertion of Proviso to Section 43B. The proviso inserted Page | 8 w.e.f 01.04.1988 allowed payment till the due date for filing the return. The proviso was apparently prospective as it was inserted w.e.f 01.04.1988, but it did not resolve the controversy so far as employer's contribution to PF & ESI was concerned. The issue of interpretation of the words "any sum payable" continued. To cure this lacuna Explanation 2 was inserted by the Finance Act, 1989 with retrospective effect from 01.04.1984. While making the amendment the memorandum to Finance Bill was quite specific in stating that the amendment by way insertion of the Explanation 2 is with retrospective effect from 01.04.1984. The controversy and various interpretations gained a quietus by the decision of the Hon'ble Supreme Court in Allied Motors (P) Ltd vs CIT 91 Taxman 205 (SC). Therein it was held that the proviso to Section 43B allowing payment till the due date for filing the return was to have retrospective effect from 01.04.1984 even though the same was inserted w.e.f. 01.04.1988. While holding so the Supreme Court took into account the intent of the proviso as well as of the Explanation 2 and taking a combined view of both the amendments, it held that the proviso has been brought in to cure undue difficulty for the tax payers and hence held to be having retrospective application. It is therefore now settled law that the proviso to see 43B itself has retrospective effect as held by the Hon'ble Supreme Court in the case of Allied Motors (supra). It naturally follows that an Explanation to either sec 43B or the proviso, would also be effective from the date from which the section or proviso was inserted. In the present amendment, Explanation 5 seeks to clarify that provisions of sec 43B shall deemed to have never applied to employees' contribution. As has been held by the Hon'ble Supreme Court, it has to naturally follow that this explanation 5 would also apply from 1/4/1984 and would therefore be retrospective. Any other interpretation would lead to an anomaly, whereby the section and proviso itself would be effective from 01.04.1984, but the explanation thereof would be prospective. In this connection, the observation of the Hon'ble Supreme Court in the case of Allied Motors (supra) are relevant in so far as they explain unintended consequences of an amendment. Page | 9 7 . ......... Therefore, section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into section 43B from its inception along with Explanation 2. 8. This position is reinforced by a departmental Circular No. 550 dated 1-1-1990 (See Taxmann's Direct Taxes Circulars, Vol. 4, 1995 edn., pp. 2.1741, 2.1750): The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unitended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments which were not intended to the prohibited from the category of permissible deductions. • It is evident from the above observations of the Hon'ble Supreme Court that the main section, the explanation and the intention of the Legislature set out through the Memorandum to the Finance Act have to be read together harmoniously. • As discussed above, it is evident from the language of sec 43B(b) and the explanatory notes to Finance Act 1983, that employees' contribution was never intended to be covered by sec 43B. Page | 10 • This has been reiterated and reinforced through Explanation 5 to sec 43B and Expl 2 to sec 36(1)(va) inserted by Finance Act 2021. It is thus held that the amendment under discussion is merely explanatory in nature and the question of being prospective or retrospective in nature does not arise. • Admittedly in the present appeal, the facts indicate that the sum of Rs.13,73,715/- being employees contribution to PF and ESI has been paid late under that Act. Based on the reasoning above, the addition made by the CPC deserves to be upheld. The addition of Rs 13,73,715/- is confirmed. Ground of appeal is 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).” 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:- Page | 11 “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. 12. Now, we take up assessee’s appeal in ITA No.1287/Del/2021 pertaining to Assessment Year 2019-20. The assessee has raised following grounds of appeal:- 1. “Because the action is under challenge on facts & law for increasing income amounting Rs. 19,30,330/ - u/s 143(1). 2. Because the action for making disallowance of Employees Provident Fund amounting & Employees ESI amounting Rs. 16,70,007/- u/s 143(1)(a) is under challenge on facts and law as the addition is outside the scope of section 143(1)(a). 3. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI Page | 12 amounting Rs. 16,70,007/- amounting Rs. u/s 36(1)(va) overlooking that the said amount has been deposited before the filing of return u/s 139(1). 4. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI amounting Rs. 16,70,007/- amounting Rs. u/s 36(1)(va) considering the amendment made by Finance Bill 2021 as explanatory in nature and the question of being prospective or retrospective does not arise whereas per assessee, the said amendment is applicable from A Y 2021-22. 5. For any consequential relief and/ or legal claim arising out of this appeal and for any addition, deletion, amendment and modification in the grounds of appeal before the disposal of the same in the interest of substantial justice to the assessee.” 13. The facts and grounds are identical as were in ITA No.1286/Del/2021 pertaining to Assessment Year 2018-19. The Ld. Representatives of the parties have adopted the same arguments as were in ITA No.1286/Del/2021 [Assessment Year 2018-19]. I, therefore taking the consistent view, direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee in this appeal are also allowed. 14. In the result, both appeals filed by the assessee are allowed. Order pronounced in the open Court on 28 th December, 2021. Sd/- (KUL BHARAT) JUDICIAL MEMBER *Amit Kumar* Page | 13 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI