Shivalic Power Control P.Ltd, Faridabad V. DCIT, Circle-2(1), Faridabad

ITA 137/DEL/2023

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The case involves Shivalic Power Control Pvt. Ltd., the appellant, contesting an order from the National Faceless Appeal Centre (NFAC) which confirmed a disallowance of Rs. 3,87,227. This amount was disallowed by the DCIT, CPC under section 36(1)(va) of the Income Tax Act due to alleged variances from the Tax Audit Report and the Income Tax Return. The main legal contention revolved around the timing of the deposit of employees' contributions to EPF/ESI, which the Supreme Court has mandated must be deposited by the due date for the amounts to be deductible. The Tribunal dismissed the appeal, aligning with the Supreme Court's precedent that such contributions, if not deposited by the due date, do not qualify for deductions under section 36(1)(va).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131659 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 03-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 22-01-2023
• Other Referred Cases: Commissioner of Income Tax vs. Alom Extrusions Ltd., Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 43

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI Before Sh. C. M. Garg, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 137/Del/2023 : Asstt. Year: 2018-19 Shivalic Power Control Pvt. Ltd., C/o Shiv & Associates, CAs, Shop No. 67, First Floor, Sector-10 Market, Faridabad, Haryana-121001 Vs DCIT, Circle-2(1), Faridabad, Haryana (APPELLANT) (RESPONDENT) PAN No. AAICS4340J Assessee by : None Revenue by : Sh. Anuj Garg, Sr. DR Date of Hearing: 04.07.2023 Date of Pronouncement: 07.07.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by assessee against the order of National Faceless Appeal Centre (NFAC), Delhi dated 29.11.2022. 2. Following grounds have been raised by the assessee: “1. That the appellant denies its liability to be assessed to tax and that too at taxable Income of Rs. 41,03,769/- and accordingly denies its liability to pay tax and interest thereon. 2. That having regard to facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the disallowance of Rs. 3,87,227/- made by Ld. DCIT, CPC under section 36(1)(va) of Income tax Act on account of alleged variance from Information as ITA No. 137/Del/2023 Shivalic Power Control Pvt. Ltd. 2 per Tax Audit Report r/w schedule OI of the Income Tax Return (point 6k). 3. That having regard to facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the adjustment of Rs. 3,87,227/- on account of alleged variance from information as per Tax Audit Report r/w schedule OI of the Income Tax Return (point 6k), to income u/s 143(1)(a) of the Act and more so when such adjustment was beyond the scope of the provisions of that section and hence, without Jurisdiction and void ab initio. 4. That in any view of the matter and in any case, the action of the Ld. CIT(A) in confirming disallowance of Rs. 3,87,227/- u/s 36 and that too u/s 143(1)(a) is against the facts and circumstances of the case and more so when the intimation u/s 143(1)(a) is itself invalid and void and notice and intimation both were beyond Imitation. 5. That having regard to facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not striking down the intimation u/s 143(1)(a) Issued by Ld. DCIT, CPC as illegal being issued mechanically without following the principle of natural justice, without giving any meaningful opportunity of being heard, without application of mind and without considering the submissions of the assessee and law on the matter and the intimation thus issued is void.” 3. The matter has attained finality by the order of the Hon’ble Supreme Court wherein it was observed that employers have to deposit the employee's contribution towards EPF/ESI on or before the due date for availing deduction. In the cases before the Hon’ble Apex Court, the employers had belatedly deposited their employees' contribution towards the EPF and ESI, considering the due dates under the relevant provisions of the Act. The Assessing Officer ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of the IT Act, such sums ITA No. 137/Del/2023 Shivalic Power Control Pvt. Ltd. 3 received by the appellants constituted "income". It was held that those amounts could not have been allowed as deductions under Section 36(1)(va) of the IT Act when the payment was made beyond the relevant due date under the respective acts. The Income Tax Appellate Tribunal and later the Gujarat High Court dismissed the challenge against this order of AO. In appeal, the court noted that the Hon’ble Kerala High Court has also ruled in favour of revenue on this issue whereas the Hon’ble High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi have favoured the interpretation beneficial to the assessee. The Hon’ble Apex Bench effectively reversed the judgment in Commissioner of Income Tax vs. Alom Extrusions Ltd. (1 SCC 489) relied upon by the assessee. 4. The Hon’ble Apex Court in the case of Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I in CA No. 2833/2016 vide order dated 12.10.2022 observed that there is a marked distinction between the nature and character of the two amounts viz., the employers’ contribution and employees’ contribution required to be deposited by the employer. The first one is 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. The Hon’ble Apex Court held as under: "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 43 B which is to ensure timely payment before ITA No. 137/Del/2023 Shivalic Power Control Pvt. Ltd. 4 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 43 B 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." 5. As the issue of payment of employees contribution towards the PF has been ruled against the assessee by the Hon’ble Supreme Court. Hence, the appeal of the assessee on this ground is liable to be dismissed. 6. In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 07/07/2023. Sd/- Sd/- (C. M. Garg) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 07/07/2023 *Subodh Kumar, Sr. PS*