M/s. Geekay Facility Management Private Limited, Mumbai V. Deputy Commissioner of Income Tax, Circle 3(1)(1), Mumbai, Mumbai

ITA 1624/MUM/2022

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M/s. Greekay Facility Management Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which had confirmed the disallowance of deductions for employees' contributions to PF & ESI. The disallowance was initially made by the Assessing Officer due to the late deposit of these contributions. The Tribunal examined the legal provisions and precedents, particularly focusing on the amendments introduced by the Finance Act, 2021, and the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT. The Tribunal concluded that the contributions must be deposited by the due dates to qualify for deductions, aligning with the Supreme Court's interpretation of the relevant sections and amendments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301231 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-05-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 20-06-2022
• Other Referred Cases: M/s. Geekay Security Services Private Limited v/s. Dy. CIT, Circle 3(1)(I), CIT V. Ghatge Patil Transporters Ltd., PCIT vs. Suzlon Energy Ltd., CIT vs. Rajasthan State Beverages Corporation Ltd., Alom Extrusions (P.) Ltd. vs. CIT, Checkmate Services P. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: TDS
• Section: 2; 43B; 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “G”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No.1624/M/2022 Assessment Year: 2019-20 M/s. Greekay Facility Management Pvt. Ltd., G-11, Tulsani Chambers, Free Press Journal Marg, Nariman Point, Mumbai-400 021 PAN: AACCG1483G Vs. Dy. Commissioner of Income Tax, Circle 3(1), Income Tax Office, Maharshi Karve Rd., New Marine Lines, Churchgate, Mumbai - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Gyaneshwar Kataram, A.R. Revenue by : Shri Satyapal Kumar, D.R. Date of Hearing : 21 . 09 . 2022 Date of Pronouncement : 31 . 10 . 2022 O R D E R Per : Kuldip Singh, Judicial Member: The appellant, M/s. Greekay Facility Management Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 22.04.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2019-20 on the grounds inter alia that :- ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 2 “1. In the circumstances and facts of our case, the Learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the action of Ld. DCIT, CPC in upholding disallowance of Rs.11,47,285/- u/s 36(I)(va) which consists of employee's contribution to ESIC of Rs.1,58,684/- and employee's contribution to Provident Fund of Rs.9,88,601/- which has been paid on or before the due date prescribed under the relevant Act and ought to be allowed as per the provision of section 36(l)(va) of the Income Tax Act and not considering the conclusive evidence submitted in its written submission along with supporting paper books and additional submissions filed in the matter. 2. In the circumstances and facts of our case, the Learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the action of Ld. DCIT, CPC in upholding disallowance of Rs.1,02,64,934/- u/s 36(1)(va) which consists of employee's contribution to ESIC of Rs. 18,52,439/-, employee's contribution to Labour Welfare Fund of Rs.20,448/- and employee's contribution to Provident Fund of Rs. 83,92,047/- which has been paid on or before the prescribed due date of furnishing the Return of Income u/s 139(1) and not considering the conclusive evidence submitted in its written submission along with supporting paper books and additional submissions filed in the matter. 3. In the circumstances and facts of our case, the Learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in disregarding the decisions of jurisdictional Courts which is binding upon him and without observing the principles of natural justice and without appreciating the facts and circumstances of the case. 4. In the circumstances and facts of our case, the Learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the action of Ld. DCIT, CPC in upholding disallowance of Rs.1,14,12,219/- u/s 36(l)(va) in respect of employee's contribution to ESIC/Provident Fund/Labour Welfare Fund in contradiction to our sister concern decision passed by Bombay High Court in case of M/s. Geekay Security Services Private Limited v/s. Dy. CIT, Circle 3(1)(I) under Writ Petition No. 1984 of 2018 dated 07/12/2018 for the Asst. Year 2015-16 and without observing the principles of natural justice and without appreciating the facts and circumstances of the case. 5. Without prejudice to the above grounds of appeal, in the circumstances and facts of our case, the Learned Commissioner of Income Tax (Appeals), NFAC has erred to rely on amendment to Finance Act, 2021 and considering the same to apply retrospectively which is in direct contravention of the law since the amendment to ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 3 section 36(l)(va) and section 43B are applicable w.e.f. 01/04/2021 and the Learned Commissioner of Income Tax (Appeals), NFAC has erred not to consider the insertion of explanation to section 36(1)(va) and section 43B under Finance Act, 2021 as clarificatory in nature and the law to be applied prospectively.” 2. Briefly stated facts necessary for adjudication of the issue at hand are : assessee e-filed its return of income on 31.10.2019 declaring total income of Rs.88,52,010/- which was processed under section 143(1) of the Income Tax Act, 1961 (for short ‘the Act’) vide order dated 07.07.2020 assessing the income of the assessee at Rs.2,02,64,230/- after making disallowance of Rs.1,14,12,220/- on account of delayed payment of PF & ESI employees share and disallowance of Rs.1,31,768/- by giving short credit of TDS of Rs.36,95,153/- instead of Rs.38,26,921/-. Feeling aggrieved with the impugned order passed by Central Processing Centre, Bengaluru/Assessing Officer (AO) the assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the disallowance made by the AO on account of delayed payment of PF & ESI employees contribution by partly allowing the appeal. Feeling aggrieved with the impugned order assessee has come up before the Tribunal by way of filing present appeal. 3. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 4. Undisputedly, assessee company has made delayed payment of employees contribution of PF & ESI as per the deemed date ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 4 prescribed under the relevant Act. It is also not in dispute that an amount of Rs.1,02,64,934/- has been paid by the assessee after the due date prescribed under the Act as per section 36(1)(va) of the Act but before the due date of filing the return of income. 5. The Ld. A.R. for the assessee contended that the payment made by the assessee company qua the employees contribution on account of PF & ESI well before due date of filing the return of income cannot be disallowed and relied upon the decision rendered by Hon’ble Bombay High Court in case of CIT V. Ghatge Patil Transporters Ltd. 368 ITR 749 and various other judgments mentioned in the written submissions running from page 1 to 47 of the paper book. 6. However, on the other hand, the Ld. D.R. for the Revenue by relying upon the order passed by the Ld. CIT(A) contended that when the employees contribution of PF & ESI has not been deposited by the employer before due date prescribed under the Act assessee is not entitled for any deduction. 7. We have perused the order passed by the Ld. CIT(A) who has thrashed the facts in the light of the decision rendered by the Hon’ble Gujarat High Court in case of PCIT vs. Suzlon Energy Ltd. (2020) 115 taxmann.com 340 (Gujarat) and the decisions rendered by the Hon’ble Supreme Court in case of CIT vs. Rajasthan State Beverages Corporation Ltd. (2017) 84 taxmann.com 185 (SC) and in case of Alom Extrusions (P.) Ltd. (2009) 319 ITR 306 (SC) and returned the following findings: “5.28. From above observations of the Apex Court, it is clear that if a statute is curative in nature or merely declaratory of the previous law, ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 5 retrospective operation is generally intended. If the objective of the amendment is to clear the meaning of the principal act, which was already implicit, such amendment will necessarily have retrospective effect because it would be without object unless construed retrospectively. If the amendments in Sec. 36(1 )(va) are viewed from this perspective, there will not be any room for doubt about its nature being clarificatory. This matter has been clarified in the amendment i.e. the true import of 'due date' was very much implicit in the existing explanation 1 of Sec 36(1 )(va) even prior to the amendment. More clarity has been brought about and the existing interpretation is reconfirmed through this amendment by way of insertion of explanation 2. A harmonious construction will not emerge if these amendments were to be construed as prospective. Therefore, relying on the principles of interpretation of statutes as has been adumbrated by Hon'ble Apex Court supra, it is to be held that the clarification brought out by explanation 2 to Sec. 36(1 )(va) will equally hold good for the AYs prior to 2021-22. 5.29. In so far as certain cases wherein the decision is in favour of the appellant in view of the reliance placed on the decision of the jurisdictional Court, even in such cases, the position after the amendment has become very clear. The contradictory decisions by the various Tribunals and High Courts across the country have made it pertinent that the interpretation of the amendment is to be followed as far as the disallowance of employee's contribution to provident fund beyond the due elate is concerned. 5.30. Thus, the aforesaid Explanations inserted by Finance Act, 2021 have clarified that definition of 'due date' as per Sec 43B is deemed never to have been applied for the purpose of employee's contribution. As discussed above, the said amendments are clarificatory in nature. 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 as per the Employee Provident Fund Scheme/ ESI Act, is liable to be added to the income of appellant. In view of the above discussion in paras 5 to 5.29, the appeal or ground No. 2 is dismissed.” 8. However, during the course of preparing order Hon’ble Supreme Court of India has dealt with the issue in question in case of Checkmate Services P. Ltd. vs. CIT order dated 12.10.2022 which supported the order passed by the Ld. CIT(A). The relevant paras of the said decision are reproduced as under: ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 6 “51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Income-Tax and another v. Sabari Enterprises; Commissioner of Income Tax v. Pamwi Tissues Ltd.; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 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 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. 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 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 ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 7 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 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 ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 8 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.” 9. By following the decision rendered by Hon’ble Supreme Court in case of Checkmate Services P. Ltd. vs. CIT (supra), we are of the considered view that Ld. CIT(A) has rightly decided the issue against the assessee as the employees contribution on account of PF & ESI lying deposited with the employers has to be deposited before the due date prescribed under the Act. Since the assessee has failed to comply with the condition precedent for depositing the employees contribution on account of PF & ESI before the due date prescribed under the Act he is not entitled for any deduction. So finding no illegality or perversity in the impugned order passed by the Ld. CIT(A) appeal filed by the assessee is hereby dismissed. Order pronounced in the open court on 31.10..2022. Sd/- Sd/- (GAGAN GOYAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 31.10.2022. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai ITA No.1624/M/2022 M/s. Greekay Facility Management Pvt. Ltd. 9 The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.