DCIT, Circle, Patiala V. The Patiala Distt. Co-op. Milk Producers Union Ltd., Patiala

ITA 166/CHANDI/2023

AI Insights

The case revolves around an appeal by the Revenue against the order of the Ld. CIT(A), which had allowed the appeal of The Patiala Distt. Co.Op. Milk Producers Union Ltd. The primary contention was regarding the disallowance of ESI/PF contributions which were allegedly deposited late. The CPC had initially made an addition to the assessee's income on account of these late deposits. However, the CIT(A) reversed this decision, citing that the amendments applicable from the Finance Act, 2021 do not retrospectively affect the assessment year 2018-19. The Revenue challenged this decision, referencing a Supreme Court judgment in Checkmate Services Pvt. Ltd. vs CIT, which emphasized the timely deposit of employee contributions to funds like EPF/ESIC. The Tribunal, after considering the arguments and the specific circumstances of the case, including the technical glitches cited by the assessee, upheld the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135494 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-09-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 26-03-2023
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs CIT, Citi Centre Developers Vs CPC, Jagmohan Singh Vs. DCIT, PCIT vs M/s Organon India Pvt Ltd
• Laws Referred To: Income Tax Act, 1961, Limitation Act, 1963
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect; Question of law; Tax effect; Set aside
• Section: 154; 43B; 143(1); 139(1)

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 166/Chd/2023 िनधाᭅरण वषᭅ / Assessment Year : 2018-19 Dy. CIT Circle, Patiala बनाम The Patiala Distt. Co.Op. Milk Producers Union Ltd. Hasan Pur, Sirhind Road, Patiala- 147001 ̾थायी लेखा सं./PAN NO: AAAAT0459K अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Deepak Aggarwal, Advocate राज᭭व कᳱ ओर से/ Revenue by : Shri Dharam Vir, JCIT, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 19/09/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 21/09/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Revenue against the order of the Ld. CIT(A), NFAC, Delhi dt. 21/09/2022 pertaining to Assessment Year 2018-19. 2. There is a delay of 127 days in filing the appeal as pointed out by the Registry. In this regard, the ld DR drawn our reference to the condonation application which has been filed by the Revenue and the contents thereof read as under: “Sub: Application u/s 5 of Limitation Act, 1963 for Condonation of delay in filing departmental Appeal to ITAT in Appeal No. ITA 166/CHANDI/2023 in the case of The Patiala Distt Co Op. Milk Producers Union Ltd, Patiala.; PAN: AAAAT0459K for the A.Y. 2018- 19-reg Kindly refer to your notice dated 27.03.2023 in the subject case. In this regard the brief facts of the case are that: 1. Return of income declaring income of Rs. 1,06,15,810 was e-filed by the assessee on 18.10.2018 vide acknowledgement no. 338644531181018. The CPC processed the return u/s 143(1)/154 of the Act vide order dated 28.02.2022 by making an addition of Rs. 5,29.421/- on account of disallowance of ESI/PF which was deposited late i.e, after the due date and added it to the income of the assessee, thus, raising a demand of Rs. 2,28,610/- (including interest) Aggrieved with order of the CPC the assessee filed an appeal before the Id. CIT(A). 2 2. The Id. CIT(A), vide its order dated 21.09.2022 passed in appeal No CIT(A) Patiala/10048/2020-21 [order No. ITBA/NFAC/S/250/2022-23/1045758962(1)), allowed the appeal. The Id. CIT(A) held that the amendment which has been brought in by the Finance Act, 2021 shall apply w.elf assessment year 2021-22 and subsequent assessment years and the impugned assessment year being assessment year 2018-19, the said amendment cannot be applied in the instant case. The Ld. CIT(A) further, directed that the addition made by way of adjustment while processing the return of income u/s 143(1) of the Act so made by the CPC towards the deposit of employees' contribution towards ESI and PF, paid before the due date of filing of the return of income u/s 139(1) of the Act be deleted. The ld. CIT (A) placed reliance on the decision of the Hon'ble ITAT Chandigarh pronounced in ITA No 126/Chd/2021 dated 28.10.2021 in the case of Citi Centre Developers Vs CPC. 3. However, on a similar issue, the Hon'ble Supreme Court in the case of M/s Checkmate Services Pvt. Ltd. vs CIT (Civil Appeal No. 2833 of 2016) (copy enclosed as Annexure-A), has held that if an assessee deposits amounts held/retained by it as employee's contribution to EPF/ESIC etc. after the due date (i.e. the date as per the relevant Act), disallowance u/s 36(1)(va) would be attracted and provisions of section 43B, where due date is taken as date of filing of ITR, would not come to the rescue of the assessee. 4. In this regard it is submitted that since the tax effect involved in this case was less than the prescribed monetary limit, for filing of further appeal before the Hon'ble ITAT, the appeal was not filed at initial stage. Further, the impact of the decision in Checkmate Services (supra) was not considered 5. Now in the light of decision of Hon'ble Supreme Court in Checkmate Services, its impact on such similar cases has been considered and the instant case falls under the category to which the decision in Checkmate Services applies. 6. Since the order of Ld. CIT(A) was passed on 21.09.2022 & it was received on the same date in the PCIT office through ITBA, hence the due date for filing appeal before the Hon'ble ITAT would be 20.11.2022. In this case, there was sufficient cause for delay since the decision of the Hon'ble Supreme Court in the case Checkmate Services (supra) has now been considered which is squarely applicable to the instant case. 7. Further, the Hon'ble Calcutta High Court in a recent case PCIT vs M/s Organon India Pvt Ltd (ITAT/16/2020) (copy enclosed as Annexure-B) held in its order dated 15.06.2022 that where there is a substantial question of law involved, appeal should not be rejected on technical ground of delay. The High Court in this case condoned a delay of 314 days in filing appeal by Revenue. The copy of the order is also attached for your kind reference, In view of the above facts, it is most humbly requested that delay of 127 days may kindly be condoned in this case and the appeal of the revenue may kindly be accepted. 3. Both the parties have been heard and condonation application perused. Taking into consideration the Revenue’s reliance on the Hon’ble Calcutta High Court decision in case of PCIT vs M/s Organon India Pvt Ltd and the fact that the ld AR has not raised any objection, the delay in filing the present appeal is hereby condoned and the appeal is admitted for adjudication. 4. In the present appeal, the Revenue has raised the following grounds of appeal: 3 1. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) was right in law in holding that the amendment which has been brought in by the Finance Act, 2021 shall apply w.e.f. assessment year 2021-22 and subsequent assessment years. 2 Whether on the facts & in the circumstances of the case, the Ld CIT(A) has fallen into error while not noticing that Finance Act, 2021 also inserted a second Explanation to section 36(1)(va) wherein it was clarified that provisions of section 43B shall be deemed to never have been applied for the purposes of determining the "due date" under section 36(1)(va) 3. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition made by way of adjustment while processing the return of income u/s 143(1) of the Act so made by the CPC towards the deposit of employees' contribution towards ESI and PF, paid after the due date under the relevant Act but before the due date of filing of the return of income u/s 139(1) of the Act 4. Whether on the facts & in the circumstances of the case, the order of Ld CIT(A) is legally unsustainable now that the Hon'ble Supreme Court vide its judgment in the case of Checkmate Services Pvt. Ltd. vs CIT. Civil Appeal No 2383 of 2016 has brought finality to the issue of 'due date as per the explanation to section 36(1)(va) vis-à-vis that in the second proviso to section 43B. 5. The appellant craves leave to add, amend or delete any of the grounds of appeal during the appellate proceedings. 5. During the course of hearing the Ld. DR has submitted that the CPC, Bangalore vide its order passed under section 154 dt. 28/02/2022 has disallowed a sum of Rs. 5,29,421/- under section 36(1)(va)for failure of the assessee to pay the employees share of contribution to PF/ESI before the prescribed due date under the relevant Act. 5.1 It was submitted that during the appellate proceedings, the Ld. CIT(A) has accepted the contention of the assessee that since amount has been paid before the due date of the filing of the return of income under section 139(1) of the Act, the same ought to have been allowed. It was further held by the Ld. CIT(A) that the amendment brought in by the Finance Bill 2021 is prospective in nature relying on the Coordinate Chandigarh Benches decision in case of Jagmohan Singh Vs. DCIT (in ITA Nos. 185 & 193/Chd/2021 dt. 15/12/2021) as well as the decision in case of M/s Citi Centre Developers Vs. CPC (in ITA No. 126/Chd/2021 dt. 28/10/2021). 5.2 It was submitted that in view of the Hon’ble Supreme Court decision in case of Checkmate Services Pvt. Ltd. Vs. CIT (Civil Appeal No. 2383 of 2016 dt 12/10/2022), the said view of the Ld. CIT(A) is legally unsustainable as the matter has been finally settled by the Hon’ble Supreme Court and our reference was drawn to the findings of the Hon’ble Supreme Court which read as under: 4 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 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(1Xiv), 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 Kva) 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 assesse amployer’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, 5 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 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. 5.3 It was accordingly submitted that in view of the decision of the Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. (supra), the order so passed by the Ld. CIT(A) deserves to be set aside and that of the AO/CPC be sustained. 6. Per contra, the Ld. AR taken us though the statement of facts as submitted by the assessee before the Ld. CIT(A) during the appellate proceedings and the contents thereof read as under: "The assessee is a Co-op Society and registered under the Co- op Society Act, Punjab and is carrying on the business of manufacturing of milk products and trading of cattle feed, food seed, medicines, mineral etc and has filed its ITR declaring an income of Rs. 1,06,15,810/- on 18.10.2018 vide e-filing ack no. 338644531181018. The assessment u/s 143(1)/154 of the I.T. Ad 1961 was made by the Centralized Processing Centre, Income Tax Department, Bangalore-560500 vide CRN No. CPC/1819/U5/1976411090 Dated 28.02.2020. The Ld. Assessing Officer without considering the facts and made an addition of Rs. 5 29,421/- on account of disallowance of ESI/PF late deposited i.e. after the due date but before filing the return u/s 139(1) and added it to the income of the assessee. The CPC Centre has created the demand of Rs. 2,28,610/- against us by ignoring the factual position of the case and material available on record. The appellant has deposited ESI/PF as under: Particulars Amount Deducted Due date of deduction Date of deposit Delay PF 526 297/- 15.06.2017 16.06.2017 1 day ESI 1678/- 15.05.2017 18.05.2017 3 day ESI 1446/- 15.06.2017 16.06.2017 1 day So in this way the delay was just one/two days and amount was paid before due of filing of return u/s 139(1) of act. The Worthy Supreme Court in the case of Alom Extinctions Ltd. has already supported our view point. Hence no addition to be made. Moreover, PF contribution of Rs. 526297 was not paid due to online portal error and we have tried to pay on 15.06.2017 itself. The relevant proof of available with us to show the genuineness of our claim. In view of online glitches we are unable to deposit PF in time despite our best effort. PF authorities also did not take any adverse view in the matter. The Ld. Assessing Officer has assessed the total income at Rs. 1,11,45,230/- for the year under consideration. Hence this appeal." 6.1 Further, our reference was drawn to the written submission filed before the Ld. CIT(A) which read as under: “During the year under consideration, the assessee has deducted the ESI/PF of the their employees and deposited the same to the Govt. Authority. Further, the assessee has filed 6 his return of income which has processed u/s 143(1)/154 IT act, 1961. But the CPC has made the addition of Rs. 5,29,421/- on account of disallowance of ESI/PF expenses considering that the assessee has deposited late i.e. after the due date under the respective act. This fact is apparent from record that the assessee has deposited employee's contribution before due date u/s 139(1) of the Act. The Assessee had failed to deposit PF contribution of Rs, 526297/- due to online PF portal error ,otherwise it had tried to pay PF and ESI on 15.06.2017 itself. As evident from information on Provident Fund portal that the assessee had tried to deposit it on 14/06/2017 but it was rejected at portal and again it was confirmed on 16.06.2017. In view of online glitches we are unable to deposit PF in time despite our best effort. PF authorities also did not take any adverse view in the matter.” 6.2 It was submitted by the ld AR that it is a case where there is a delay of 1 to 3 days in depositing the PF/ESI dues and the said delay has happened on account of online technical glitches which the assessee faced while depositing the PF/ESI contribution. It was submitted that the assessee has a necessary proof to show the genuineness of the said claim. It was further submitted that subsequently, the deposits were made on 16/06/2017 as against 15/06/2017 and even the PF Authority have not taken any adverse view in the matter. Taking into consideration the online technical glitches which the assessee faced while depositing the PF/ESI contribution, it was submitted that the said facts have been duly brought to the notice of the Ld. CIT(A) and there is no adverse findings recorded by the Ld. CIT(A). 6.3 It was accordingly submitted that given the peculiar facts and circumstances of the case where there is delay of only 1 to 3 days and specially where the PF Authorities have not taken any adverse view in the matter, it cannot be held that the PF/ESI contribution have been paid beyond the prescribed due date under the relevant Act. It was accordingly submitted that even though there is a decision of the Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. (supra) as referred to by the Ld. DR, however, given the peculiar facts and circumstance of the case, where there is effectively no delay in the deposit of PF/ESI under the relevant Act, the relief provided by the Ld. CIT(A) did not be disturbed. 7. We have heard the rival contentions and purused the material available on record. In view of the Hon’ble Supreme Court decision in case of Checkmate Services, it is now a settled position in law that the assessee shall be eligible to claim deduction u/s 36(1)(va) where the sum received from the employees, to which the provisions of 7 section 2(24)(x) applies, is credited by the assessee to the employee’s account in the relevant fund on or before the due date as per the relevant Act. As held by the Hon’ble Supreme Court, the amounts have to be deposited in terms of such welfare enactments and it is upon deposit in terms of those enactments and on or before the due date mandated by such concerned law, that the amount which is otherwise retained and deemed as income is treated and allowed as a deduction. The relevant statute are Employee Provident Fund Act and Employees State Insurance Act and related schemes and regulations. 8. In terms of these statutes, as also duly taken note of by the Hon’ble Supreme Court, the EPF contribution has to be paid within 15 days of the close of every month and ESI contribution within 21 days of the last day of the calendar month in which the contribution fall due. 9. In the instant case, the undisputed facts are that PF contribution for the month of May, 2017 has been deposited on 16/06/2017 and ESI contribution of Rs 16,767/- for the month of April, 2017 has been deposited on 18/05/2017 and ESI contribution of Rs 1,446/- for the month of May, 2017 has been deposited on 16/06/2017. 10. Therefore, as far as ESI contribution for month of April and May is concerned, the same has been duly deposited within 21 days of the last day of the calendar month in which the contribution fall due as so prescribed and hence, the said contribution has been deposited within the due date and therefore, the assessee is eligible for deduction of ESI contribution of Rs 16,767/- for the month of April, 2017 and Rs 1,446/- for the month of May, 2017 in terms of section 36(1)(va) of the Act. 11. Now, coming to the PF contribution of Rs 526,297/- for the month of May, 2017 which has apparently been deposited on 16/06/2017 instead of 15/06/2017, it has been submitted by the assessee before the ld CIT(A) and has been reiterated by the ld AR before us that the said delay has happened on account of online technical glitches which the assessee faced while depositing the PF/ESI contribution. It was submitted that the assessee tried to deposit the contribution on 14/06/2017 but it was rejected at PF portal and later on, the assessee was able to deposit on 16/06/2017 and it was confirmed on 16/06/2017 and the assessee has a necessary proof to show the 8 genuineness of the said claim. It was further submitted that even the PF Authorities have not taken any adverse view in the matter. The question that arises for consideration whether the delay of one day on account of technical glitches whereby the assessee was prevented by sufficient cause beyond its control in making the payment can be held against the assessee and more so, where the PF authorities have not taken any adverse view in the matter. 12. In our view, where the PF authorities who are mandated under the relevant statue to enforce necessary compliances have accepted the explanation of the assessee that the delay of one day has happened due to online glitches and no adverse finding has been recorded, the tax authorities have to take the same into consideration instead of taking an independent view in the matter as the whole purposes of denial of deduction u/s 36(1)(va) is to enforce timely payment of PF dues under the relevant statue. Further, the said explanation of the assessee was very much before the ld CIT(A) and there is thus a presumption that he has accepted the said explanation while allowing the claim of the assessee besides relying on the various Coordinate Bench decisions. In view of the same, we are of the considered view that the decision of the Hon’ble Supreme Court where seen in the context of facts and circumstances of the present case, doesn’t support the case of the Revenue. 13. Before parting, another important aspect of the matter that we noticed from the Revenue’s condonation application is that the tax effect involved in the present appeal is admittedly well below the prescribed limit fixed by the CBDT for filing the appeal before the Tribunal. The Revenue knowing the said fact has still decided to file the present appeal in light of the decision of the Hon’ble Supreme Court. The question that arises is whether the present case falls under the exception as carved out in the CBDT circular no. 3 of 2018 dated 11/07/2018 read with clarification dated 20/08/2018 wherein it has been provided that irrespective of low tax effect or no tax effect, in certain specific cases, the matter should be contested on merits. Since none of the parties have argued on these lines, we leave it open to be decided at an appropriate stage. 9 14. In light of aforesaid discussion and in the entirety of fact and circumstances of the case, we upheld the order of the ld CIT(A) and the appeal of the Revenue is dismissed. Order pronounced in the open Court on 21/09/2023. Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 21/09/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar