The ACIT-1(1), Indore V. M/s. Bridgestone India Pvt. Ltd., Pune

ITA 210/Ind/2022

AI Insights

The case involves an appeal by the Assistant Commissioner of Income Tax against M/s. Bridgestone India Pvt. Ltd. concerning the disallowance of Rs.2,09,59,201 under Section 36(1)(va) of the Income Tax Act for the Assessment Year 2019-20. The disallowance was initially made by the AO due to the late deposit of employees' contributions to PF and ESI. The CIT(A) had deleted this addition, which was contested by the Revenue. The Tribunal, referencing the Supreme Court's decision in Checkmate Services (P.) Ltd. v. CIT, overturned the CIT(A)'s decision, emphasizing the necessity of timely deposit of such contributions for them to be deductible.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122604 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-02-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 23-08-2022
• Other Referred Cases: Checkmate Services (P.) Ltd. v. CIT-1 448 ITR 518
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 43B; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI.VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.210/Ind/2022 Assessment Year: 2019-20 The Assistant Commissioner of Income Tax-1(1), Aayakar Bhawan Annex, Indore, M.P. v. M/s. Bridgestone India Pvt. Ltd. Plot No. A-43, Phase-II, MIDC, Chakan, Pune, Maharastra, 410501 PAN-AABCB2304E (Appellant) (Respondent) Assessee by: None Respondent by: Sh. Ashish Porwal, Sr. DR Date of hearing: 01.03.2023 Date of pronouncement: 29.03.2023 O R D E R SHRI VIJAY PAL RAO, J.M.: This appeal by the Revenue is directed against the order dated 3 rd July, 2022 of CIT(A) (National Faceless Appeal Centre, Delhi) for the Assessment Year 2019-20. The Revenue has raised the following grounds: “The Ld. CIT(A) was not justified in deleting the addition made on account of disallowance of Rs.2,09,59,201/- under section 36(1)(va) while ignoring the legislative intent whereby the employer is required to deposit the employee's contribution by the date prescribed in the PF and ESI Rule. The Ld. CIT (A) was not justified in deleting the aforesaid addition while deciding the matter conditionally in as much as the issue has been left for the A.O. to examine.” ITA No. 210/Ind/2022 Assessment Year. 2019-20 M/s. Bridgestone India Pvt. Ltd. 2 2. The solitary issue arises in the appeal of the Department is whether the CIT(A) is justified in deleting the addition made under Section 36(1)(va) of the Income Tax Act on account of delay in depositing the employees’ contribution towards PF & ESI. 3. None has appeared on behalf of the respondent/assessee despite the notices issued. The Bench proposed to hear and disposed of this appeal ex-parte because the issue involved in the Revenue’s appeal is now covered by the judgment of Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. CIT-1 448 ITR 518. The assessee has not raised any other issues by way of filing any Cross Objection or under Rule 27 of ITAT Rules. 4. We have heard the Learned DR and carefully perused the impugned order of the CIT(A). There is no dispute that the assessee has deposited a sum of Rs. 2,09,59,201/- towards employees’ contributions to PF & ESI beyond the due date of making the payments under PF & ESI Acts. Therefore, the AO made an addition of this amount under Section 2(24)(x) r.w.s. 36(1)(va) of the Act. The CIT(A) has deleted the addition by following various decisions of Hon’ble High Courts. It is pertinent to note that there were divergent views of Hon’ble High Courts on this issue and finally this issue has already been settled by the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. CIT (supra). The relevant part of the decision of Hon’ble Supreme Court in Para 51-55 is reproduced as under: ITA No. 210/Ind/2022 Assessment Year. 2019-20 M/s. Bridgestone India Pvt. Ltd. 3 “51. The analysis of the various judgments cited on behalf of the assessee i.e.,CIT v. Aimil Ltd. [2010] 188 Taxman 265/321 ITR 508 (Delhi); CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.); CIT v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bom.); CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 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 contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The ITA No. 210/Ind/2022 Assessment Year. 2019-20 M/s. Bridgestone India Pvt. Ltd. 4 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 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. ITA No. 210/Ind/2022 Assessment Year. 2019-20 M/s. Bridgestone India Pvt. Ltd. 5 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. Thus, the issue is now settled and no more res-integra as decided against the assessee and in favour of the Revenue by the Hon’ble Supreme Court. Respectfully, following the judgment of Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. CIT (supra), the impugned order of the CIT(A) is set aside and the order of the AO is restored. 6. In the result, the appeal of the Revenue is allowed. Order pronounced on 29/03/2023 as per Rule 34 (4) of I.T.A.T. Rules, 1963. Sd/- Sd/- (B.M. BIYANI) [VIJAY PAL RAO] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29/03/2023 Indore/Allahabad K.D. Azmi Copy forwarded to: Durgesh Shukla 1. Appellant- The ACIT, Indore 2. Respondent- 3. CIT(A), 4. CIT 5. DR By order Sr. P.S.