The Assistant Commissioner of Income Tax, Educational Health and Central Circle-2, Viskahapatnam V. Sri Vijaya Visakha Milk Producers Company Limited, Viskahapatnam

ITA 240/VIZ/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1133 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 03-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 2; 43B; 142(1); 143(2)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.240/Viz/2020 (ननधधारण वर्ा / Assessment Year : 2013-14) Asst.Commissioner of Income Tax Central Circle-2 Visakhapatnam Vs. M/s Sri Vijaya Visakha Milk Producers Company Ltd. Visakha Diary, BHPV Post NH-1, Nathayyapalem Visakhapatnam [PAN : AAJCS7398P] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri A.Chakradhar, AR प्रत्यधथी की ओर से / Respondent by : Shri S.P.G.Mudaliar, DR सुनवधई की तधरीख / Date of Hearing : 05.05.2022 घोर्णध की तधरीख/Date of Pronouncement : 26.05.2022 O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by revenue against the order of the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”]-3, Visakhapatnam in Appeal No.119/2016-17/CIT(A)-3/VSP/2020-21 dated 07.10.2020 for the Assessment Year (A.Y.) 2013-14. 2 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam 2. Brief facts of the case are that the assessee company procures milk from farmers through co-operative societies situated at Srikakulam, Vizianagaram, Visakhapatnam, East Godavari and West Godavari. The assessee company filed its return of income for the A.Y.2013-14 declaring total income at Rs.2,00,41,050/-. The case was selected for scrutiny under CASS, accordingly notices u/s 142(1) and 143(2) of the Income Tax Act, 1961 (in short ‘Act’) were issued. On verification of books of accounts produced by the assessee, it was noticed by the Assessing Officer(AO) that the assessee company has not remitted the employees’ contribution to Provident Fund and ESI within the due date. The AO relied on the provisions of sec.2(24)(x) r.w.s. 36(1)(va) of the Act, wherein, the employer has to remit the employees’ contribution to the provident fund within the due date prescribed under the PF Act / ESI Act, failing which the entire contribution paid after the due date will be disallowed. Further the AO relied on CBDT’s Circular No.22/2015 dated 17.12.2015, wherein, it was clearly held that the employer who fails to remit the employees’ contribution towards provident fund and ESI needs to be disallowed u/s 43B. Accordingly, disallowed the sum of Rs.2,31,60,545/-. 3. Aggrieved by the order of the AO, the assessee is in appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO. 3 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam 4. Aggrieved by the order of the Ld.CIT(A), the revenue is in appeal before the Tribunal and has raised the following grounds of appeal : (i) The Ld.CIT(A) erred in deleting the addition made by the AO towards belated remittance of employees contribution to PF and ESI relying on provision of section 43B, wherein employees contribution is governed by provisions of section 36(1)(va) and not section 43B. (ii) The Ld.CIT(A) erred in deleting the addition by relying on Hon’ble Apex Court decision of CIT Vs. Alom Extrusions (319 ITR 306\) wherein the Apex court’s decision is related to employer’s contribution not employees contribution. (iii) Any other ground of appeal that may arise at the time of hearing. The only grievance of the revenue is that the Ld.CIT(A) erred in deleting the addition made by the AO towards belated remittance of employees’ contribution to PF and ESI. 5. On the other hand, the Ld.AR relied on the order passed by the Ld.CIT(A) and requested to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the revenue. 6. We have heard both the parties and at the outset, we find that the issue before us is settled by the Memorandum Explaining the Provisions in Finance Bill, 2021 wherein it is stated that amendment to section 36(1)(va) and section 43B of the Act will take effect from 1/4/2021. The relevant portion of the Memorandum is extracted herein below for reference. 4 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam “Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide 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 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 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 5 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam 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. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. In the case of the assessee, it is not disputed that the amount of employees’ contribution to PF & ESI was deducted by the assessee and remitted to Govt. account within the due date of filing the return of income under the Income Tax Act, 1961. From the above, though the memorandum explaining the provisions to Finance Act, 2021, wherein, relevant clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 6 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam and subsequent assessment years, the intent of the legislature is very clear that if the employees contribution collected by the employer is paid or deposited to Govt. account before date of filing of the return of income, there should not be any disallowance on this count. Therefore, following the above, memorandum of explanation, to the Finance Act, 2021, we are of the considered view that the decision taken by the Ld.CIT(A) in principle is correct and therefore uphold the same. Accordingly, the grounds raised by the revenue are dismissed. 7. In the result, appeal of the revenue is dismissed. Order Pronounced in open Court on 26 th May, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 26.05.2022 L.Rama, SPS 7 ITA No.240/Viz/2020, A.Y.2013-14 M/s Sri Vijaya Visakha Milk Producers Co. Ltd., Visakhapatnam आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/The Revenue – Asst.Commissioner of Income Tax, Central Circle- 2, Prathyakshakar Bhavan, Sector-8, MVP Double Road, Visakhapatnam 2. ननधधाऩरती/ The Assessee– M/s Sri Vijaya Visakha Milk Producers Company Ltd., Visakha Diary, BHPV Post, NH-1, Nathayyapalem, Visakhapatnam 3. प्रधान आयकर आयुक्त / The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. आयकर आयुक्त (अपील) / Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam