ATC LOGISTICAL SOLUTIONS PRIVATE LIMITED , DELHI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1, AMRITSAR

ITA 241/ASR/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5929 (ITAT-AMRITSAR)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 03-10-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 17-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF TAX OR DUTY OR
• Keywords: Depreciation; Business expenditure
• Section: 37; 28; 154; 2; 43B; 143(3); 115JB; 37(1); 143(1); 250; 274; 139(1); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 ATC Logistical Solutions Pvt. Ltd. Amritsar Transport Co. Pvt. Ltd.3981/83 1 st Floor Naya Bazar, New Delhi. [PAN:-AABCA6200A] (Appellant) Vs. Dy. Commissioner of Income tax, Circle-1, Amritsar. (Respondent) Appellant by Sh. P. N. Arora, Adv. Respondent by Sh. Rajiv Wadhera, Sr. DR. Date of Hearing 04.10.2023 Date of Pronouncement 31.10.2023 ORDER Per: Anikesh Banerjee, JM: The instant appeal of the assessee was filed against the order of the ld. Commissioner of Income Tax (Appeal), NFAC, Delhi, (in brevity ‘the CIT (A)’) order passed u/s 250 of the Income-tax Act, 1961 (in brevity the Act) for assessment year 2017-18. The impugned order was emanated from the order of I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 2 the Assistant Commissioner of Income Tax, Circle-1, Amritsar, (in brevity the ld. AO) order passed u/s 143(3) of the Act. 2. The assessee has taken the following grounds: “1. That the order of the Assessing Officer as well as the order of Learned CIT(A) are both against the facts of the case and are untenable in law. 2. That the worthy CIT(A) has not appreciated the facts of the case and merely relied on the order of the AO and without any rhyme & reason, the Ld. CIT(A) has confirmed the order of the AO. As such order of the Ld. CIT(A) is also liable to be cancelled and the addition confirmed may be deleted. 3. That the Ld. CIT(A) has grossly erred in confirming the addition of Rs.12,02,801/- on account of late payment of EPF & ESI. All these payments were made before the due date of filing the return and the same is clearly allowable u/s 37(1) and the same should have been allowed. 4. That under the same and similar circumstances, this addition was deleted in appeal by the CIT(A) against order u/s 154 r.w.s. 143(1). It is prayed that the addition of Rs.12,02,801/- may be deleted. 5. That the worthy CIT(A) has grossly erred in dismissing the grounds of appeal on account of payment made towards gratuity at Rs.19,52,569/-. The CIT(A) did not appreciate that the relief was allowed to the tune of Rs.9,12,665/- by the AO in view of the directions issued by IT AT, Amritsar Bench, Amritsar. The copy of order passed u/s 154 r.w.s. 143(1) is I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 3 enclosed herewith wherefrom it is clear that the relief of Rs.9,12,665/- was allowed and it is requested that the necessary relief of Rs.9,12,665/- may kindly be allowed. 6. That the AO was not justified in charging tax on the so-called deemed total income u/s 115JB at Rs.2,25,51,866/-. As such the order to this extent is bad in the eyes of law and the same may be cancelled. Alternatively, the tax charged at Rs.2,25,51,866/- is very high and excessive. 7. That any other ground of appeal which may be argued at the time of hearing of the appeal.” 4. Brief fact of the case is that the assessee filed the return u/s 139. Return was processed u/s 143(1) and the addition was made for provision of gratuity and disallowance of PF and ESI with other disallowance. The assessee challenged the order u/s 143(1) before the ld. CIT(A). The ld. CIT(A) upheld the order of the ld. AO. The assessee further agitated the additions before the ITAT Amritsar Bench and the ITAT Amritsar Bench passed the order and set aside the issue for payment of gratuity of PF and ESI to the ld. AO. Accordingly, the ld. AO allowed the rectification u/s 143(1)/154 and delete the addition made u/s 40A(7) for provision of gratuity amount to Rs.19,52,569/-. The assessee claimed total provision for gratuity amount of Rs.22,59,445/-. The assessee suomoto disallowed Rs.2,63,876/-. So, the balance amount to Rs.19,52,569/- was added back with total income of the assessee. I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 4 4.1 Further, the assessment was framed u/s 143(3) the ld. AO added back the provision for payment of gratuity not allowable u/s 40A (7) amount to Rs.19,52,569/- and the late payment of PF and ESI amount to Rs.12,02,801/-. Being aggrieved assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) passed the order and disallowed the late payment of PF and ESI u/s 36(1)(va) amount to Rs.12,02,801/-. In case of provision for gratuity, the ld. CIT(A) relied on the order of the ITAT Amritsar Bench bearing ITA No. 152/Asr/2020 order dated 14.07.2021. Accordingly, the issue was not adjudicated, and the grounds are dismissed. Being aggrieved assessee filed an appeal before us. 5. The ld. AR vehemently argued and invited our attention in the order of the ITAT Amritsar Bench bearing ITA No.152/Asr/2020 the relevant para 5 is extracted as below: “5. In our view, once the assessee had made the payment during the year under consideration then the same is required to be allowed. However, the above said fact have not been considered by the lower authorities and therefore we deem it appropriate to remand back the matter to the file of the concerned AO to verify whether the contribution towards the gratuity funds were paid by the assessee during the year under consideration or not. If on verification the AO comes to the conclusion that the contribution were made in the year under consideration then the AO is directed to allow the benefit of 40A(7) to the assessee. Needless to say, that while verifying I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 5 above set back of contribution the AO shall afford the opportunity to the assessee and also permit him to support the contention on the basis of the documents/ evidence may be advised. Accordingly, the appeal of the assessee is allowed for statistical purposes.” 5.1 The ld. AR further argued that as per the direction of the ITAT Amritsar Bench the rectification was made by the ld. AO and verification for payment was duly considered an entire demand was deleted. As per the order u/s 143(1)/154 copy of the order is enclosed in APB pages 25 to 33. 5.2 The ld. AR further argued that the delayed payment of PF and ESI was disallowed as per the order of the Hon’ble Apex Court in the case of Checkmate Services Private Ltd[2022] 143 taxmann.com 178 (SC), but the ground was taken for considering the expenses u/s 37(1) of the Act. 6. The ld. DR vehemently argued and first pointed out that the current appeal before the ITAT is against the order of the ld. AO which was framed u/s 143(3) of the Act. The ld. DR invited our attention in assessment order page 3 the relevant paragraph is inserted as below: “ii) Provision for payment of gratuity not allowable u/s 40A(7) of the Act: During the assessment proceedings, it has been found that an amount of Rs.22,59,445/- has been debited to Profit and Loss A/c under the head Provisions for payment of gratuity which is disallowable u/s 40A(7) of the income Tax Act, 1961. Out of I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 6 Rs.22,59,445/-, the assessee has already added back an amount of Rs. 2,63,876/-. Hence, the remaining amount of Rs. 19,52,569/- (Rs.22,59,445/- -Rs.2,63,876/-) is added to the total income of the assessee under the head ‘Income from Business & Profession" on account of disallowance of provision for payment of gratuity.” 6.1 The ld. DR further invited our attention in appeal order page 10 to 11, the relevant paragraphs are extracted as below: “6. Ground No.5 is against addition of Rs. 19,52,559/- on account of payment of gratuity. The appellant has called it a double addition. 6.1 The AO has noted that an amount of Rs. 22,59,445/- was debited to P & L account under the head ‘Payments for gratuity’. Disallowance u/s 40A(7) was restricted to Rs. 19,52,569/- as an amount of Rs. 2,63,876/- was already added. 6.2 In the submission, the appellant has submitted that the decision of the CIT(A) confirming the similar addition made u/s 143(1) was challenged before the Hon’ble ITAT and that the matter has been restored back to AO vide ITAT’s order dated 14.07.2021 in ITA No. 152/ASR/2020. 6.3 I have carefully perused the reply and the order of the ITAT dated 14.07.2021. While holding that once the assessee has made the payment during the year, the same is required to be allowed, the Hon’ble ITAT has remitted the matter back to the AO for verification after affording due opportunity to the assessee. As such, the matter is not required to be adjudicated I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 7 since it has been remitted to AO by higher authority. It is accordingly held that ground no.5 does not need any adjudication and is dismissed.” 6.2 The ld. DR further argued that the section 37 is read as follows: “37. 29 (1) 30 Any expenditure 31 (not being expenditure of the nature described in sections 30 to 36 32 [***] and not being in the nature of capital expenditure 33 or personal expenses of the assessee), laid out or expended wholly and exclusively 33 for the purposes of the business 33 or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". 34 [ 35 [Explanation 1.]—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law 36 shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]” So, the expenses disallowed u/s 36(1)(va) was not be allowed u/s 37 whichis strongly made objection against the AR’s plea. 7. We heard the rival submission and considered the documents available in the record. The assessee in submission consider that the late payment of PF and ESI related to provision amount of Rs.12,02,901/- was already covered as per the order of the Hon’ble Apex Court in the case of Check mate Services Pvt. Ltd. The relevant paragraphs are reproduced as below:- Checkmate Services P. Ltd. Vs CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022), [2022] 143 taxmann.com 178 (SC). In this decision, it was noted by Hon’ble Court that there was divergent of opinion amongst various Hon’ble High Courts viz. High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favoring the interpretation beneficial to the assessee on one hand whereas High Courts of Kerala and Gujarat favoring interpretation in favour of the I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 8 Revenue on the other hand. Taking note of legislative history, the matter has finally been put to rest by Hon’ble Apex Court in revenue’s favour as under: - “Analysis and Conclusions 30. The factual narration reveals two diametrically opposed views in regard to the interpretation of section 36(1)(va) on the one hand and proviso to section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament's endeavour in introducing Section 43B [which opens with its non- obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. 31. Section 43B falls in Part-V of the IT Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, section 40 (which too starts with a non-obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head "Profits and Gains of Business and Profession". Likewise, section 40A(2) opens with a non-obstante clause and spells out what expenses and payments are not deductible in certain circumstances. Section 41 elaborates conditions which apply with respect to certain deductions which are otherwise allowed in respect of loss, expenditure or trading liability etc. If we consider this scheme, Sections 40- 43B, are concerned with and enact different conditions, that the tax adjudicator has to enforce, and the assessee has to comply with, to secure a valid deduction. 32. The scheme of the provisions relating to deductions, such as sections 32-37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 1-04-1988. Through the same amendment, by section 3(b), section 2(24) - which defines various kinds of "income" - inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 9 employer/assessee's income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament treated contributions under section 36(1)(va) differently from those under section 36(1)(iv). The latter (hereinafter, "employers' contribution") is described as "sum paid by the assessee as an employer by way of contribution towards a recognized provident fund". However, the phraseology of section 36(1)(va) differs from section 36(1)(iv). It enacts that "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." The essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. 34. It is therefore, manifest that the definition of contribution in section 2 (c) is used in entirely different senses, in the relevant deduction clauses. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of section 36 (1). All these establish that Parliament, while introducing section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two. 35. It is instructive in this context to note that the Finance Act, 1987, introduced to section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill, 1987, presented to the Parliament, is extracted below: "Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees - 12.1 The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. "Due date" means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 10 12.2 In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head "profits and gains of business or profession" it will be assessed under the head "income from other sources." 36. Significantly, the same Finance Act, 1987 also introduced provisos to section 43B, through amendment (clause 10 of the Finance Bill). The memorandum explaining the Bill, pertinently states, in relation to second proviso to section 43B that: "...The second proviso seeks to provide that no deduction shall be allowed in regard to the sum referred to in clause (b) unless such sum has actually been paid during the previous year on or before the due date. The due date for the purposes of this proviso shall be the due date as under Explanation to clause (va) of sub-section (1) of section 36." 37. It is evident that the intent of the lawmakers was clear that sums referred to in clause (b) of section 43B, i.e., "sum payable as an employer, by way of contribution" refers to the contribution by the employer. The reference to "due date" in the second proviso to section 43B was to have the same meaning as provided in the explanation to section 36(1)(va). Parliament therefore, through this amendment, sought to provide for identity in treatment of the two kinds of payments: those made as contributions, by the employers, and those amounts credited by the employers, into the provident fund account of employees, received from the latter, as their contribution. Both these contributions had to necessarily be made on or before the due date. 38. This court had occasion to consider the object of introducing section 43B, in Allied Motors. The court held, after setting out extracts of the Budget speech of the Finance Minister, for 1983-84, that: "Section 43B was, therefore, clearly aimed at curbing the activities of those tax- payers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted." 39. Original section 43B(b) enabled the assessee/employer to claim deduction towards contribution as an employer, "by way of contribution to any provident fund". The second proviso was substituted by Finance Act, 1989 with effect from 1-4-1989 and read as under: "...Provided further that no deduction shall in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or to by issue of a cheque or draft or by any other mode on or before the due date as defined in the explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the same has been realised within 15 days from the due date." 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 11 "In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and State and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and interest to State and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date of payment of the about related liability. Trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes and interest, i.e. they should be allowed in the year of account. Since the objective of the provision is to ensure that a tax-payer does not avail of any statutory liability without actually making a payment for the same, we are of the view that these objectives would be served if the deduction for the statutory liability relating to labour are allowed in the year of payment. The complete disallowance of such payments is too harsh a punishment for delayed payments. Therefore, we recommend that the deduction for delayed payment of statutory liability relating to labour should be allowed in the year of payment like delayed taxes and interest." Based on the report, the Union introduced amendments to the IT Act, including an amendment to section 43B; the memorandum explaining the provisions in the Finance Bill, 2003 in the matter of section 43B. inter alia, reads thus: "The Bill also proposes to provide that in case of deduction of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees shall be allowed in computing the income of the year in which such sum is actually paid. In case the same is paid before the due date of filing the return of income for the previous year, the allowance will be made in the year in which the liability was incurred. These amendments will take effect from 1st April, 2004 and will accordingly apply in relation to the assessment year 2004-05 and subsequent years." 41. The Notes on Clauses inter alia, reads as follows: "It is also proposed to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years." 42. The rationale for introduction of section 43B was explained by this court in M.M. Aqua Technologies Ltd. v. CIT [2021] 129 taxmann.com 145/282 Taxman 281/436 ITR 582 (SC)/2021 SCC Online SC 575. "19. The object of section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non-obstante clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 12 mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only "actual payment", as contrasted with incurring of a liability, can allow for a deduction." 43. This condition, i.e., of payment of actual amount on or before the due date to enable deduction, continued for 14 years. By the amendment of 2003, the second proviso was deleted. This court interpreted the law, in the light of these developments, in Alom Extrusions. The court considered the effect of omission of the second proviso, and observed as follows: "10. "Income" has been defined under section 2(24) of the Act to include profits and gains. Under Section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund/superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for the welfare of such employees constituted income. This is the reason why every assessee(s) [employer(s)] was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer(s)] is maintaining his books on accrual system of accounting, even after collecting the contribution from his employee(s) and even without remitting the amount to the Regional Provident Fund Commissioner (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of accounts. The same situation arose prior to 1-4-1984, in the context of assessees collecting sales tax and other indirect taxes from their respective customers and claiming deduction only by making provision in their books without actually remitting the amount to the exchequer. To curb this practice, Section 43-B was inserted with effect from 1-4-1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and, under section 43-B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between 1-4-1984 and 1-4-1988, when Parliament amended section 43-B and inserted the first proviso to section 43-B. 11. By this first proviso, it was, inter alia, laid down, in the context of any sum payable by the assessee(s) by way of tax, duty, cess or fee, that if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of the return of income under section 139(1) of the Act, the assessee(s) would be entitled to deduction under section 43-B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To this effect, the first proviso stood introduced with effect from 1-4-1988. ** ** ** 15. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that the Finance Act, 2003, was amendatory and it I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 13 applied prospectively, particularly when Parliament had expressly made the Finance Act, 2003 applicable only with effect from 1-4-2004. ** ** ** 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4-2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4-1988. 19. Secondly, it may be noted that, in Allied Motors (P) Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , the scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallowed under section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on 30-6-1983. The Income-tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under section 43-B which, as stated above, was inserted with effect from 1-4-1984 ** ** ** 22. It is important to note once again that, by the Finance Act, 2003, not only is the second proviso deleted but even the first proviso is sought to be amended by bringing about a uniformity in tax, duty, cess and fee on the one hand vis-à-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003 is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224 ITR 677] was delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003 will operate retrospectively with effect from 1-4-1988 (when the first proviso stood inserted). 23. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income-tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under section 43-B of the Act." I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 14 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in section 36(1) for employers' contribution and employees' contribution, too went unnoticed. The court observed inter alia, that: "15. ...It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a- vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income-tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003". 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corpn. v. CIT [2010] 193 Taxman 193/326 ITR 642 (SC)/[2010] 8 SCC 739 this court held as follows: "27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 15 interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd. 1961 (2) SCR 189.)" 47. Likewise, this court underlined the rule, regarding interpretation of taxing statutes, in CIT v. Calcutta Knitwears, Ludhiana [2014] 6 SCC 444. Recently, in Union of India v. Exide Industries Ltd. [2020] 116 taxmann.com 378/273 Taxman 189/425 ITR 1 (SC)/2020 (5) SCC 274 this court examined, and repelled a challenge to the constitutionality of section 43B, especially the provision requiring actual payment, in respect of leave encashment benefit of employees. The court observations in this regard are relevant: "20. Section 43B, however, is enacted to provide for deductions to be availed by the Assessee in lieu of liabilities accruing in previous year without making actual payment to discharge the same. It is not a provision to place any embargo upon the autonomy of the Assessee in adopting a particular method of accounting, nor deprives the Assessee of any lawful deduction. Instead, it merely operates as an additional condition for the availment of deduction qua the specified head. 21. Section 43B bears heading "certain deductions to be only on actual payment". It opens with a non-obstante clause. As per settled principles of interpretation, a non obstante clause assumes an overriding character against any other provision of general application. It declares that within the sphere allotted to it by the Parliament, it shall not be controlled or overridden by any other provision unless specifically provided for. Out of the allowable deductions, the legislature consciously earmarked certain deductions from time to time and included them in the ambit of Section 43B so as to subject such deductions to conditionality of actual payment. Such conditionality may have the inevitable effect of being different from the theme of mercantile system of accounting on accrual of liability basis qua the specific head of deduction covered therein and not to other heads. But that is a matter for the legislature and its wisdom in doing so. 22. The existence of Section 43B traces back to 1983 when the legislature conceptualised the idea of such a provision in the 1961 Act. Initially, the provision included deductions in respect of sum payable by Assessee by way of tax or duty or any sum payable by the employer by way of contribution to any provident fund or superannuation fund. It is noteworthy that the legislature explained the inclusion of these deductions by citing certain practices of evasion of statutory liabilities and other liabilities for the welfare of employees..." ** ** ** 23. With the passage of time, the legislature inserted more deductions to section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by the employer and repayment of dues to the railways. Thus understood, there is no oneness or uniformity in the nature of deductions included in section 43B. It holds no merit to urge that this Section only provides for deductions concerning statutory liabilities. Section 43B is a mix bag and new and dissimilar entries have been inserted therein from time to time to cater to different fiscal scenarios, which are best determined by the government of the day. It is not unusual or abnormal for the I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 16 legislature to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to override regulations or conditions. 24. The leave encashment scheme envisages the payment of a certain amount to the employees in lieu of their unused paid leaves in a year. The nature of this payment is beneficial and pro-employee. However, it is not in the form of a bounty and forms a part of the conditions of service of the employee. An employer seeking deduction from tax liability in advance, in the name of discharging the liability of leave encashment, without actually extending such payment to the employee as and when the time for payment arises may lead to abhorrent consequences. When time for such payment arises upon retirement (or otherwise) of the employee, an employer may simply refuse to pay. Consequently, the innocent employee will be entangled in litigation in the evening of his/her life for claiming a hard-earned right without any fault on his part. Concomitantly, it would entail in double benefit to the employer - advance deduction from tax liability without any burden of actual payment and refusal to pay as and when occasion arises. It is this mischief clause (f) seeks to subjugate." 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with Eagle Flask Industries Ltd. v. CCE 2004 taxmann.com 350 (SC)/2004 Supp. (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v. Ambay Cement 2005 taxmann.com 1352 (SC)/[2005] 1 SCC 368 as follows: "23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein." This was also reaffirmed in a number of judgments, such as CIT v. Ace Multi Axes Systems Ltd. [2017] 88 taxmann.com 69/[2018] 252 Taxman 274/400 ITR 141 (SC)/[2018] 2 SCC 158. I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 17 50. The Constitution Bench, in Commissioner of Customs v. Dilip Kumar & Co. [2018] 95 taxmann.com 327/69 GST 239 (SC)/[2018] 9 SCC 1 endorsed as following: "24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ "265. Taxes not to be imposed save by authority of law.—No tax shall be levied or collected except by authority of law."] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. ** ** ** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as "Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]", for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.'" 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 DugdhUtpadakSahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 and NipsoPolyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 18 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, AlomExtrutions 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- I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 19 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(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' I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 20 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. 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.” The issue was already decided by the bench in the number of cases in Amritsar Bench. Accordingly, we are not interfering the order of the Revenue authorities. The addition amount of Rs.12,02,801/- is upheld and the addition made is confirmed. 7.1 Related to provision for section 37(1) the bench is already decided the issue in favour of the revenue. So, the ground of the assessee is dismissed. I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 21 7.2 In the ground that provision for gratuity the issue was duly considered on basis of the payment by the ITAT Amritsar Bench in ITA No. 152/Asr/2020 order dated 14.07.2021. The section 40A(7) is duly reproduced as below:- “Expenses or payments not deductible in certain circumstances. 40A (7) (a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision 22 (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.” The provision for gratuity is not the admissible expenses as per the Act. The ld. AR mentioned that the amount was duly paid, and ld. CIT(A) had not made any comment against the ground. The assessee claimed that the reasonable opportunity was denied. In our considered view the issue is remitted back to the file of the ld. CIT(A) for speaking order. Needless to say, the assessee should get reasonable opportunity of hearing in setaside proceeding related to the ground only. I.T.A. No. 241/Asr/2023 Assessment Year: 2017-18 22 8. Considering the above discussion, appeal of the assessee, Ground no-1& 7 are general in nature. Ground nos. 2 to 4 are dismissed. Ground no-5 is allowed for statistical purpose. Ground no-6 is consequential in nature. 9. In the result, appeal of the assessee ITA No. 241/ASR/2023 is partly allowed for statistical purpose. Order pronounced in the open court on 31.10.2023 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order