ITO-14(3)(1), Mumbai V. M/S. HUDL INDIA PRIVATE LIMITED, Mumbai

ITA 3046/MUM/2022

AI Insights

The case involves an appeal by the Income Tax Officer against M/s HUDL India Pvt. Ltd. concerning the disallowance of Rs.2,22,619, which was initially added by the CPC due to non-compliance with the provisions of Section 2(24) read with Section 36(1)(va) of the Income Tax Act. This disallowance pertained to the late deposit of employees' contributions to PF/ESIC. The CIT(A) had earlier directed the deletion of this addition to the extent that the employee's contributions were remitted before the due date of filing the return. However, the Department Representative argued that based on the Supreme Court's ruling in Checkmate Services Pvt. Ltd., such contributions are not deductible if paid after the due date. The Tribunal, referencing this Supreme Court decision, remanded the issue back to the assessing officer for a decision aligned with the Supreme Court's findings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130177 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 31-01-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 01-12-2022
• Other Referred Cases: Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax-1
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 2; 43B

Judgement Text

P a g e | 1 ITA No.3046/Mum/2022 ITO-14(3)(1) Vs. M/s HUDL India Pvt. Ltd. IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 3046/Mum/2022 (A.Y.2020-21) ITO-14(3)(1) Room No.554, 5 th Floor, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai – 400 020 Vs. M/s HUDL India Pvt. Ltd. Level 3 Neo Vikram, New Link Road, Above Audi Showroom Andheri (West) Mumbai – 400 053 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AARCS6557J Appellant .. Respondent Appellant by : Chetan M. Kacha Respondent by : None Date of Hearing 01.02.2023 Date of Pronouncement 13.02.2023 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the revenue is directed against the order passed by the NFAC (NFAC), Delhi dated 04.10.2022 for A.Y. 2020-21. 2. The solitary issue in appeal is disallowance of Rs.2,22,619/-made by CPC for not making compliance with provision of Section 2 (24) r.w.s 36(1)(va) of the At on account of deposit of employees contribution for PF/ESIC in relevant funds. The ld. CIT(A) directed the A.O to delete the addition to the extent of employee’s contribution towards PF/ESIC which was remitted before the due date of filing the return of income. P a g e | 2 ITA No.3046/Mum/2022 ITO-14(3)(1) Vs. M/s HUDL India Pvt. Ltd. 3. During the course of appellate proceedings before us the ld. Department Representative vehemently contended that the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax-1, Civil Appeal No. 2833 of 2016 has clarified that employees contribution to the welfare funds governed by Sec. 36 sub-section (1)(va) of the Act if paid after due date of payment, deduction of same is not allowable. We have perused the relevant part of the decision in the Checkmate Services Pvt. Ltd. of the Hon’ble Supreme Court. The relevant part of the decision is reproduced as under: “51. The analysis of the various judgments cited on behalf of the assessee i.e., 11.27 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 P a g e | 3 ITA No.3046/Mum/2022 ITO-14(3)(1) Vs. M/s HUDL India Pvt. Ltd. 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(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. 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.” P a g e | 4 ITA No.3046/Mum/2022 ITO-14(3)(1) Vs. M/s HUDL India Pvt. Ltd. Following the decision of Hon’ble Supreme Court as supra we set aside this issue to the file of the assessing officer for deciding afresh in accordance with the decision of Hon’ble Supreme Court after providing due opportunity to the assesse. Accordingly, the appeal of the revenue is allowed for statistical purposes. 4. In the result, the appeal of the revenue is allowed for statistical purposes. Order pronounced in the open court on 13.02.2023 Sd/- Sd/- (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 13.02.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.