Nepra Resource Management Private Limited, Ahmedabad V. The Asstt. Commissioner of Income Tax, Circle-3(1)(1), Ahmedabad

ITA 320/AHD/2022

AI Insights

The case involves Nepra Resource Management Pvt. Ltd., the appellant, contesting an order from the CIT(A) which confirmed an addition of Rs. 20,74,082 to the company's income for the Assessment Year 2016-17. This addition was initially made by the Assessing Officer under Section 36(1)(va) of the Income Tax Act due to the late deposit of employees' contributions to PF/ESI. The CIT(A) upheld this addition, leading to the current appeal. The Tribunal's decision referenced several Supreme Court and High Court judgments, which collectively established that for assessment years prior to 2021-22, the non obstante clause under section 43B does not apply to employees' contributions, and such contributions must be deposited by the due date to be deductible.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125385 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-08-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 17-08-2022
• Other Referred Cases: Checkmate Services (P.) Ltd. vs. ACIT, Harrisons Malayalam Ltd. vs. ACIT, Gujarat State Road Transportation Corporation vs. ACIT, Pr. CIT vs. Suzlon Energy Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india
• Section: 43B; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .3 20 /A h d / 20 22 ( A s se ss m e nt Y e a r : 20 16- 17 ) Ne pr a R e s ou r c e Ma na g e m e n t Pv t. Ltd ., 70 8 - 7 14 7 t h F lo or , N o ble T r a de C e nte r , O p p . Me m n ag a r , S .O . Ah me da bad - 3 80 05 2 V s .As s is ta nt C o m mi s s i one r of I nc o me Ta x , C ir c l e- 3 ( 1 )( 1 ) , Ah me da bad [ P AN N o. A A CC N 3 8 1 8L ] (Appellant) .. (Respondent) Appellant by : Shri D.K. Parikh, A.R. Respondent by: Shri Ashok Kumar Suthar, Sr. D.R. D a t e of H ea r i ng 21.08.2023 D a t e of P r o no u n ce me nt 25.08.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi in Order No. ITBA/NFAC/S/250/2022-23/1043495858(1) vide order dated 21.06.2022 passed for Assessment Year 2016-17. 2. The assessee has taken the following grounds of appeal:- “1. The learned CIT(A) National Faceless Appeal Centre (NFAC) Delhi has erred both in law and in facts in confirming addition of Rs. 20,74,082/- in respect of disallowance of payment of Employees contribution to PF/ESI duly paid by appellant before due date of furnishing Return of Income. ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 2– 2. The learned CIT(Appeals) [NFAC] further erred in law and on facts in not appreciating that in view of the various judgments of the Apex Court and High Courts, the disallowance of Rs. 20,74,082/- is not called for considering the provisions of section 43B as amended. It be so held now and disallowance made and confirmed by lower authorities be deleted. 3. The ld CIT (Appeals) [NFAC] also erred in law and on facts in not considering the factual and legal position that the Amendment made by the Finance Act, 2021 in section 43B was specifically made applicable from Assessment Year 2021-22 and hence for the year under consideration, no such disallowance either u/s 36(1)(va) r.w.s. 43B as amended was justified. It be so held now and disallowance be deleted. 4. The ld CIT(Appeals) [NFAC] ought to have allowed the appeal in toto. 5. The appellant craves leave to add, alter, modify or delete any of the grounds at the time of hearing.” 3. The brief facts of the case are that the assessee for the year under consideration, did not pay the Employees’ contribution to ESIC / PF by the due dates as specified in the respective Act, as pointed out by the Auditor in the Tax Audit Report. Accordingly, the Assessing Officer made an addition of Rs. 20,74,082/- under Section 36(1)(va) of the Act on account of late contribution in the Employees’ contribution to PF/ESI. ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 3– 4. In appeal CIT(A) upheld the addition made by the Assessing Officer with following observations:- “4.3 I have examined the issue. It is matter of fact that the appellant has not paid the employee's contribution towards PF/ESI totalling to Rs. 20,74,082/- within the due date provided under the relevant law. The provisions, the Act are very clear on the issue. Clause (24) of Section 2 of the Act provides an inclusive definition of the income. Sub- clause (x) to the said clause provides 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. 4.4 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 "Profit 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" shall 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 in accordance with any Act, rule, order or notification issued there-under or under any standing order, award, contract of service of otherwise. ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 4– 4.5 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. Accordingly 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's contribution referred to in clause (va) of sub-section (1) of section 30 of the Act though section 438 of the Act covers only employer's contribution and does not cover employee's contribution, some courts have applied the provision of section 430 on employee contribution as well. There is a distinction between employer's contribution and employee's contribution towards welfare fund it may be noted that employee's contribution towards welfare funds is a mechanism to ensure that compliance by the employers of the labour welfare laws Hence, it needs to be stressed that the employer's 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's 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. ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 5– 4.6 Accordingly, in other to provide certainty, the finance Act, 2021 amended clause (va) of sub-section (1) of the 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 purposed of determining the "due date" under that clause; and also amended section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section de 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. 4.7 Keeping in view the amendments made by the Finance Act, 2021 in section 36 and section 43B of the Act and that these amendments are clarificatory in nature, the addition made by the ACIT, Circle 3(1)(1), Ahmedabad on account of delayed payment of employee's contribution of PF/ESI of Rs. 20,74,082/- is confirmed. Therefore, these grounds of appeal are dismissed. 5. In result, the appeal of the appellant is hereby dismissed. 5. The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(A) confirming the addition. We observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC) wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 6– which were deducted from their income and was held in trust by assessee- employer as per section 2(24)(x), thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. The Supreme Court observed that there is a marked difference between nature and character of assessee- employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be borne while interpreting obligation of assessee-employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees’ contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. Further, the issue is also squarely covered against the assessee by the Jurisdictional High Court decision in case of Gujarat State Road Transportation Corporation (2014) 41 taxman.com 100, wherein it was held that where assessee did not deposit employees' contribution to employees' account in relevant fund before due date prescribed in Explanation to section 36(1)(va), ITA No. 320/Ahd/2022 Nepra Resource Management Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 7– no deduction would be admissible even though he deposits same before due date under section 43B of the Act. Again, the Gujarat High Court in the case of Pr. CIT v. Suzlon Energy Ltd. [2020] 115 taxmann.com 340 (Gujarat) held that where assessee had not deposited employees' contributions towards PF and ESI within prescribed period in law and Assessing Officer by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee, impugned addition made to income of assessee was justified. 6. Respectfully following the above decisions of Hon'ble Supreme Court and Jurisdictional High Gujarat High Court, we hold that there is no infirmity in the order passed by ld. CIT(A). 7. In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 25/08/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 25/08/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad