Tiberwala Electronics Limited, Hyderabad V. DCIT Circle -2(2), Hyderabad

ITA 424/Hyd/2022

AI Insights

The case involves Tibrewala Electronics Limited appealing against the orders of the Commissioner of Income Tax (Appeals), which were initially under section 143(1) of the Income Tax Act, 1961. The primary issue was the disallowance of deductions for employees' contributions to PF and ESI which were not deposited by the due date as per the relevant statutes but were deposited before the due date for filing income tax returns. The Tribunal referenced the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, which clarified that such contributions must be deposited by the statutory due date to qualify for deductions under section 36(1)(va). The Tribunal found no merit in the assessee's arguments and dismissed both appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122319 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 15-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 04-09-2022
• Other Referred Cases: Checkmate Services Pvt. Ltd. Vs. CIT, Kalpesh Synthetics Pvt Ltd vs DCIT, M/s P R Packaging Service
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Retrospective amendment
• Section: 43B; 139; 142(1); 143(1); 195; 139(1); 246A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA Nos.424 & 425/Hyd/2022 Assessment Year: 2017-18 and 2019-20 Tibrewala Electronics Limited, 6-56/2/40, Bombay Highway, Balanagar, Hyderabad. PAN : AAACT5268J. Vs. DCIT, Circle 2(2), Hyderabad. (Appellant) (Respondent) Assessee by: None Revenue by: Shri KPRR Murthy Date of hearing: 16.01.2023 Date of pronouncement: 16.01.2023 O R D E R PER BENCH : The appeals of the assessee for A.Ys. 2017-18 and 2019-20 arises from the separate orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi’s (“Ld.CIT(A)”) both dated 07.07.2022 involving proceedings under section 143(1) of the Income Tax Act, 1961 (in short, “the Act”). 2 ITA Nos.424 & 425/Hyd/2022 2. As the facts and issues in both the appeals are identical, we are taking ITA No.424/Hyd/2022 as lead appeal for the sake of brevity. 3. Facts of the case in brief are that assessee is a company who filed appeal on 04.10.2021 u/s 246A of the Income Tax Act, 1961 against the order dated 143(1) of the Act dt.14.05.2019 passed by the CPC for A.Y. 2017-18. Aggrieved by the said order, the assessee preferred appeal before the CIT(Appeals). Subsequently, the appeal was migrated to National Faceless Appeals Centre, Delhi, vide CBDT Notification No.139/2021 dt.28.12.2021, wherein the NFAC, Delhi after considering the facts of the case, action of the Assessing Officer and submissions of the assessee, dismissed the appeal of assessee without going into the merits of the case by holding that “the delay in filing the appeal does not merit condonation and the appeal is treated to be filed late with reference to the provisions of section 249(3) of the Act. The main grievance of the assessee in this appeal is in respect of the disallowance under section 36(1)(va) of the Income Tax Act, 1961 (for short “the Act”) on account of the PF and ESI contribution received by the assessee from the employees and deposited with the Government, after due date as per relevant Act, but before the due date to file returns of income. 3 ITA Nos.424 & 425/Hyd/2022 4. Aggrieved with the order of CIT(A), assessee is before us in this appeal stating that inasmuch as the assessee credited the amounts to the Government account within the previous year and well before the due date of filing of return of income prescribed under section 139(1) of the Act, there is no justification in disallowing the same. 5. When the matter is called, neither the assessee nor the authorized representative of the assessee is present. It could be seen from the record that the notices were sent to the address given in form No. 36. There is a presumption in law that all the official acts are performed regularly and properly, and the prescribed procedure is followed in such performance. When the notices were issued to the proper address of the assessee, with postage prepaid, and if the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, or by making request to the postal department to detain the mail till the assessee claims the same. In these circumstances, the non-service of notice, if any, is solely attributable to the conduct of the assessee. We, therefore, find no option but to proceed to hear the counsel for Revenue and decide the matter on merits basing on the material available on record. 4 ITA Nos.424 & 425/Hyd/2022 6. Learned DR placed heavy reliance on the authorities below. To justify the conclusions reached by the learned CIT(A) that the assessee is not entitled to claim the deduction in respect of the delayed remittance of the employees’ contribution of PF and ESI, he placed reliance on the decision reported in Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC). 7. We have gone through the record in the light of the submissions made on either side. In the case of M/s P R Packaging Service (supra), the Bench while referring the provisions under section 143(1)(a)(iv) of the Act, in the light of the view taken by the Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum), was of the opinion that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income; and that if the tax auditor had not stated to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act, the action of the CPC in disallowing the employees’ contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. On the premise, the addition made on account of delayed remission of employees’ contribution of PF and ESI was directed to be deleted. 5 ITA Nos.424 & 425/Hyd/2022 8. Under section 2(24)(x) of the Act, the ‘income’ includes any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of the employees. It, therefore, goes without saying that this deemed income has to be treated as the income of the assessee, the moment such amount comes to the possession of the assessee. It is open for the assessee to claim deduction of the same under section 36(1)(va) of the Act by complying with the said provision. Explanation-1 added by amendment by way of Finance Act, 2021 with effect from 01/04/2021 explains the term ‘due date’ and it does not impact any rights, liabilities and disabilities created by the provision. Such provisions which will only explain certain terms of the existing provision do not create any new rights or liabilities but only the rights and liabilities that were created by the provisions stood explain by the explanation, and, therefore, such explanations will take effect from the date of the provision itself. 9. In Checkmate Services Pvt. Ltd., (supra), the Hon'ble Apex Court dealt with the impact of the provisions under section 36(1)(va) of the Act in depth and while holding the issue against the assessee, held as under : “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 6 ITA Nos.424 & 425/Hyd/2022 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.” 10. This decision of the Hon'ble Apex Court declaring the law under the provision under section 36(1)(va) of the Act will take the retrospective effect, if not otherwise stated to be so specifically. In the decision, nothing contrary is indicated for any prospective effect only. It is, therefore clear that the law under section 36(1)(va) of the Act in the light of the Explanation-1 as declared by the Hon'ble Apex Court 7 ITA Nos.424 & 425/Hyd/2022 in the case of Checkmate Services Pvt. Ltd. (supra), shall be taken to have effect from the enactment of the provision by way of Finance Act, 1987 with effect from 01/04/1988. No other inference is possible. 11. Further, a useful reference could be made to the relevant portions of section 143 of the Act which read thus,- 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— ... ... ... (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; ... ... ... (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; 12. The above provisions indicate that while processing the return of income that was filed under section 139 or section 142(1) of the Act and computing the total income or loss, the adjustment need not be confined to the disallowance of expenditure or increase in income, indicated in the audit report, but not taken into account in the total income under clause (iv), but law permits such adjustment could also be in respect of an incorrect claim which is apparent from the information in the return under clause (ii). 8 ITA Nos.424 & 425/Hyd/2022 13. With the law declared by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), any claim for deduction under section 36(1)(va) of the Act wherein the assessee fails to credit the sums received from the employees to which the provisions under section 2(24)(x) of the Act are applicable, preferred by the assessee would be patently an incorrect claim and the adjustment in that respect at the stage of 143(1) of the Act process is perfectly justified. 14. With this view of the matter, we are of the considered opinion that there is nothing illegality or irregularity in making the disallowance under section 36(1)(va) of the Act in the order dated 14.05.2019 passed under section 143(1) of the Act and, therefore, we hold that the learned CIT(A) rightly upheld the same. No interference is warranted and the appeal is, accordingly, liable to be dismissed. Accordingly, the appeal of assessee in ITA 424/Hyd/2022 for A.Y. 2017-18 is dismissed. 15. In the result, appeal of the assessee is dismissed. 16. Now coming to the other appeal i.e. ITA No.425/Hyd/2022 for A.Y. 2019-20 which is identical to the facts and issues raised in ITA 424/Hyd/2022, our decision in ITA No.424/Hyd/2022 would apply mutatis mutandis. Accordingly, this appeal is also dismissed. 9 ITA Nos.424 & 425/Hyd/2022 17. In the result, both the appeals of assessee are dismissed. The copy of the same may be placed in respective case files. Order pronounced in the Open Court on 16 th January, 2023. Sd/- Sd/- (RAMA KANTA PANDA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 16 th January, 2023. TYNM/sps Copy to: S.No Addresses 1 Tibrewala Electronics Limited, 6-56/2/40, Bombay Highway, Balanagar, Hyderabad. 2 DCIT, Circle – 2(2), Hyderabad. 3 Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi 4 DR, ITAT Hyderabad Benches 5 Guard File By Order