Sh.Balaji Buildmate (P) Ltd., Gurgaon V. AO,Circle -4(1), Gurgaon

ITA 450/DEL/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9562 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2018-2019
• Appeal Filed On: 08-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: THIS JUDGEMENT
• Keywords: Deemed to accrue or arise in india; Question of law
• Section: 154; 2; 43B; 139; 143(3); 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.450/Del/2022 Assessment Year : 2018-19 Shri Balaji Buildmate (P) Ltd., 511, 5 th Floor, Old Trade Centre, Sohna Road, Gurgaon (Haryana). PAN: AASCS3421L Vs. AO, Circle-4(1), Gurgaon. (Appellant) (Respondent) Assessee by : Shri Gautam Jain, Advocate Revenue by : Ms Kajal Singh, Sr. DR Date of Hearing : 20.09.2022 Date of Pronouncement : 30.09.2022 ORDER PER C.M. GARG, JM: This appeal filed by the assessee is directed against the order dated 27.12.2021 of the CIT(A)-3, Gurgaon, for Assessment Year 2018-19. 2. The grounds of appeal raised by the assessee read as under:- “1. That the learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre has erred both in law and on facts in upholding a disallowance of sum of Rs. 26,36,864/- under the head ‘other current liabilities’ by invoking section 43B of the Act 2 That the learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre has also erred both in law and on facts in upholding disallowance of Rs. 52,21,351/- and Rs. 5,75,205/- by invoking provision of section 2(24)(x) read with section 36(l)(va) of the Act in an intimation dated 28.3.2021 u/s 143(1) of the Act. ITA No.450/Del/2022 2 3 That even otherwise the adjustment so made in any intimation u/s 143(1) of the Act of a debatable and contentious issue is impermissible and thus untenable. 4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that intimation dated 2.10.2019 was made without granting opportunity much less fair meaningful and effective opportunity and therefore such an intimation is otherwise vitiated. 5 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that intimation dated 2.10.2019 was made without jurisdiction; and therefore deserves to be quashed as such. 6 That various findings and, observations recorded by the learned Commissioner of Income Tax (Appeals) are based on surmises, conjectures and suspicion; and factually incorrect, legally misconceived and, in fact in disregard of binding judgment of jurisdictional High Court and; thus untenable. Prayer: It is therefore, prayed that, it be held that adjustments made are without jurisdiction. It be further held that disallowances made and upheld by the learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant company be allowed.” 3. Apropos ground No.1, the ld. Counsel of the assessee submitted that the ld.CIT(A), National Faceless Appeal Centre has erred both in law and on facts in upholding a disallowance of sum of Rs. 26,36,864/- under the head ‘other current liabilities’ by invoking section 43B of the Act. The ld. Counsel submitted that the assessee was not allowed due opportunity to explain its case before the AO as the assessee found that the disallowance has been made under intimation/order u/s 143(1) of the Act. The ld. Counsel further submitted that the AO, in the order u/s 143(3) of the Act, added back the impugned amount without considering the fact that the appellant had already disallowed in ITR ITA No.450/Del/2022 3 filed for previous year, i.e., AY 2017-18 u/s 43B of the Act due to non-payment of impugned amount on account of service tax, labour fund, welfare cess and WCT by the due date u/s 139(1) of the Act of the respective assessment year and the same was actually paid during AY 2018-19, hence, claimed as deduction u/s 43B of the Act on payment basis in the assessment year 2018-19 as per the provisions of section 43B of the Act. The ld. Counsel also submitted that these facts are clearly discernible from the return of income filed by the assessee for AY 2017-18 and 2018-19 which were also produced before the ld.CIT(A) which clearly prove and substantiate the explanation of the assessee. 4. Replying to the above, the ld. Sr. DR submitted that the AO as well as the ld.CIT(A) was right in making disallowance u/s 43B of the Act as the facts placed by the assessee regarding adding back the same amount in previous assessment year 2017-18 and claiming the same after payment in 2018-19 was not before the authorities below and neither the AO nor the ld.CIT(A) was allowed to examine and verify such claim of the assessee, therefore, examination of veracity of explanation of the assessee by the AO is necessary. 5. On careful consideration of the above submissions, we are of the considered view that from para 3 of the first appellate order, it is clearly discernible that the assessee in its written submissions before the ld.CIT(A)/NFAC placed detailed submissions on the issue of impugned disallowance made by the AO on account of disallowance under the head ‘Other ITA No.450/Del/2022 4 current liabilities’ by invoking the provisions of section 43B of the Act, but, from a vigilant and careful reading of the first appellate order, we are unable to see any adjudication by the ld.CIT(A) on ground No.1 of the appellant. Therefore, agreeing with the contentions of the ld. Sr. DR, ground No.1 of the assessee as noted in Form No.35 is restored to the file of the CIT(A) for adjudication. Accordingly, ground No.1 of the assessee is allowed for statistical purposes. 6. Apropos ground No.2, the ld. counsel of the assessee, placing reliance on the judgement of the Hon’le jurisdictional High Court in the case of PCIT vs. TV Today Network Ltd., reported as (2022) 328 CTR 0204 (Del) and the judgement in the case of CIT vs. AIMIL Ltd., 321 ITR 508 (Del), submitted that despite the fact that the assessee paid the entire employee contribution towards ESI and PF before filing of the return u/s 139(1) of the Act, the ld.CIT(A) dismissed the contention of the assessee on the strength of amendment in section 36(1)(va) and section 43B of the Act by holding that these provisions are retrospectively applicable to the present AY 2018-19 also. The ld. AR, drawing our attention to paras 35-46, submitted that the Hon’ble jurisdictional High Court has categorically held that the Memorandum of Finance Bill 2021 proposing the said amendment explicitly stipulates that the said amendment will take effect from 01.04.2021 and it cannot, therefore, apply to the preceding AY such as 2018-19 ITA No.450/Del/2022 5 in the present case. Therefore, the issue is covered in favour of the assessee by this judgement. 7. Replying to the above, the ld. Sr. DR strongly supported the assessment as well as the first appellate order and submitted that the amendment made by Finance Act, 2021 is of retrospective in nature, therefore, the AO was right in making the disallowance and the ld.CIT(A) was also correct in upholding the same. 8. On careful consideration of the above rival submissions, we are of the considered view that the controversy regarding payment of employees’ contribution to ESI and PF is no more res integra. The Hon’ble jurisdictional High Court of Delhi in various judgements including the recent judgement in the case of PCIT vs. TV Today Network Ltd. (supra) held that as per the Memorandum to Finance Act, 2021, the amendment to section 36(1)(va) of the Act and section 43B of the Act will take effect from 1 st April, 2021 and it cannot apply to previous assessment years. The relevant paras of the judgement reads as follows:- “34. In fact, in CIT vs. SPL Industries Limited (supra) the court took note of another judgment of this court in CIT vs. P.M. Electronics Ltd. reported in 313 ITR 161 (Del.) on the same proposition. This court in ITA No. 794/2010 in its order dated 7th July, 2010 in CIT vs. SPL Industries Ltd. has held as under : “5. Ms. Suruchi Aggarwal, learned counsel for the revenue submitted that the tribunal has fallen into error by placing reliance on the decision rendered in CIT vs. P.M. Electronics Ltd., 313 ITR 161 ITA No.450/Del/2022 6 (Del.) wherein it has held that if the payments are made before the due date of filing the return, no such disallowance can be made under Section 43B of the Act is not applicable to the case at hand inasmuch as the said decision had placed reliance on the decision of the Apex Court in the case of CIT vs. Vinay Cement ITA 227/2022 Page 11 of 21Ltd., 2007 (213) CTR 268 = 2009 (313) ITR (SC) which only relates to the contribution made by the employer and would not cover the contribution made by the employees . In this context, we may profitably referred to the decision in Commissioner of Income Tax vs. AIMIL Limited in ITA No. 1063/2008 whereby a Division Bench of this Court was dealing with the issue whether the tribunal was correct in law deleting the addition relating to employees’ contribution towards the Provident Fund and the Employees State Insurance contribution made by the assessing officer under Section 36(1)(va) of the Act. The Division Bench, as is evident from the order, referred to the clause (v) of sub-section (1) of Section 36 and thereafter to clause (va) of the same and scanned the anatomy of 43B and referred to the decision in Vinay Cement Ltd. (supra) and relied on the decision in P.M. Electronics Ltd.(supra) wherein the substantial questions of law were framed, inter alia, whether the amounts paid on account of PF/ESI after due date are allowable in view of Section 43B read with Section 36(1)(va) of the Act and proceeded to hold as follows: “We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principles laid down by the Supreme Court in Vinay Cement (supra).” 6. Be it noted, the decision rendered by the Gauhati High Court was assailed before the Apex Court in Vinay Cement Ltd. (supra). In the said case, their Lordships have held thus: “In the present case we are concerned with the law as it stood prior to the amendment of Section 43B. In the circumstances the assessee was entitled to claim the benefit in Section 43B for that period particularly ITA No.450/Del/2022 7 in view of the fact that he has contributed to provident fund before filing of the return. The special leave petition is dismissed.” 7. It is apt to note that the Division Bench has taken note of the submission advanced by the revenue that the distinction between employers‟ contribution on the one hand and the employees’ contribution on the other. On the foundation that when employees’ contribution was recovered from their salaries / wages that is the trust money in the hands of the assessee and, therefore, recourse of law providing for treating the same as income that the assessee received as the employees’ contribution would only enable the assessee to claim deduction only on actual payment made by due date specified under the provisions of the Act. The Bench while dealing with the same has opined thus: “11. Before we delve into this discussion, we may take note of some more provisions of the Act. Section 2(24) of the Act enumerates different components of income. It, inter alia, stipulates that 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 of 21(34 of 1948), or any other fund for the welfare of such employees. It is clear from the above that as soon as employees contribution towards provident fund or ESI is received by the assessee by way of deduction or otherwise from the salary / wages of the employees, it will be treated as ‘income’ at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with provident fund/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of Section 36(1)(va) of the Act. Section 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees’ contribution is concerned. It is in this backdrop we have to determine as to at what point of time this payment is to be actually made.” 8. Upon perusal of the aforesaid, we are of the considered opinion that the decisions rendered in P.M. Electronics Ltd.(supra) and AIMIL Limited (supra) have correctly laid down the law and there is no justification or reason to differ with the same. In the result, we do not perceive any merit in this appeal and accordingly the same stands dismissed . (Emphasis supplied) ITA No.450/Del/2022 8 35. Learned counsel for assessee has also drawn out attention to the order dated 10th September, 2018 passed in ITA No. 983/2018 in the case of PR. Commissioner of Income Tax-7 vs. PRO Interactive Service (India) Pvt. Ltd., wherein this Court after taking note of the judgment in AIMIL Ltd.(supra) has settled this issue conclusively against the revenue held as under : “In view of the judgment of the Division Bench of the Delhi High Court in Commissioner of Income-Tax v. AIMIL Limited, (2010) 321 ITR 508 (DEL) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. ...The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act...” 36. In this regard it would be relevant to note that the Division Bench of this Court in AIMIL Ltd.(supra) at paragraph 2, duly deliberated over the issue of delay by assessee in deposit of employee contribution in the context of section 36(1)(va) of the Act and concluded that if the amount is deposited by the assessee before the due date for filing the return, it shall be entitled to the disallowance. In this regard the relevant paragraphs of the judgement are as follows: “2. The case relates to the assessment year 2002–03. The respondent- assessee had filed its return on October 30, 2002, declaring income at Rs. 7,95,430. During the assessment proceedings, the Assessing Officer (AO) found that the assessee had deposited the employers' contribution as well as the employees' contribution towards provident fund and ESI after the due date, as prescribed under the relevant Acts/Rules. Accordingly, he made addition of Rs. 42,58,574 being the employees' contribution under section 36(1)(va) of the Act and Rs. 30,68,583 being the employers' contribution under section 43B of the Act. Felt aggrieved by this assessment order, the assessee preferred appeal before the Commissioner of Incometax (Appeals) who decided the same vide orders dated July 15, 2005. Though the Commissioner of Income-tax (Appeals) accepted the contention of the assessee that if the payment is made before the due date of filing of return, no ITA No.450/Del/2022 9 disallowance could be made in view of the provisions of section 43B, as amended vide Finance Act, 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the Commissioner of Incometax (Appeals) for rectification of the mistake. After having satisfied that payment had, in fact, been made, the Commissioner of Income-tax (Appeals) rectified the mistake and deleted the addition by holding that the assessee had made the payment before the due date of filing of the return, which was a fact apparent from the record. It was now the turn of the Revenue to feel agitated by these orders and, therefore, the Revenue approached the Income-tax Appellate Tribunal (ITAT) challenging the orders of the Commissioner of Income-tax (Appeals). The Department has, however, remained unsuccessful as the appeal preferred by the Department is dismissed by the Income-tax Appellate Tribunal vide its impugned decision dated December 31, 2007, which is the subject- matter of appeal before us. 17. It also becomes clear that deletion of the second proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso. We may only add that if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. In so far as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement, [2009] 313 ITR (St.) 1.” 37. It is therefore evident that the enunciation of law by this court on the issue of 'due date' in case of delay by the assessee in depositing the employee contribution under section 36(1)(va) of the Act is to be reckoned as the date for filing the return under Section 139 (1) of the Act and not the due date of the relevant Labour statute. This law has been settled by this Court in CIT vs. P.M. Electronics Ltd (supra), AIMIL Ltd. (supra), CIT vs. SPL Industries Ltd and PR. Commissioner of Income Tax-7 vs. PRO Interactive Service (India) Pvt. Ltd. (supra) and consistently followed thereafter. ITA No.450/Del/2022 10 38. The learned counsel for the respondent has further relied upon the newly inserted 'Explanation 2' to Section 36(1)(va) of the Act and 'Explanation 5' to Section 43B of the Act, by the Finance Act, 2021 w.e.f. 1st April, 2021, to contend that the legislature has since clarified the provision and consequently, the judgements relied upon by the authorities below including AIMIL Ltd. (supra) are no more good law. The amendment to Section 36(1) (va) of the Act and Section 43B of the Act is reproduced herein below: [Explanation 2.- For the removal of doubts , it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the “due date” under this clause;] (Emphasis supplied) [Explanation5.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.] (Emphasis supplied) 39. He contends that with the insertion of this explanation there can be no doubt that 'due date' for the purpose of deposit under Section 36(1)(va) of the Act is to be the 'due date' on which the employee contribution was required to be deposited under the relevant statute and the 'due date' referred to under Section 43B of the Act would have no application. Thus, the deposit made by assessee on 25.04.2012 has been correctly disallowed by the AO. 40. The said contention is noted to be rejected since it is contrary to the plain text of the Memorandum of the Finance Bill, 2021 proposing the said amendment. The relevant extract of Clauses 8 and 9 of the Memorandum of the Finance Bill 2021 explaining the proposed insertion reads as under : “Though section 43B of the Act covers only employer’s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee’s contribution towards welfare fund. It may be noted that employee’s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the ITA No.450/Del/2022 11 employee’s contribution towards welfare funds. Employee’s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub- section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis- utilize employee‘s contributions. Accordingly, in order to provide certainty, it is proposed to(i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the “due date” under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. ” (Emphasis supplied) 41. The Memorandum acknowledges that courts have taken a view that the 'due date' to be considered for the purposes of Section 36(1)(va) of the Act is under Section 43B and it is in that background that the Explanation has been inserted to alter this position. Further, the Memorandum explicitly stipulates that the said amendment will take effect from 1st April 2021 and it cannot therefore cannot apply to assessment year 2012-13 under consideration. The legislature is therefore conscious that the Explanation seeks to change the law as it stands on date and is therefore intended to apply to subsequent assessment years. The contention of the revenue therefore that the said amendment is retrospective cannot be accepted. 42. The Supreme court in Sedco Forex International Drill. Inc. Vs. CIT reported in (2005) 12 SCC 717 and M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi-III reported in 2021 SCC OnLine SC 575 has held that a provision in a Tax Act which is “for the removal of doubts” cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The Supreme Court further held that a cardinal principal of tax law is that for the law to be applied it has to be in force during the relevant assessment years unless otherwise provided ITA No.450/Del/2022 12 expressly or by necessary implication. In that view it was held by the Supreme Court that the amendment was not retrospective. 43. As noted above, this court has as early as in the case of AIMIL Ltd. (supra) dated 23rd December, 2009 held that the due date for the purpose of Section 36 (1) (va) of the Act would be the due date as provided under Section 43B of the Act and not the relevant Labour statute. This law as noted above has held the field till date, followed by this Court consistently and the appellate authorities below have determined the matter in accordance with the said law. 44. Consequently, this Court is of the view that the amendment to Section 36(1)(va), which is 'for removal of doubts', cannot be presumed to be ITA 227/2022 Page 20 of 21retrospective even where such language is used, if it alters or changes the law as it earlier stood. 45. It is also noted that in the facts of the case, the due date for depositing the Employees’ contribution to the Provident Fund was 20th April, 2012 and the assessee had deposited the same on 25th April, 2012. There is no dispute that the amount stands deposited before the filing of the return. We, therefore, find that there is no ground for taking a view different from the view consistently held by this court since AIMIL Ltd.(supra). 46. In view of the aforesaid, we find that no substantial question of law arises in this matter and there is no infirmity in the impugned order dated 29th July, 2021 passed by the ITAT in the ITA No. 5204/DEL/2017 for the assessment year 2012-13 and accordingly, the present appeal is dismissed.” 9. In the present case also, it is not in dispute that the assessee made payment of employer’s contribution to ESI and PF before due date of filing the return u/s 139(1) of the Act and there is no dispute that the amount stands deposited before the filing of the return. So far as the applicability of amendment to section 36(1)(va) and section 43B is concerned, this issue is covered in favour of the assessee by the judgement of the Hon’ble jurisdictional High Court of Delhi in ITA No.450/Del/2022 13 the case of PCIT vs. TV Today Network Ltd. and various other judgements. Therefore, respectfully following the same, ground No.2 of the assessee is allowed and the AO is directed to delete the disallowance. Other grounds of the assessee are supportive to grounds No.1 and 2, therefore, the same does not require any separate adjudication. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 30.09.2022. Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:30 th September, 2022. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi