Zynga Game Network India Private Limited, Bengaluru V. Assistant Director Of Income Tax, CPC, Bangalore

ITA 693/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5320 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 09-08-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 43B; 139; 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU “B” BENCH, BENGALURU Before Shri N.V. Vasudevan, Vice President and Ms. Padmavathy S., Accountant Member ITA No. 693/Bang/2022 (Assessment Year: 2020-21) M/s. Zynga Game Network India Pvt. Ltd. No. 19, Prestige Falcon Tower 4th and 5th Floor, Brunton Road, Richmond Town Bengaluru 560025 PAN – AAACZ3937G vsDCIT, Circle -7(1)(1) BMTC Building, 80 Feet Road Koramangala Bengaluru 560095 (Appellant) (Respondent) Assessee by:Shri Ankur Pai, Advocate Revenue by:Shri K.R. Narayan, Addl. CIT-DR Date of hearing: 12/09/2022 Date of pronouncement: 20/09/2022 O R D E R Per: Padmavathy, A.M. This is an appeal filed by the assessee against the order of the learned CIT(A), NFAC, Delhi in appeal No. NFAC/2019-20/10054666 dated 16.06.2022 for AY 2020-21. 2.The assessee has raised the following grounds of appeal: - “1. The Learned Assistant Director of Income Tax, CPC / Learned Commissioner of Income-tax (Appeals) ["CIT(A)"] has erred in disallowing the delayed remittance of the employees contribution to PF without appreciating that the Appellant had remitted the same before the due date for filing of return of income under section 139(1) of the Act. ITA No. 693/Bang/2022 M/s. Zynga Game Network India Pvt. Ltd. 2 2. The Learned Assistant Director of Income Tax, CPC / Learned CIT(A) grossly erred in not following the judgements of the jurisdictional Karnataka High Court, which has held that in a circumstance where PF is remitted before the due date of filing return of income, the same cannot be disallowed. 3. The Learned CIT(A) has erred in holding that delay in deposit of employees' contribution to PF will not be allowed based on the amendment brought in by the Finance Act, 2021, without appreciating the fact that the amendment is applicable from AY 2021-22. 4. The Learned CIT(A) has erred in not following the judgements of jurisdictional tribunal which held that the amendment brought in by Finance Act 2021 w.r.t. remittance of employees' contribution to PF is applicable from AY 2021-22 and not retrospectively.” 3.The brief facts of the case are that the assessee company is a wholly owned subsidiary of Zynga Inc., USA. The assessee is engaged in providing software development and other IT enabled services to its parent company. The assessee filed it return of income for the relevant assessment year on 14.02.2021 declaring an income of Rs.36,54,89,850/-. The return was processed by the CPC under Section 143(1) of the Income Tax Act, 1961 (the Act) and disallowance of Rs.46,29,132/- was made on account of delayed remittance of employee’s contribution to Provident Fund. Aggrieved, the assessee filed appeal before the CIT(A). 4.The learned CIT(A) confirmed the addition made by the Assessing Officer by stating us under: - “5.9.4 Keeping in view the fact that the newly amended provisions are declaratory/clarificatory/explanatory in nature and therefore retrospective and relying on various decisions of Hon'ble High Courts and Hon'ble ITAT cited supra which have decided the issue in favour of the Revenue and deriving strength from the observations of Hon'ble Supreme Court in various cases discussed at paras 5.61 and 5.6.3 above explaining the nature and scope of declaratory/ explanatory/ clarificatory amendments, I am of the considered view that the deduction claimed by the appellant u/s 36(1)(va) of the Act ITA No. 693/Bang/2022 M/s. Zynga Game Network India Pvt. Ltd. 3 has rightly been disallowed by the assessing officer. The addition of Rs.46,29,132/- is confirmed. The Grounds are, thus, dismissed” Aggrieved, assessee is in appeal before the Tribunal. 5.The learned AR submitted that an identical issue was decided in favour of the assessee by the Tribunal in the case of M/s. ShakuntalaAgarbathi Company Vs. DICT in ITA No.385/Bang/2021 (order dated 21.10.2021). 6.The learned Departmental Representative supported the orders of the Income Tax Authorities. 7.We have heard the rival submissions and perused the material on record. On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. ShakuntalaAgarbathi Company Vs. DCIT (supra) by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of EssaeTeraokaPvt. Ltd Vs. DCIT (supra) ̧ had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The relevant finding of the ITAT in the case of M/s. ShakuntalaAgarbathi Company Vs. DCIT (supra), reads as follows: “7. We have heard rival submissions and perused the material on record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of the Act. The Hon'ble jurisdictional High Court in the case of EssaeTeraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- ITA No. 693/Bang/2022 M/s. Zynga Game Network India Pvt. Ltd. 4 "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36[1][va] of the I.T.Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub- section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction. 21. The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected. 22. With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013. 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of EssaeTeraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to ITA No. 693/Bang/2022 M/s. Zynga Game Network India Pvt. Ltd. 5 deduction of employees' contribution to ESI, if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36[1][va] and 43B of the Actby Finance Act, 2021 is only prospective in nature and not retrospective. (i) DhabriyaPolywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. (ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in ITA No.622/Del/ 2018 (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment by Finance Act, 2021 to Sec.36[1][va] and 43B of the Act will not have application to relevant assessment year, namely A.Y. 2019- 2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.” 8.Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of EssaeTeraokaPvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted. ITA No. 693/Bang/2022 M/s. Zynga Game Network India Pvt. Ltd. 6 9.In the result, the appeal filed by the assessee is allowed. Dictated and pronounced in the open Court on 20 th September, 2022. Sd/- Sd/- (N.V. Vasudevan) (Padmavathy S) Vice President Accountant Member Bengaluru, Dated: 20 th September, 2022 Copy to: 1.The Appellant 2.The Respondent 3.The CIT(A) -NFAC, Delhi 4.The CIT - 5.The DR, ITAT, Bengaluru 6.Guard File By Order //True Copy// Assistant Registrar ITAT, Bengaluru n.p.