SANJIV PRAKASHAN, JAIPUR V. ACIT, Circle-1, Jaipur

ITA 9/JPR/2023

AI Insights

The case involves M/s. Sanjiv Prakashan, an educational publication business, which appealed against the order of the CIT(A) confirming the disallowance of Rs.16,46,879/- for late deposit of employees' contributions to EPF and ESI. The Assessing Officer (AO) had initially made this disallowance, which was upheld by the CIT(A) based on the Supreme Court's decision in Checkmate Services (P) Ltd. vs CIT-1. The Tribunal dismissed the appeal, agreeing with the lower authorities and the Supreme Court's interpretation that employee's contributions to PF/ESI must be deposited by the due dates specified under the respective laws to qualify for deduction under section 36(1)(va) of the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132404 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-04-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 10-01-2023
• Other Referred Cases: Checkmate Services (P) Ltd. vs CIT-1, PCIT vs Strides Arcolab Ltd., Salveen Kaur Vs Income Tax Office
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside; FORM 26AS
• Section: 43B; 139; 143(3); 10AA; 143(1); 139(1)

Judgement Text

vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’B” JAIPUR JhlaanhixkslkbZ]U;kf;dlnL; ,oaJhjkBksMdeys'kt;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihy la-@ITA No. 9/JP/2023 fu/kZkj.ko"kZ@AssessmentYear : 2020-21 M/s. Sanjiv Prakashan Dhamani Market, First Floor, Choudra Rasta, Jaipur – 302 003 cuke Vs. The ACIT Circle-1 Jaipur LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAHFS 6900 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Anurag Goyal CA & Shri Anil Goyal, CA jktLo dh vksjls@Revenue by: Smt. Runi Pal, Addl.CIT lquokbZ dh rkjh[k@Date of Hearing : 26/04/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 02 /06/2023 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by the assessee is directed against the order of the ld. CIT(A) dated 17-11-2022 ,National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment years 2020-21 wherein the assessee has raised the following grounds of appeal. ‘’1 The order of the CPC u/s 143(1) and ld. CIT(A) u/s 143(1) are bad in law and against the facts of the case. 2 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR 2.The AO has erred in disallowing a sum of Rs.16,46,879/- u/s 36(1)(va) read with section 2(24)(x) and the ld.CIT(A) has erred in confirming the said disallowance.’’ 2.1 Apropos Ground Nos. 1 & 2of the assessee, brief facts of the case are that the assessee is engaged in the business of educational publication. For the impugned assessment year, return of income was filed admitting total income of Rs.5,41,03,200/-. The AO in his order assessed the income of the assessee at Rs.5,61,08,400/- after making disallowance u/s 36(1)(va) of the Act amounting to Rs.16,46,879 ( i.e. Rs.15,51,701/- towards PF and Rs.95,178/- towards ESI) due to the fact that contribution of EPF/ESI of employees contribution was deposited beyond the due date of respective Acts. The assessee claimed that the same had been deposited in Govt. account before filing of the return of income u/s 139(1) of the Act. Thus, the AO made an addition of Rs.16,46,879/- on account of late deposit of employees contribution towards EPF/ESI. 2.2 Aggrieved by the assessment order of the AO, the assessee carried the matter before the ld. CIT(A) who has confirmed the action of the AO taking the recent decision of Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. vs CIT-1 vide Civil Appeal No. 2833 of 2016 dated 12-10-2022. For the sake of convenience, the operative para No. 6.4 at page 5 of ld. CIT(A)’s order is reproduced as under:- 3 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR ‘’6.4 It could be seen from the table furnished by the as part of his submission, the payments were made beyond the due dates prescribed under the Provident Fund Act. In view of the above facts and respectfully following the Hon’ble Apex Court’s decision in the case of M/s. Checkmate Services (P) Ltd. which has further clarified the correct interpretation of the provisions of the Act, the disallowance made u/s 36(1)(va) read with section 2(24)(x of the Act amounting to Rs.16,46,879/- is upheld.’’ 2.3 During the course of hearing, the ld. AR of the assessee filed the written submission countering the decision of the ld.CIT(A) on the late deposit of employees Contribution towards ESI/PF. The relevant part of the written submission is as under:- ‘’5. It is submitted that as all the above amounts of Rs16.46,879 were deposited with the concerned authorities before due date for filing of return of income u/s 139(1) of Income Tax Act, 1961, the same were to be allowed u/s 43B and no disallowance u/s 36(1)(va) of the Act can be made even if there were delays in payment under PF Act or ESI Act. This submission is based on various decisions of Jurisdictional High Court being Hon'ble Rajasthan High Court, wherein the Hon'ble High Court has held that is such payments are deposited before the due date of filing of ITR, the same were to be considered as paid before the due date as specified under the respective Act. 6. The adjustment in the income of the assessee were made while processing the return of income u/s 143(1) on 25.8.202, on that date, the learned AO CPC had not authority to make such adjustments due to following reasons: a. The amendments in Sec. 36(1)(va) was applicable from AY 2021-22 as the "Notes on Clauses" annexed to the Finance Act 2021 which stated as under:- ‘’It is proposed to insert Explanation 2 to clause (va) of sub-section (1) of the said section so as to clarify 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 the said clause. This amendment will take place from 1 April, 2021 and will, accordingly, apply inrelation to the assessment year 2021-22 and subsequent assessment years. This position of law has also been upheld by Hon'ble Jaipur ITAT in the case of Dhabariya Plywood Ltd V ADIT ITA No. 53/JP/2021 (Copy at Pb page no 14 to19) 4 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR b. The decision of Hon'ble Supreme Court in the case of Checkmate Services P Ltd came on 12.10.2022, which was also after processing of return u/s 143(1) on 25.8.2021. Therefore, on the date of processing of return, the department also did not have the support of Supreme Court decision. Reliance is placed on the following decisions: CIT vs State Bank of Bikaner and Jaipur SLP No. 16249/2014 In above cases SLP of department has been dismissed and asa result of the same it has been upheld that PF and ESI cannot be disallowed if paid after due date under respective Act but paid before filing of return of income u/s 139(1) of the Act. Commissioner of Income-tax v.Jaipur Vidyut Vitran Nigam Ltd (2014) 49 taxmann.com 540 (Rajasthan High Court) Section 438, read with section 36(1)va), of the Income-tax Act, 1961- Business disallowance Certain deductions to be allowed only an actual payment Employer's/Employee's contribution (PF and ESI contribution) - Assessment years 2001- 02 2003-04 to 2006-07 - Whether amount claimed on payment of PF and ESI could not be paid on or before due date under relevant Acts but same was deposited on or before due date of filing of returns under section 139 of Income-tax Act, same could not be disallowed under section 43B or under section 36(1)(va)-Held, yes [Para 6in favour of assessee) Commissioner of Income-tax, Udaipur v Udaipur DugdhUtpadak Sahakari Sangh Ltd (2013) 35 taxmann.com 616 (Rajasthan High Court) Section 438, read with section 36(1)(va), of the Income-tax Act, 1961 - Business disallowance Certain deductions to be allowed only on actual payment (Provident fund) - Assessment year 2006-07- Assessee had deposited amount received from his employees) as contributions in provident fund and ESI fund of employees after due date, ie., after 15th of next month, but before due date of filing return - Assessing Officer added said amount to) income of assessee as per provisions of section 36(1)(va) read with section 2(24)(x) Whether since assessee had deposited said amount in provident fund and ESI fund of employees before due date of filing return, Assessing Officer was wrong in adding impugned amount to income of assessee-Held, yes [Para 10] [In favour of assessee)’’ 2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A) 2.5 We have heard both the parties and perused the materials available on record including the case laws cited by both the parties. In this case, it is noted that the AO disallowed the amount of Rs.16,46,879/- u/s 36(1)(va) of the Act on the 5 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR ground that payments of employees contribution towards EPF and PF had not been made on or before the due date by the employer as per respective Acts which has been confirmed by the ld. CIT(A). It is not imperative to repeat the facts of the case and the case laws cited by both the parties. The Bench has observed that the recently the Hon’ble Supreme Court has opined in the case of Checkmate Services Pvt. Ltd. vs CIT-1, 143 Taxmann.com 178 (SC)/Civil Appeal No. 2833 of 2016 held that the provision of Section 43B of the Act shall not apply to employee’s contribution to PF/ESI and the due date specified u/s 36(1)(va) of the Act shall apply for determination of deductibility of employee’s contribution to PF/ESI. The relevant portion of the Judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs CIT-1 (supra) is reproduced 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 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 6 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR 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.’’ Similar issue has also been decided by the Hon’ble Supreme Court in the case of PCIT vs Strides Arcolab Ltd. vide its order dated 29-11-2022 (Civil Appeal No.9009 of 2021 [2023] 147 taxmann.com 202 SC)]. The relevant head note is reproduced as under:- Section 36(1)(va), read with section 2(24) and 43B of the Income Tax Act – Employee’s contributions (PF/ESI) – High Court by impugned order held that Tribunal was correct in deleting disallowance made under section 36(1)(va) being employee’s contribution to Provident Fund and ESI even though same were not deposited in respective fund within stipulated time – Apex Court in case of Checkmate Services (P) Ltd. vs CIT [2022] 143 taxmann.com 178/ [2023] 290 Taxman 19/[2022] 448 ITR 518/2022 SCC Online Sc 1423, held that non obstante clause under section 43B could not apply in case of employee’s contribution which were deducted from their income and was not part of assessee-employer’s income and, 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. – Whether in view of the said judgement of Supreme Court, impugned order of High Court was to be set aside – Held , yes [Para 4) [In favour of Revenue] 7 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR For the sake of convenience and brevity of the case, the order passed by the Supreme Court in the case of PCIT vs Strides Arcolab Ltd. (supra) is also reproduced as under:- ‘’1.Leave granted. 2. As per the Office record, Service is complete on the sole respondent but none has entered appearance on behalf of the Respondnet Assessee. 3. Mr. Balbir Sharma, learned Additional Solicitor General appearing for the appellant submits that the issue involved in this appeal is squarely answered in favour of the Revenue by a Three-Judge Bench of this Court vide judgement dated 12-10-2022 in Checkmate Services (P) Ltd. vs CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518/2022 SCC Online SC 1423 4. In view of the above, the impunged judgement dated 22-03-2019 passed by the High Court of Judicature at Bombay is set aside and the appeal is allowed in terms of the cited decision.’’ It may be mentioned that similar issue has also been decided by the ITAT Delhi Bench in favour of the Revenue in the case of Salveen Kaur Vs Income Tax Office vide its order darted 9 th January 2023 (in IT Appeal Nos. 2197,2249, 2250 and 2293 (Delhi) of 2022 – A.Y. 2017-18 to 2019-20 [2023] 147 taxmann.co. 402 (Delhi-Trib) by observing as under:- 10. In our understanding, the aforementioned binding observations of the Hon'ble Supreme Court cannot be brushed aside simply because the decision was rendered in the context where the assessment was framed u/s 143(3) and not u/s 143(1)(a) of the Act. In our considered opinion, the decision of the Hon'ble Supreme Court is in the context of allowability of deposit of PF/ESI after due date specified in the relevant Act. 11. The Hon'ble Supreme Court has categorically held that the employees’ contribution deposited after respective due date cannot be allowed as deduction, and, therefore, it would be incorrect to say that the decision of the Hon'ble Supreme Court is applicable only in the case of an assessment farmed u/s 143(3) of the Act. In our considered view, the ratio decidendi is equally applicable for the intimation framed u/s 143(1) of the Act. 8 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR 12. Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon'ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru. 13. The provisions of section 143(1)(a) read as under:- “143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of Section143, 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;- (i) Any arithmetical error in the return; (ii) An incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) Disallowance of expenditure [or increase in income]indicated in the audit report but not taken into account in computing the total income in the return; (v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain income”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;” 13.1 A perusal of the afore-stated provisions show that at every stage in sub-section (1) of the Act, the return submitted by the assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses are found,appropriate adjustments are to be made. It is an open secret that hardly 3 to 5% of the returns are selected for scrutiny assessment, out of which, more than 50% are because of AIR Information under CASS and the Assessing Officer cannot go beyond the reasons for scrutiny selection and such cases are called Limited Scrutiny cases and only the remaining returns are taken up for complete scrutiny u/s 143(3) of the Act. 13.2 Meaning thereby, that exercise of power under sub-section (2) of section 143 of the Act leading to the passing of an order under sub-section (3) thereof, is to be undertaken where it is considered necessary or expedient to ensure that the assessee has not understated income or has not computed excessive loss, or has not under paid the tax in any manner. 9 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR 14. If any narrow interpretation is given to the decisions of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra], it would not only defeat the very purpose of the enactment of the provisions of section 143(1) of the Act but also defeat the very purpose of the Legislators and the decision of the Hon'ble Supreme Court would be made redundant because there would be discrimination and chaos, in as much as, those returns which are processed by the CPC would go free even if the employees’ contribution is deposited after the due date and in some cases the employer may not even deposit the employees’ contribution and those whose returns have been scrutinized and assessed u/s 143(3) of the Act would have to face the disallowance. 15. This can neither be the intention of the Legislators nor the decision of the Hon'ble Supreme Court has to be interpreted in such a way so as to create such discrimination amongst the tax payers. Such interpretation amounts to creation of class [tax payer] within the class [tax payer] meaning thereby that those tax payers who are assessed u/s 143(3) of the Act would have to face disallowance because of the delay in deposit of contribution and those tax payers who have been processed and intimated u/s 143(1) of the Act would go scot- free even if there is delay in deposit of contribution and even if they do not deposit the contribution. 16. We are of the considered view that the ratio decidendi of the Hon'ble Supreme Court is equally applicable to the intimation u/s 143(1) of the Act and, therefore, the decision of the co-ordinate bench relied upon by the assessee is distinguishable. Therefore, respectfully following the binding decision of the Hon'ble Supreme Court [supra], all the three appeals of the assessee are dismissed and that of the revenue is allow 17. In the result, all the three appeals of the assessee in ITA No. 249/DEL/2022, 2250/DEL/2022 and 2197/DEL/2022 are dismissed whereas the appeal of the Revenue in ITA No. 2293/DEL/2022 is allowed.’’ In view of the above deliberations and the decision taken by the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. vs CIT-1(supra), PCIT vs Strides Arcolab Ltd. and also the decision of ITAT Delhi Bench in the case of Savleen Kaur (supra), the Bench sustains the addition confirmed by the ld. CIT(A) by dismissing the Ground No. 1 &2 of the assessee. 10 ITA NO.9/JP/2023 SANJIV PRAKASHAN VS ACIT, CIRCLE-1, JAIPUR 3.0 In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 02 /06/2023 Sd/- Sd/- ¼lanhi xkslkbZ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 02/06/2023 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Sanjiv Prakashan, Jaipur 2. izR;FkhZ@ The Respondent- The ACIT, Circle-1, Jaipur 3. vk;djvk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZQkbZy@ Guard File (ITA No.09/JP/2023) vkns'kkuqlkj@ By order, Asstt. Registrar