M/s Ready Roti India Pvt. Ltd., F-28, RIICO Industrial Area, Sare Khurd, Alwar V. ACIT/DCIT, Circle-6, Jaipur

ITA 94/JPR/2023

AI Insights

The case involves M/s. Ready Roti India Pvt Ltd, which appealed against the order of the CIT(A) confirming the addition of Rs.50,48,797/- for delayed payment of employees' contributions to PF & ESI for the assessment year 2017-18. The primary legal contention was whether the contributions, if deposited before the due date of filing the return, should be allowed as deductions under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The Tribunal considered various precedents and the amendment by the Finance Act, 2021, but ultimately followed the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs CIT, which mandated that such contributions must be deposited by the due date to be deductible.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132401 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 27-02-2023
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs CIT, CIT Vs. Rajasthan State Beverages Corporation Ltd., CIT Vs. State Bank of Bikaner & Jaipur, CIT Vs. Jaipur Vidyut Vitran Nigam Ltd., CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., M/s Hotel Gaudavan Pvt. Ltd. Vs. CPC, Bengaluru/ACIT/DCIT, Circle-6, Jaipur, Sanjay Porwal Vs. CPC, Bengaluru/ ITO, Ward-6(4), Jaipur, Nirakar Security & Consultancy Services Pvt Ltd vs ITO, ACIT Vs. Sunila Sahu, M/s BBG Metal Syndicate Pvt. Ltd. Vs. DCIT, Salveen Kaur vs ITO, Kalpesh Synthetics Pvt Ltd, CIT Vs. Sabari Enterprises, CIT Vs. Pamwi Tissues Ltd., CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., CIT Vs. AIMIL Ltd. & Ors., CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; FORM 26AS
• Section: 32; 37; 43B; 139; 143(3); 10AA; 37(1); 143(1); 195; 250; 13

Judgement Text

vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’BENCH 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. 94/JP/2023 fu/kZkj.ko"kZ@AssessmentYear : 2017-18 M/s. Ready Roti India Pvt Ltd. F-28, RIICO, Industrial Area Sare Khurd, Alwar cuke Vs. The ACIT Circle-6 Jaipur LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACT 7134P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri P.C. Parwal, CA jktLo dh vksjls@Revenue by: Mrs. RuniPal, Addl. CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 29/03/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03 /05/2023 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 09-01-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 wherein the assessee has raised the solitary ground of appeal as under:- ‘’The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs.50,48,797/- on account of delayed payment of employees contribution towards PF & ESI u/s 36(1)(va) r.w.s. 2(24(x) of the Act. 2 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 2.1 Brief facts of the case are that the assessee had deposited the amount of employee’s contribution towards PF amounting to Rs.46,14,161/-and ESI amounting to Rs.4,34,636/- after the due date prescribed under the relevant Acts. Accordingly, the AO made addition of Rs.50,48,797/- u/s 36(1)(va) r.w.s. 2(24(x) of Income Tax Act. 2.2 In first appeal, the after considering the amendment made by Finance Act, 2021 and the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs CIT (2022) 218 dated 401 confirmed the addition made by the AO. 2.3 During the course of hearing, the ld. AR of the assessee prayed for deletion of addition confirmed by the ld.CIT(A) amounting to 50,48,979/- with regard to the deposition of employees contribution towards PF and ESI for which the ld. AR has filed the written submission. ‘’1. At the outset it is submitted that various High Courts including the jurisdictional Rajasthan High Court has held that if employees contribution towards PF & ESI is deposited before the due date of filing of the return, the same is allowable. In the present case the due date of filling of return was 31.10.2017. The assessee has deposited the contribution towards PF & ESI before the due date of filing return of income as evident from the tables reproduced at Pg 2 to 4 of the assessment order. Reliance in this connection is placed on the following cases:- CIT Vs. Rajasthan State Beverages Corporation Ltd. (2017) 250 Taxman 16 (SC) CIT Vs. State Bank of Bikaner & Jaipur [2014] 99 DTR 131 (Raj.) (HC) CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. [2014] 98 DTR 105 (Raj.) (HC) CIT Vs. Udaipur DugdhUtpadak Sahakari Sangh Ltd. (2013) 98 DTR 109 (Raj.) (HC) 3 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 1. Amendment brought by FA, 2021 by way of Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B which provides that the definition of due dates as per section 43B is deemed never to have been applied for the purpose of employees contribution is applicable from 01.04.2021, i.e. AY 2021-22 and thus, not applicable for the year under consideration. For this purpose reliance is placed on the following cases:- M/s Hotel Gaudavan Pvt. Ltd. Vs. CPC, Bengaluru/ACIT/DCIT, Circle-6, Jaipur ITA No.83 & 84/JP/22 order dt. 19.04.2022 (Jaipur) (Trib.) Sanjay Porwal Vs. CPC, Bengaluru/ ITO, Ward-6(4), Jaipur ITA No.63/JP/22 order dt. 06.04.2022 (Jaipur) (Trib.) 3. It is also submitted that section 36(1) which provides for ‘other deduction’, states that deduction provided for in the specified clauses shall be allowed in respect of matters dealt with therein, in computing the income referred to in section 28. Clause (va) of said section reads as under:- 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.—For the purposes of this clause, "due date" means 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 under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. From the plain reading of the section it can be noted that due date has been defined in the Explanation to mean the date by which assessee is required to credit the employees contribution in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The section nowhere provides that the due date means the date by which the amount is to be deposited under the relevant Statue. For this reason Hon’ble Karnataka High Court in case of CIT Vs. Sabari Enterprises (2008) 298 ITR 141 at para 12 & 13 of its order held as under:- 12. After hearing learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including the definition of sections 2(24)(x) and s. 36(1)(va) and 43B(b), which read thus : "2.(24) 'income' includes,— . . . 4 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR (x) 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 such employees." "43(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity or any other fund for the welfare of employees, or"."36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s. 28—. . . (va) any sum received by the assessee from any of his employees to which the provisions sub-clause (x) of clause (24) of s. 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.—Fur the purposes of this clause, 'due date' means 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 under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." 13. This clause is inserted by the Finance Act with effect from 1st April, 1988. The Explanation to this clause is read very carefully. "Due date" has been explained stating that : means the date by which the assessee is required as an employer to credit contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise." Prior to the above clause was inserted to s. 36 giving statutory deductions of payment of tax under the provisions of the Act, s. 43B(b) was inserted by the Finance Act, 1983, which came into force with effect from 1st April, 1984. Therefore, again the provision of s. 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including s. 36(1) clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by the Finance Act, 1987, which came into effect from 1st April, 1988, the letters numbered as clause (a), or cl. (c) or cl. (d) or cl. (e) or cl. (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of s. 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under s. 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under s. 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in cl. (b) are paid within the due date under the respective statutory enactments by the assessees as contended by 5 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us. 4. However, Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 218 DTR 401 while deciding this issue has observed at Para 51 to 54 held as under:- 51. The analysis of the various judgments cited on behalf of the assessee i.e., CIT vs. AIMIL Ltd. &Ors. (2010) 229 CTR (Del) 418 : (2010) 35 DTR (Del) 68 : (2010) 321 ITR 508 (Del) , (Delhi High Court); CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar) (Karnataka High Court).; CIT vs. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 : (2008) 3 DTR (Bom) 66 : (2009) 313 ITR 137 (Bom) (Bombay High Court); CIT vs. Udaipur DugdhUtpadak Sahakari Sangh Ltd. (2014) 265 CTR (Raj) 59 : (2014) 98 DTR (Raj) 109 : (2013) 35 taxmann.com 616 (Raj) [Rajasthan High Court] and NipsoPolyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to s. 43B(b). No doubt, many of these decisions also dealt with s. 36(va) with its Explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, AlomExtrutions did not consider the fact of the introduction of s. 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced s. 43B, what was on the statute book, was only employer’s contribution [s. 36(1)(iv)]. At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting s. 36(1)(va) and simultaneously inserting the second proviso of s. 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions–especially second proviso to s. 43B-was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Sec. 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income-it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction [s. 36(1)(va)]. The other important feature is that this distinction between the employers’ contribution [s. 36(1)(iv)] and employees’ contribution required to be 6 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR deposited by the employer [s. 36(1)(va)] was maintained - and continues to be maintained. On the other hand, s. 43B covers all deductions that are permissible as expenditures, or outgoings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of s. 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary precondition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law–in terms of s. 36(1)(iv), and its liability to deposit amounts received by it or deducted by it [s. 36(1)(va)] is, thus crucial. The former forms part of the employers’ income, and the latter retains its character as an income (albeit deemed), by virtue of s. 2(24)(x) - unless the conditions spelt by Explanation to s. 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 s. 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 s. 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 s. 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. 7 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR With utmost regard to the decision of Hon’ble Supreme Court, it is submitted that it failed to take into consideration that Explanation to section 36(1)(va) nowhere provides that due date means the date by which employees contribution is to be deposited in the relevant fund under relevant statute but only provides that the amount is to be deposited under the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. Therefore, this decision of Hon’ble Supreme Court vis-à-vis the amendment made in section 36(1)(va) by introducing Explanation 2 by FA, 2021 be made applicable from AY 2021-22 and not for earlier AYs. 5. Without prejudice to above, it is submitted that if it is held that in view of the decision of Hon’ble Supreme Court (supra), the employees contribution to PF/ ESI if not deposited by the due date under the relevant statute, the same is deemed income u/s 2(24)(x) of the Act, then the same ought to be allowed on its actual payment u/s 37 of the Act which provides for allowance of any expenditure not being expenditure of the nature described in section 30 to 36 laid out or expended wholly or exclusively for the purpose of business. As stated above, employees contribution received by the assessee is deemed to be an income u/s 2(24)(x) and thus, it is not an expenditure of the nature described u/s 36 and therefore, such amount when paid needs to be allowed as deduction u/s 37 of the Act. For this proposition reliance is placed on the following decisions:- M/s BBG Metal Syndicate Pvt. Ltd. Vs. DCIT in ITA No.112/CTK/2022 order dt. 17.11.2022 (Cuttack) (Trib.) The Hon’ble ITAT after considering the decision of Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. Vs. CIT 218 DTR 401, Hon’ble ITAT at Para 6 & 7 of the order held as under:- 6. In the case of Nirakar Security & Consultancy Services Pvt Ltd vs ITO in ITA No.98/CTK/2022 for Assessment Year 2016-17, order dated 17.10.2022, the Co-ordinate Bench of this Tribunal after considering the arguments of ld AR, has restored the issue to the file of the Assessing officer with the following directions: “6. Liberty is granted to the ld AR to make all submissions in respect of allowability of disallowed contribution of the employees to PF and ESI under other relevant provisions in the interest of justice. This direction is being given because ld AR has submitted that as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act, the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/s 2(24)(x) and on subsequent payment of the same, it would be a business expenditure, which can be claimed u/s.37(1) of the Act. We are not expressing any opinion in regard to his arguments as it has not been examined by the lower authorities. Liberty is also granted to the assessee to raise all arguments as are found necessary by him before the lower authorities.” 8 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 7. As the issue in the present appeal is also identical to the issue in the case of Nirakar Security & Consultancy Services Pvt Ltd.,(supra), on identical findings the issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard. ACIT Vs. Sunila Sahu MA No.23/CTK/2022 (Arising out of ITA No.07/CTK/2022) order dt. 13.01.2023 (Cuttack) (Trib.) The Hon’ble ITAT by following the decision of Nirakar Security & Consultancy Services Pvt Ltd vs ITO in ITA No.98/CTK/2022 for Assessment Year 2016-17 order dated 17.10.2022, restored the issue to the file of AO to consider the allowability u/s 37(1) of the Act on the payment of employees contribution to PF & ESI. In view of above, even if addition is confirmed u/s 36(1)(va) in view of the decision of Hon’ble Supreme Court, amount paid by the assessee during the relevant AYs be directed to be allowed u/s 37(1) of the Act.’’ 2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A) and prayed to sustain the addition based on the decision of Hon’ble Apex Court 2.5 We have heard both the parties and perused the materials available on record. In this case, it is noted that the AO disallowed the amount of Rs.50,48,797/- u/s 36(1)(va) of the Act on the ground that payments of employees contribution towards ESI 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 that the provision of Section 43B of the 9 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 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 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 10 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 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.’’ Further, it may be noted that the ITAT Delhi Bench on the similar issue has passed the order in the case of Salveen Kaur vs ITO (ITA No. 2197, 2249,2250 & 2293(Delhi) of 2022 vide order dated 9 th Jan. 2023 wherein the appeals of the assessee were dismissed and the appeal of the Revenue was allowed by giving the detailed reasoning as under:- 4. The undisputed fact in the captioned appeals is that there was a delay in depositing the employees’ contribution and the contribution has been deposited beyond the date stipulated under the relevantFund Act. 5. Though the quarrel is no more res integra, as it has been settledby the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd 143 Taxmann.com 178. But, before us, the decision ofthe co-ordinate bench at Mumbai has been placed in the case of PRPackaging Service in ITA No. 2376/MUM/2022 and it has been seriouslyargued that the co-ordinate bench has considered the decision of theHon'ble Supreme Court and yet decided the quarrel in favour of theassessee and against the Revenue. 6. Another argument taken before us is that the disallowance made by the CPC Bengaluru while processing the return u/s 143(1) of the Act is beyond the scope of provisions of section 143(1(a) of the Act and,therefore, cannot be sustained. 7. We have carefully perused the decision of the co-ordinate bench in the case of M/s P R Packaging Services [supra]. We find that the co- 11 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR ordinate bench has not given any independent finding but has simply relied upon another decision of the co-ordinate bench in the case of Kalpesh Synthetics Pvt Ltd 195 ITD 142 wherein the co-ordinate bench has based its decision on the interpretation and binding decision of the Hon'ble Jurisdictional High Court. In the case of Kalpesh Synthetics Pvt Ltd [supra], the Tribunal has held that the CPC Bengaluru cannotoverride the binding decision of the Hon'ble Bombay High Court while making the impugned disallowance on account of delay in the deposit of employees’ contribution to PF/ESI. 8. It would be apt to refer to the relevant part of the decision of the Tribunal in the case of Kalpesh Synthetics [supra] followed in P R Packaging Service [supra] wherein it has been held as under:- “8. When the law enacted by the legislature has beenconstrued in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read anyother manner than as read by the Hon'ble jurisdictional High Court. The views expressed by the tax auditor in sucha situation, cannot be reason enough to disregard the binding views of the Hon'ble jurisdictional Court. To that extent, the provisions of section 143(1)(a)(iv) must be read down. What essentially follows is the adjustments under section 143(1)(a) in respect of” disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above”. That is where the quasi judicial exercise of dealing with the objections of the assessee against proposed adjustments under section 143(1), assumes critical importance in the processing of returns, also important to bear in mind the fact that what constitutes jurisdictionalHigh Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, rule 11(1) of the Central Processing of Returns Scheme, 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income Tax (Appeals) [CIT(A)] havingjurisdiction over the jurisdictional Assessing Officer” Thensitus of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether theCPC is within the jurisdiction of Hon'ble Bombay High Court or not, as for the regular Assessing Officer of the assesseeand the assessee are located in the jurisdiction of Hon'bleBombay High Court, the jurisdictional High Court, 12 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR for all matters pertaining to the assessee, will be Hon'ble Bombay High Court. In our considered view, it cannot be open tothe Assessing Officer CPC to take a view contrary to the view taken by the Hon'ble jurisdictional High Court- moreso when his attention was specifically invited to bindingjudicial precedents in this regard. For this reason also, the inputs in question in the tax audit report cannot be reasonenough to make the impugned disallowance. The assesseemust succeed for this reason as well.” 9. With our utmost respect to the findings of the co-ordinate bench [supra], we are of the considered view that the co-ordinate bench has ignored the binding ratio decidendi of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra]. It would be pertinent to refer to the most relevant observations of the Hon'ble Supreme Court on the impugned quarrel which read as under:- “32. The scheme of the provisions relating to deductions, such as Sections 32 - 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfillment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act,1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of “income” – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions,or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, “employers’contribution”) is described as “sum paid by the assessee as an employer by way 13 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that “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.” The essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. 34. It is therefore, manifest that the definition of contribution in Section 2 (c) is used in entirely different senses, in the relevant deduction clauses. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification under the IT Act, between the two. 35. It is instructive in this context to note that the Finance Act,1987, introduced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill,1987, presented to the Parliament, is extracted below: “Measures of penalising employers mis-utilising contributions to the provident fund or any funds set upunder the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B).The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. “Due date”means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.” XXXXXX 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B,which mandated that unless the amount of 14 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR employers’contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va).Furthermore, the separate provisions in Section 36(1) foremployers’ contribution and employees’ contribution, too went unnoticed. The court observed inter alia, that: “15. ...It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare fundsof employee(s) on the other. This is one more reason whywe hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P)Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effectfrom 1st April, 1988 [when the first proviso stoodinserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to theassessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act,they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April,2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003,to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April,2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003”. XXXX 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. Eagle Flask Industries Ltd Vs. Commissioner of Central Exercise 2004Supp (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements as follows: 15 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR “23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed onaccount of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.” XXXX 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. 54. 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.” 16 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 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. 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 ofthe 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;” 17 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 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, 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 18 ITA NO.94/JP/2023 M/S. READY ROTI INDIA PVT LTD. VS ACIT, CIRCLE-6, JAIPUR 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) and also the decision of ITAT Delhi Bench in the case of Salveen Kaur vs ITO (supra) , the Bench sustains the addition confirmed by the ld. CIT(A) and the appeal of the assessee is dismissed. 3.0 In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 03-05-2023. 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:- 03 /05/2023 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Ready Roti India Pvt Ltd, Alwar 2. izR;FkhZ@ The Respondent-The ACIT, Circle-6,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.94/JP/2023) vkns'kkuqlkj@ By order, lgk;diathdkj@Asstt. Registrar