Mohammed Darus Salam, New Delhi V. DCIT, CPC, Bengaluru

ITA 946/DEL/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8812 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Assessment Year: 2018-2019
• Appeal Filed On: 08-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Deemed to accrue or arise in india; Question of law
• Section: 37; 28; 43B; 142(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC-2” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.946/Del/2021 [Assessment Year : 2018-19] Mohammed Darus Salam, 15/5A, Old Chandrawal, Civil Lines, New Delhi-110054. PAN-AFGPD5866E vs DCIT, CPC, Bengaluru. APPELLANT RESPONDENT Appellant by Shri Manu K.Giri, Adv., Shri Aseem Chawla, Adv. & Ms. Sonia Dudeja, Adv. Respondent by Sh. Om Prakash, Sr.DR Date of Hearing 11.11.2021 Date of Pronouncement 11.11.2021 ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2018-19 is directed against the order of Ld. CIT(A), National Faceless Appeal Centre “NFAC” dated 28.06.2021. The assessee has raised following grounds of appeal:- 1. “That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in sustaining the Intimation dated May 21, 2019 issued under section 143(1) of the Act by the Learned Deputy Commissioner of Income Tax, Centralized Processing Centre, Bengaluru ('Ld. Assessing Officer). 2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has failed to appreciate that the adjustments made by the Ld. Assessing Officer are beyond the scope of Section 143(1) of the Act and by virtue of the same, the Ld. Assessing Officer has ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 2 exceeded his jurisdiction which makes the impugned order liable to be quashed on this count itself. 3. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the action of the Ld. Assessing Officer in disallowing the deduction of Rs. 6,35,393/- claimed by the Appellant under section 36(1)(va) of the Act on account of delayed payment of employee's contribution by the Appellant towards Provident Fund. 3.1 That on the facts of the case and in law, the Hon'ble CIT(A) has failed to appreciate that the employee's contribution towards Provident Fund is allowable as deduction if the same is paid on or before the due date of filing of return of income for the relevant previous year. 3.2 That on the facts of the case and in law, the Hon'ble CIT(A) has erred in relying upon the amendments made in Section 36(1)(va) of the Act vide the Finance Act, 2021 despite the same being applicable prospectively with effect from April 1, 2021. 4. That on the facts and circumstances of the case, the impugned order is contrary to law and therefore is void ab-initio, and liable to be quashed. All the above grounds of appeal are without prejudice and notwithstanding each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, thus may be granted.” ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 3 2. The only effective ground in this appeal is against the confirming the addition made by the Assessing Officer regarding disallowance of the deduction of Rs.6,35,393/- claimed by the assessee u/s 36(1)(va) of the Income Tax Act, 1961 (“the Act”). 3. Facts giving rise to the present appeal are that the case of the assessee was processed u/s 142(1) of the Act. While processing the return of income, the claim of the assessee regarding payment of contribution of employees in respect of Provident Fund and ESI was disallowed on account of delay in payment as per respective Acts. However, the payment was made before due date of filing. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), confirmed the addition. 5. Now, the assessee is in appeal before this Tribunal. 6. Ld. Counsel for the assessee submitted that the issues raised in this appeal are squarely covered in favour of the assessee. He placed reliance on the decisions of Hon’ble Delhi High Court rendered in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 and in the case of CIT vs AIMIL Ltd. 321 ITR 508 and stated that that these binding precedents have been followed by the various Benches of the Tribunal. 7. Per contra, Ld. Sr. DR vehemently opposed these submissions and submitted that law is clear in this respect and he relied upon the decision of ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 4 Ld.CIT(A). He further relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Bharat Hotels Ltd. [2019] 103 Taxmann.com 295 (Delhi) wherein the Hon’ble High Court has decided the issue in favour of the Revenue by observing as under:- 8. “Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.” 8. I have heard the rival submissions and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A) has decided the issue by observing as under:- 6. The Decision: 6.1. All the income tax returns filed by the taxpayers are first processed online at the Centralised Processing Centre (CPC). After processing the return, the department then issues intimation under section 143(1) to the taxpayers informing them about the results. Such processing primarily includes arithmetical errors, internal inconsistencies, tax calculation and verification of tax payment. Appropriate adjustments are made to income as computed under Section 143(1) and final tax liability or refund is arrived at. In this case prima facie disallowances based upon the Tax ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 5 Audit Report, where delayed payment-of PF dues are reflected. Hence, I do not find any infirmities in the processing and disallowances made there in. 6.2 With respect payment of PF dues, the facts of the case are carefully considered. It is pertinent to note that the EPF & MP Act 1952, which governs provident funds in certain sectors of the economy, speaks of two types of contributions, namely -the Employer's share, and -the Employee's share. Both the above shares are unequal since the employer's share is capped at 12% of the eligible salary but the employee may opt to pay a higher contribution also. Similarly, there are Employer and Employee shares under the ESI Act, 1948 also. The Employer deducts the Employees' share towards PF/ESI at the time of payment of their wages/salaries. Thus, the employer acts in a fiduciary capacity when it retains the deduction made from the employees' wages/salaries and till the employer makes over the same to the concerned Fund. As a precautionary measure under the Income Tax Act, 1961, Section 2(24)(x) makes the employees' share as a deemed income in the hands of the employer. Section 2(24(x) of the Act includes within the definition of income 'any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund etc. However, the employer gets a deduction from its taxable income when it makes over the employees' shares to the respective Funds. The employer is mandated by law to ensure that the employees' share gets deposited within the 'due date' provided under the respective PF/ESI Act. This is so because the under the PF/ESI Acts the employees' interests are protected and they get their interest on their deposits and pension/life cover under PF/ESI irrespective of the date of deposit of their share by the Employer. Even if the employees share is not deposited by the employer after it is received by the employer from their salary/wages, the EPFO/ESI ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 6 is mandated to pay social security benefits to the employees. Hence, the EPFO/ESI gets burdened by social security liability and in order to curb any tendency on the part of the employers to delay the deposit of the employees' contributions retained by them, such contributions are taxed if these are deposited after the 'due date' of payment. The employers are not permitted to claim any deduction on payment made subsequent to the due date. Thus, under the Income Tax Act, 1961 the employees' contribution is deemed to be the income of the employer and a deduction is allowed u/s 36(1)(va) only when the said sum is deposited in the respective Fund before the due date prescribed under PF/ESI Acts. The treatment of the employer's own contribution towards the PF/ESI of its employees is different. Here the outgo is only from the profits/income of the employer and no fiduciary element is involved. Therefore, the employer gets the benefit of deduction u/s 37 and u/s 438 if the payment is made before the date of filing of return of income. The deeming section 2(24)(x) in terms has no application and does not extend to the contribution of the employer. It is also necessary to note that Section 438 has application only in respect of the Employer's share. The claim of the appellant that payment of employees' contributions which were not paid within the 'due date' specified under the ESI and PF Acts should be allowed as a deduction u/s 43B is not as per the Statute. Under the provisions of section 2(24)(x) of the Act, the contributions from 'employees' are deemed income and subject to tax in the hands of the employer. Further the belated payment of the PF/ESI sums in the employee's account in the relevant fund per se will not entitle the employer to a deduction under section 36(1)(va) of the Act unless the employer had credited such contribution to the employee's account in the relevant fund within the 'due date' applicable for that relevant fund. [Incidentally Section 36(1)(va) was inserted by the Finance Act, 1987 w.e.f 1.4.1988]. ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 7 Section 43B deals with what is deductible otherwise for the computation of income under the head 'Business or Profession'. The non- obstante clause with which the section begins is confined to 'in respect of' matters dealt with in clauses 'a to g' and does not extend beyond them. In effect, the sweeping nature of the section is restricted by the subject matter covered therein. The subject matter covered in section 43B(b) is only the employer's contribution. It is also to note that unpaid or belated deposit of employees' PF/ESI contributions are taxed in the case of non-business income also. Under the head 'Income From Other Sources', Section 56(2)(ic) inserted by the Finance Act, 1987 w.e.f 01/04/1988 reads as under: - "56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following income shall be chargeable to income-tax under the head "Income from other sources", namely: - ......... ......... (ic) income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession." Further, Section 57(ia) mandates adherence to the same time-limit as specified in section 36(1)(va) for credit of employee's contribution to the relevant benefit funds. Section 57(ia) was also introduced in the statute from 1-4-1988 by the Finance Act, 1987 with the object of taxing the PF/ESI sums in the case of delinquent employers who do not deposit the collections made by them from the employees' salary/wages in the relevant Fund within the due date. Here it is also necessary to refer to the Finance Minister's Budget speech while introducing the Finance Bill, 1987 wherein the object of the ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 8 introduction of the sections 36(1)(va), 56(2)(ic) and 57(ia) was explained as under: "Let me now come to the measures for the welfare of workers, members of armed forces and the handicapped. There are number of cases where the employers do not credit their own contribution or those of the employees to the credit of provident fund and State Insurance Fund. It is also unfortunate that a separate fund is not being kept by employers in respect of gratuity of workers. To prevent this anti labour practices, we propose to penalize such delinquent employers by providing that the contribution of employees to these funds will be taxed as income of the employer and allowed as a deduction only when they are made over to the separate accounts relating to these funds within the time allowed under the statute." The 'due date' is explained in the Explanation below Section 36(1)(va) to mean "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 or otherwise". In the Tax Audit Report, Form 3CD Clause 16(b) specifically requires the tax auditor to report the sums falling under the preview of section 2(24)(x), the due dates for payment of such sums and the actual dates of payment to the concerned authorities under section 36(1)(va). The significance attached to the due dates and the actual dates of payment in respect of employee's contributions in the Tax Audit Report is different from the employer's contribution dealt with under clause 21. Clause 21 distinguishes the employer's contribution on the basis of its occurrence in a given previous year or prior to it and its payment in the previous year. Thus, the Tax Audit Report also maintains a conscious differential approach between the two types of payments, employer and employee's contributions. Therefore, it seems clear that the argument that the delayed deposit of employees' contribution towards PF/ESI can be permitted as a deduction from the income of the assessee is of no avail and section 43B is ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 9 not involved. The matter has also been considered by various High Courts. The Hon'ble' Gujarat High Court in the case of CIT vs Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100, has held as under: " If employees contribution received by the assessee is not credited to the employees' account in the relevant fund or funds on or before the due date mentioned in the Explanation to section 36(1)(va) [i. e. due dates under PF Act, ESI Act/other law], the assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 of the Act even if contributions deposited on or before due date under section 43B [i. e. due date for filing income tax return under section 36(1)(va)] for depositing employers' contributions to those funds". In arriving at this decision, Hon'ble High Court of Gujarat has considered the decision of the Hon'ble Supreme Court in CIT vs M/s Alom Extrusions Limited 319 ITR 306 and held that the same is not applicable to the "employees' contribution" to the PF Act. This judgment was again followed by Hon'ble' Gujarat High Court in the case of PCIT vs. Suzlon Energy Ltd. 115 taxmann.com 340. The issue is also covered against the assessee by CBDT Circular No. 22/2015 issued by the Department. A similar view has been taken by the Kerala High Court in the case of CIT vs. Merchem Ltd (2015) 378 ITR 443. The Jurisdictional High Court in the case of CIT vs. Bharat Hotels Ltd. 410 ITR 417 Order dated 06/09/2018 has also decided this issue in favour of Revenue and not followed its earlier judgement of AIMIL Ltd 321 ITR 508. The ITAT Delhi in the case of Eagle Trans Shipping & Logistics (India) (P.) Ltd. 109 taxmann.com 426 vide order dated 25/07 2019 has also decided this issue in favour of Revenue. The Finance Act, 2021 has settled the matter by inserting 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 ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 10 deemed never to have been applied for the purposes of determining the "due date" under the said clause. Further the Finance Act, 2021 has also inserted Explanation 5 to section 43B so as to clarify that the provisions of the 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. Hence, I hold that if the employer fails to deposit the entire amount towards employees' contribution on account of PF & ESI with concerned department on or before the due date under PF & ESI, the assessee shall not be entitled for deduction to that extent. In the result, the appeal is dismissed.” 9. I find merit in the contention of Ld. Counsel for the assessee that the issue is covered by the judgement of Hon’ble Delhi High Court rendered in the case of AIMIL Ltd. (supra) wherein it has been held:- 17. “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 principle laid down by the Supreme Court in Vinay Cement (supra).” 10. Further, Ld. Counsel for the assessee placed reliance on the judgement of Hon’ble Delhi High Court rendered in the case of PCIT vs Pro Interactive Service ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 11 (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 held as under:- “In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus 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(23)(x) of the Act.” Therefore, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court in the above-mentioned binding precedents, I hereby direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee are allowed. 11. In the result, the appeal of the assessee is allowed. Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 11 th November, 2021. Sd/- (KUL BHARAT) JUDICIAL MEMBER *Amit Kumar* ITA No.946/Del/2021 [Assessment Year : 2018-19] Page | 12 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI