EMC Software and Services India Private Limited, Bangalore V. The Deputy Commissioner Of Income Tax, Circle-2(1)(1), Bangalore

ITTPA 744/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2670 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 1 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 26-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-09-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 24-08-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 43B; 139; 143(3); 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri George George K, JM & Ms.Padmavathy S, AM IT(TP)A No.744/Bang/2022 : Asst.Year 2018-2019 M/s.EMC Software and Services India Private Limited Technology Centre-SEZ, Moonstone Building, Block B Doddanekkundi B.O. Bangalore – 560 037. PAN : AABCT0199B. v. The Deputy Commissioner of Income-tax, Circle 2(1)(1) Bengaluru. (Appellant) (Respondent) Appellant by : Sri.Ankur Pai, Advocate Respondent by : Sri.Manjunath Karkihalli, CIT-DR Date of Hearing : 27.09.2022 Date of Pronouncement : 27.09.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 28.06.2022. The relevant assessment year is 2018-2019. 2. The assessee has in total raised four grounds, however, during the course of hearing, the learned AR had only pressed ground 2 and its sub grounds. The ground 2 and its sub grounds read as follows:- “2. Disallowance under section 36(1)(val of the Act - INR 26,21,67,970 2.1. The learned AO has erred in law and on facts in not passing a speaking order are not giving the appellant an opportunity of being heard with respect to the disallowance made under section 36(1)(va) of the Act on account of delayed remittance of employees' contribution to PF and ESI Fund IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 2 under the respective Acts without appreciating the fact that the Appellant had remitted the same before the due date for filing of return of income under section 139(1) of the Act.; 2.2. The learned AO has erred in making adjustment in the Final Assessment Order based on the intimation issued under section 143(1) of the Act with respect to the above disallowance without analysing the nature of disallowance; 2.3. The learned AO has erred in assessing the total income of the Company by considering its total income as per the intimation dated 16 October 2019 under section 143(1) of the Act disregarding the rectification application filed by the Company against the said intimation and not considering the total income as per return of income; 2.4. The learned AO have erred in not following the judgements of the Supreme Court and jurisdictional Karnataka High Court which has held that in a circumstance where employee related contribution of provident fund and employee state insurance fund is remitted before the due date of filing return of income, the same cannot be disallowed; 2.5 The learned AO has not appreciated the fact that the amendment to section 36(1)(va) and section 43B of the Act is applicable prospectively; 2.6 Without prejudice to the above, the Centralised Processing Centre has erred in making the adjustment under section 36(1)(va), which is outside the purview of `prima facie’ adjustment as covered under the scope of section 143(1) of the Act.” 3. The brief facts in relation to the above grounds are as follows: Intimation u/s 143(1) of the I.T.Act was issued, wherein the CPC had disallowed u/s 36(1)(va) of the I.T.Act amounting to Rs.26,21,67,970 on account of delayed remittance of employees’ contribution to PF and ESI under the respective Acts. Against the intimation issued u/s 143(1) of the I.T.Act, the assessee had filed rectification application. Thereafter, the assessment was selected for scrutiny and final assessment IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 3 order was passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act on 28.06.2022. In the said final assessment order, the Assessing Officer had computed the income by taking assessed income as per intimation passed u/s 143(1) of the I.T.Act dated 16.10.2019, wherein the disallowance u/s 36(1)(va) of the I.T.Act was made. Since the final assessment order started with assessed income as per order passed u/s 143(1) of the I.T.Act on 16.10.2019, the assessee has filed the present appeal before the Tribunal. The learned AR submitted that the issue in question is squarely covered by the order of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DICT in ITA No.385/Bang/2021 (order dated 21.10.2021). 4. The learned Departmental Representative supported the orders of the Income Tax Authorities. 5. We have heard the rival submissions and perused the material on record. On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra) by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra) ̧ had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The relevant finding of the ITAT in the case IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 4 of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra), reads as follows: “7. We have heard rival submissions and perused the material on record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36[1][va] of the I.T.Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction. 21. The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected. IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 5 22. With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013. 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution to ESI, if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36[1][va] and 43B of the Actby Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. (ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in ITA No.622/Del/ 2018 (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment by Finance Act, 2021 to Sec.36[1][va] and 43B of the Act will not have application to relevant assessment year, namely A.Y. 2019- 2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.” IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 6 5.1 Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction. 6. Since there is no details as regards when employees’ contribution has been paid, that is, whether it has been paid before the due date of filing of the return of income u/s 139(1) of the I.T.Act, we deem it appropriate the remand the issue to the files of the A.O. to examine whether the assessee has made the payment of the employees’ contribution to PF and ESI before the due date of filing of the return u/s 139(1) of the I.T.Act It is ordered accordingly. 7. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 27 th day of September, 2022. Sd/- (Padmavathy S) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 27 th September, 2022. Devadas G* IT(TP)A No.744/Bang/2022. M/s.EMC Software and Services India Pvt.Ltd. 7 Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-1, Bengaluru. 4. The Pr.CIT, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore