The Income Tax Officer, Ward- 3(1)(2), Bangalore V. M/s. Gem Properties Private Limited, Bangalore

MA 24/BANG/2023

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The case revolves around a miscellaneous petition filed by the Revenue seeking rectification of the Tribunal's earlier order which had disallowed the deduction for delayed payment of employees' contributions to ESI and PF. The Tribunal's initial decision was based on the understanding that if the contributions were paid within the due date for filing the income tax return, they should be allowed as a deduction. However, the Supreme Court's subsequent ruling in Checkmate Services Pvt. Ltd. clarified that the employees' contributions must be paid within the due dates specified under the respective Acts to be eligible for deduction, leading to the Revenue's petition for rectification of the Tribunal's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299837 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-02-2023
• Appeal Filed By: Department
• Order Result: DismissedDismissed
• Bench Allotted: C
• Next Hearing Date: 16-02-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 15-01-2023
• Other Referred Cases: CHECKMATE SERVICES PVT LTD VS CIT-1, CIT Vs. Saurashtra Kutch Stock Exchange, Honda Siel Power Products Ltd. v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tax effect; Capital expenditure
• Section: 37(1); 139(1); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC - C” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Assessment Year : 2019-20 ITO, Ward – 3(1)(2), Bengaluru. Vs. M/s. Gem Properties Private Limited, No.45, Industry House, Race Course Road, Bengaluru – 560 001. PAN : AACCG 4140 Q APPELLANT RESPONDENT Revenue by:Shri. Balram R. Rao, Advocate Assessee by :Shri. Ganesh R. Ghale, Standing Counsel Date of hearing:17.02.2023 Date ofPronouncement:17.02.2023 O R D E R Per N. V. Vasudevan, Vice President: This is a miscellaneous petition filed by the Revenue u/s.254(2) of the Income Tax Act, 1961 (Act) praying for rectification of the order dated 10.08.2022 passed by this Tribunal in ITA No.554/Bang/2022 for Assessment Year 2019-20. 2. By the aforesaid order dated 10.08.2022, this Tribunal held that the Revenue authorities were not justified in making a disallowance on delayed payment of employee’s contribution to ESI and PF made by the assessee beyond the due date as prescribed under the relevant law relating to ESI and PF for deposit of employees share of contribution, by invoking the provisions of section 36(1)(va) of the Act, if the said contributions are paid within the due date for filing return of income u/s.139(1) of the Act. On the above issue, it is not disputed that as per the decision of the Hon’ble Supreme Court rendered in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 in CIVIL MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 2 of 7 APPEAL 2833/2016 vide its judgment dated 12 October 2022 decided the issue on allowability/treatment of ‘delayed’ Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Therefore, as per the above decision, the disallowance made by the Revenue authorities, were fully justified. 3. Through this miscellaneous petition, the Revenue seeks an order to reverse the order of the Tribunal dated 01.08.2022 and hold that the disallowance of deduction by the revenue authorities u/s.36(1)(va) of the Act is fully justified and dismiss the appeal of the assessee. 4. The Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that non-consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon’ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows: MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 3 of 7 “Scope of the Power of Rectification 12. As stated above, in this case we are concerned with the application under section 254(2) of the 1961 Act. As stated above, the expression "rectification of mistake from the record" occurs in section 154. It also finds place in section 254(2). The purpose behind enactment of section 254(2) is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003 allowing the Rectification Application has given a finding that Samtel Color Ltd. (supra) was cited before it by the assessee but through oversight it had missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record. 13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case.” 5. Article 141 of the Constitution of India provides that the law declared by Supreme Court shall be binding on all courts within the territory of India. The law laid down by MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 4 of 7 Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. 6. In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. 7. The learned Counsel for the assessee submitted that the tax effect in the appeal filed by the assessee was less than Rs.50 lakhs and therefore by the present MP filed by the Department, they are in effect seeking to file appeal where tax effect is less than Rs.50 lakhs and therefore the MP should be rejected by the Tribunal. The learned Counsel for the assessee in this regard referred to CBDT Circular No. 17/2019 dated 08.08.2019. The aforesaid Circular will be applicable only for appeals filed by the Department and not to MP filed within section 254(2) of the Act. 8. Another contention that was put forth by the learned Counsel for the assessee was the expenditure disallowed under section 36(1)(va) of the Act should be allowed as a deduction under section 37(1) of the Act. Section 37(1) of the Act reads as follows: “37(1) Any expenditure" (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended and exclusively' for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gain business or profession". MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 5 of 7 9. It was submitted that the employees’ share of PF is treated as income under section 2(24)(x) of the Act and by virtue of the provisions of section 36(1)(va) of the Act, if the sum is not deposited by the assessee with the respective authorities under the PF/ESI Act, the same should not be allowed as a deduction. It was submitted that the sum which is disallowed under section 36(1)(va) of the Act is not expenditure of the nature described under sections 30 to 36 of the Act and therefore the same should be allowed as a deduction under section 37(1) of the Act. 10. I am unable to agree with the submission made by the learned Counsel on behalf of the assessee. By a legal fiction, the sum received by an assessee from its employees as contribution to any PF fund or ESI fund as employees’ share of contribution is treated as income and when it is paid to the Government on behalf of the employees within the due date, it is by same fiction regarded as expenditure. This is the reason why section 37(1) of the Act specifically provides any expenditure not being an expenditure of the nature described in sections 30 to 36 of the Act. In fact, in the decision rendered by the Hon’ble Supreme Court in the case of Checkmate Financial Services (supra), this aspect has been deliberated upon, as follows: (paragraph 32 of the Judgment): “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 fulfilment 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 MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 6 of 7 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))”. 11. If the employees share of contribution paid beyond due date is allowed as deduction u/s.37(1) of the Act, then that would defeat the very purpose of enactment of Sec.36(1)(va) of the Act, as explained by the Hon’ble Supreme Court in the aforesaid decision. I am, therefore, of the view that this argument is devoid of any merit and same is accordingly rejected. If 12. In the result, MP is dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (S. PADMAVATHY) (N.V. VASUDEVAN) Accountant Member Vice President Bangalore, Dated: 17.02.2023. /NS/* MP No.24/Bang/2023 (in ITA No.554/Bang/2022) Page 7 of 7 Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.