Assistant Commissioner Of Income Tax, Central Circle-2(4), Bangalore V. Datacorp Traffic Private Limited, Bangalore

MA 32/BANG/2023

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The case involves M/s. Datacorp Traffic Pvt. Ltd., which appealed against the disallowance of deductions for employees' contributions to provident fund and employees' state insurance. Initially, the Tribunal had allowed the deductions based on earlier precedents and interpretations of sections 36(1)(va) and 43B of the Income Tax Act. However, following a Supreme Court judgment that clarified the treatment of delayed payments under these sections, the Tribunal revisited its decision. The Supreme Court's ruling emphasized that the employee's contributions must be paid within the statutory due dates to be eligible for deductions, leading to the rectification of the Tribunal's earlier order and confirmation of the disallowance.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129984 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 18-01-2023
• Other Referred Cases: M/s. Shakuntala Agarbathi Company Vs. DCIT, Essae Teraoka Pvt. Ltd Vs. DCIT, Checkmate Services Pvt. Ltd. Vs. CIT-1
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 43B; 139(1); 254(2)

Judgement Text

MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER MP No.32/Bang/2023 (Arising out of ITA No.532/Bang/2022) Assessment Year: 2020-21 ACIT Circle-2(4) Bangalore Vs. M/s. Datacorp Traffic Pvt. Ltd. Plot No.2, Railway Station Road Harsha Layout, Kengeri Bengaluru 560 060 PAN NO : AAECD9048C APPELLANT RESPONDENT Appellant by : Sri Ramanathan, D.R. Respondent by : None Date of Hearing : 21.04.2023 Date of Pronouncement : 21.04.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This miscellaneous petition filed by the revenue u/s 254(2) of the Income-tax Act,1961 ['the Act' for short] is arising out ITA No.532/Bang/2022 dated 2.8.2022 which is with regard to disallowance of Rs.77,14,047/- being employees contribution to provident fund and employees state insurance, u/s 36(1)(va) of the Act in AY 2020-21, wherein the Tribunal has held as under: MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore Page 2 of 6 “6. We have heard Ld. D.R. and perused the materials available 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 ((2014)(43 taxmann.com 33)(Kar) 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 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 EssaeTeraoka (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' MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore Page 3 of 6 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. 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 EssaeTeraoka (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) DhabriyaPolywood 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). MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore Page 4 of 6 (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.” 7. Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment year under consideration and it is applicable from AY 2021-22 only and the present AY before us is 2020-21. 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. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted. 8. The Ld D.R submitted that the Hon’ble Gujarat High Court has taken a contrary view on this issue in the case of CIT vs. Gujarat Road Transport Corpn. (2014)(41 taxmann.com 100) and the matter is pending before Hon’ble Supreme Court. Accordingly, he prayed that in the event of Hon’ble Apex Court taking a view in favour of the revenue on this issue confirming the view taken by Hon’ble Gujarat High Court, then the Revenue should be given liberty to seek rectification of the present order. The prayer of the Ld D.R so made is accepted, subject to the statutory limitations, if any. 9. Accordingly, this ground of assessee is allowed.” 2. Now the contention of ld. D.R. is that the order of the Tribunal cited (supra) is to be recalled and to be held that disallowance of deduction of Rs.77,14,047/- being employees contribution to provident fund and employees state insurance u/s 36(1)(va) of the Act is to be disallowed and the order of the lower authorities is to be confirmed. 3. We have heard the rival submissions and perused the materials available on record. In this case, payment of employees contribution to ESI & PF was made by assessee beyond the due date MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore Page 5 of 6 prescribed in the respective Act though it was paid within due date of filing return u/s 139(1) of the Act. This issue was decided by Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 in Civil Appeal No.2833/2016 vide its judgement dated 12.10.202, wherein 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 the Act. 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) of the Act. On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B of the Act and is therefore not lost totally. Therefore, as per the above decision, the disallowance made by the Revenue authorities, were fully justified. 3.1 In view of the above judgement, there is mistake apparent on record though rendered subsequent to the order passed by the Tribunal and the order of the Tribunal required to be rectified. Accordingly, disallowance made by AO is confirmed by ld. CIT(A) u/s 36(1)(va) of the Act was justified. Consequently, this ground of appeal filed by the assessee in ITA No.532/Bang/2022 will stand dismissed. The order of the Tribunal to that extent stands corrected and this MP No.32/Bang/2023 M/s. Datacorp Traffic Pvt. Ltd., Bangalore Page 6 of 6 ground of appeal in the above appeal of the assessee is dismissed. There is no change in the final result of the appeal of the assessee. 4. In the result, the miscellaneous petition filed by the revenue is allowed. Order pronounced in the open court on 21 st Apr, 2023 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 21 st Apr, 2023. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.