DCIT CPC, BANGALORE V. RAJARAM SHANKARLAL SONAGRA, MUMBAI

MA 41/MUM/2023

AI Insights

The case revolves around the Income Tax Department's appeal against the ITAT's earlier decision, which had set aside the disallowance made on account of delayed deposit of employees' contributions to PF/ESI. Initially, the Assessing Officer disallowed the claim under section 36(1)(va) of the Income Tax Act, citing late deposit. The CIT(A) upheld this disallowance. However, the ITAT reversed this decision, referencing a precedent that the relevant amendments to the Act were not retrospective. The Revenue, upon learning of the ITAT's decision, filed a Miscellaneous Application citing a Supreme Court judgment that contradicted the ITAT's earlier reliance on non-retrospective amendments. The ITAT, acknowledging the Supreme Court's authority and the retrospective nature of the amendments as clarified by the Finance Act, 2021, recalled its earlier order and allowed the Revenue's application.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123392 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 01-08-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 16-01-2023
• Other Referred Cases: Shri Satish Kumar Sinha v. ITO, M/s. Checkmate Services Pvt. Ltd. v/s Commissioner of Income Tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rectification of order; Period of limitation; Retrospective amendment; Time period of passing order
• Section: 43B; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER MA.No. 41/MUM/2023 [ARISING OUT OF ITA NO. 1953/MUM/2021 (A.Y: 2018-19)] DCIT – 16(3) Room No. 449, 4 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 v. Shri Rajaram Shankarlal Sonagra 2804-2805, The Address Boulvard-1, Opp. R. City Mall LBS Road, Ghatkopar (W) Mumbai - 400086 PAN: AOWPS3153G Appellant Respondent Assessee Represented by : Shri Mehul Shah Department Represented by : Shri Manoj Kumar Sinha Date of conclusion of Hearing : 21.07.2023 Date of Pronouncement : 02.08.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. Through this Miscellaneous Application revenue is seeking for recall of the order passed by the Tribunal in ITA.No.1953/Mum/2021 dated 12.05.2022 for the A.Y. 2018-19. MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 2 2. In the Miscellaneous Application revenue has submitted as under: - “The assessee furnished return of his income of the AY 2018-19 on 16.10.2018 declaring total income of Rs 49,70,700/-. The return has been processed by the CPC u/s. 143(1)(a) of the Act vide intimation dt. 21.05.2021. In the said intimation, disallowance was made u/s. 36(1)(va) of the Act amounting to Rs. 2,89,343/- on account of delayed payment of Employees Contribution towards PF & ESIC in their respective account before due date stipulated in their respective statute. Further, rectification order u's. 154 of the Act was passed on 05.12.2019 by not accepting the claim of assessee made in application for rectification filed on 23.11.2019. 02. Aggrieved by the order of the AO, CPC, the assessee preferred an appeal before the CIT(A). The Ld. CIT(A) of National Faceless Appeal Centre vide his order DIN & Order No. ITBA/NFAC/250/2021- 22/1035804608(1), dt: 22/09/2021 had confirmed the disallowance made u/s.36(1)(va) r.w.s. 2(24)(x) of the Act, stating that the addition of Rs. 2,89,343/- made on account of employee's contribution to the PF and ESI was deposited to the respective funds after the due dates. The said late payments are not covered u/s. 43B of the Act. Further, the amendments made in section 36(1)(va) of the Act is clarificatory in nature and hence operated retrospectively. 03. Aggrieved the decision of Ld. CIT (A), the assessee further filed appeal before the Hon'ble ITAT. The Hon'ble ITAT vide its order ITA No. 1953/Mum./2021, dated 12.05.2022 has set-aside the order of the Ld. CIT(A) and allowed appeal of the assessee by following the decision of ITAT, Hyderabad Bench in the matter of Shri Satish Kumar Sinha v. ITO in ITA No. 293/Hyd/2021, AY 2019-20 order dated 23.08.2021. The Hon'ble ITAT has held the view that the amendment was brought in Finance Act, 2021 w.e.f. 01.04.2021 prospectively and not retrospectively. The law was not framed/amended in the relevant Assessment Year and any legal proposition which cast additional burden/liability on the assessee cannot be implemented retrospectively. The amendment to the section 36(1)(va) of the Act will not be applicable to the Assessment Year 2018-19. The assessee has deposited the employee's contribution of provident fund before the due date for filing of return u/s. 139(1) of the Act. 04. The clarificatory amendments made by the Finance Act 2021 to section 36(1)(va) and section 43B of the Act is to be taken to be retrospective. The insertion of Explanation 1 to Clause (va) of sub- section I to section 36 is clarificatory in nature which clarifies the expression "due date" of section 36(1)(va) of the Act. This explanation was inserted by the Finance Act, 2021 to clear the doubts on meaning of the provisions in the Act. There is nothing in MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 3 the provisions of section 36(1)(va) of the Act to suggest that the meaning of "due date" means due dates of filing of return of income u/s 139 of the Act. The word "due date" in section 36(1)(va) means the due date of sum to be credited by the employer to the employee's account in the relevant fund as per the due dates prescribed in the relevant Act or Rules, order or notification, etc. of relevant fund. The decision of the Hon'ble ITAT is not according to the mandate of amendment made in section 36(1)(va) of the Act in Finance Act, 2021. Further w.e.f. 1" June, 2016, there is amendment in section 143(1)(a) of the Act by inserting sub clause (iv) that allows disallowance where expenditure or increase in income indicated in the Audit report in Form No. 3CB & 3CD but not taken into account in computing the total income in the return 05. As regards meaning of "due date" mentioned in section 36(1)(va) of the Act, the provisions of section 2(24)(x) and section 36(1)(va) is very much clear and there is no ambiguity in the provisions of said section: (i) The provision of section 2(24)(x) provides that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund under the provision of PF/ESI Act, Rules as the case may be or any other for the welfare of such employees. Thus, at the instance of employees contribution received by employer is income of the employer. The employer will get deduction of such employees contribution u/s.36(1)(va) of the Act only when the payment of such employees contribution credited to the employees account in the relevant fund on or before the due date as stipulated in respective Act of the respective Funds. (ii) The Hon'ble Supreme Court in the case of M/s. Checkmate Services Pvt. Ltd. v/s Commissioner of Income Tax in Civil Appeal No. 2833 of 2016 has decided the issue in favour of the revenue. The Hon'ble Apex Court has held that the Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The relevant parts of the ruling of the Hon'ble Supreme Court are 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 MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 4 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 amount 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 provisions of Section 43B which is to ensure timely payment before the return 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 this 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' contribution-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 dates 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 deduction. Thus, it is 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 MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 5 the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction." (iii) The above decision makes the interpretation of section 36(1)(va) of the Act clear and holds that that employees contribution towards PF/ESI are deductible in the hands of the employer if paid before the statutory due date of respective PF/ESI Act/Rules/Regulations. The Hon'ble Supreme Court rulings effectively endorses the 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 ie, 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 amendments made by Finance Act, 2021 with effect from tax year 2020-21 and makes it clarificatory in nature having retrospective effect to all past years. 06. The Hon'ble ITAT is therefore requested to admit this Miscellaneous Application and kindly decide the matter on the issue involved in ITA no. 1953/Mum/2021 of A.Y. 2018-19 decided vide order dated 12/05/2022. The Ground of appeal for filing Miscellaneous Application is read as under: GROUNDS OF APPEAL: 1. Whether on the facts and in the circumstances of the case and in law the Hon'ble ITAT has erred in not appreciating the fact that one of the rules of interpretation of the tax statute is that if a deduction is available on compliance of certain conditions are to be strictly complied with, 2. Whether on the facts and in the circumstances of the case and in law the Hon'ble ITAT has overlooked the fact that the assessee has not complied with the conditions laid down for availing the deduction u/s 36(1)(va) r.w.s. 2(24)(x) of the L.T. Act, 1961 on account of deposit of employee's contribution of PF/ESIC in MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 6 respective Funds within the due dates as specified in the Rules & Regulations of respective Funds, and 3. The Hon'ble ITAT now should take cognizance of the judgement of the Hon'ble Supreme Court in the case of M/s Checkmate Services Pvt. Ltd. v/s Commissioner of Income-tax-1 on this issue [Civil Appeal No. 2833 of 2016].” 3. At the time of hearing, Ld. DR submitted that the present Miscellaneous Application is filed by the revenue on 17.01.2023 whereas order of the Tribunal is passed on 12.05.2022. In this regard he relied on the decision of the Hon'ble Bombay High Court in the case of Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT [2021] 123 taxmann.com 301 (Bombay), as per which the limitation period commence from the date when affected party got knowledge of decision in question and it would not commence from date when the order was passed. Accordingly, he submitted that the Assessing Officer came to know of the order subsequently. Accordingly, the Miscellaneous Application was filed. He brought to our notice the order was received by Pr.CIT only on 17.08.2022. Accordingly, he prayed the Miscellaneous Application filed by the revenue is within the limitation period. 4. Further, Ld. DR submitted that in this appeal, the Tribunal has deleted the addition made by the Assessing Officer on account of delayed deposit of employees’ contribution to PF/Employees’ State Insurance MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 7 (ESI). He further submitted that in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd v. CIT dated 12.10.2022, no deduction is allowable for delayed deposit of employees’ contribution to PF/ESI u/s. 36(1)(va) of the Act. Since the Hon’ble Supreme Court has interpreted the provisions which were in existence from the date, the same have been introduced by the Parliament and, therefore, allowing the said deduction for late deposit of PF/ESI is a mistake apparent from record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd v. CIT (supra). Accordingly, he submitted that order of the Tribunal need to be recalled. 5. On the other hand, Ld. AR of the assessee submitted that the limitation period cannot be stretched beyond the limitation period. Further, Ld. AR objected for admission of the Miscellaneous Application and recall of the order. 6. Considered the rival submissions and material placed on record, we observe that the present Miscellaneous Application is filed by the revenue within six months from the date of receipt of the order. The revenue has furnished documents to show that order was received in the office of the Pr.CIT on 17.08.2022. As per the decision of the Hon'ble Bombay High MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 8 Court in the case of Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT (supra) the period of limitation would start from the date of knowledge of the order and not from the date of pronouncement of the order. Accordingly, present Miscellaneous Application filed by the revenue is within the period of limitation. 7. Further, we observe that in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd v. CIT (supra), the finding of the Tribunal amounts to mistake apparent from record and, therefore, the order of the Tribunal on this appeal is recalled. Thus, we recall the order passed by the Tribunal in ITA.No. 1953/Mum/2021 dated 12.05.2022. The Registry is directed to post the appeal for hearing in due course after issuing notice to both the parties. Accordingly, the Miscellaneous Application filed by the revenue is allowed. 8. In the result, Miscellaneous Application filed by the Revenue is allowed. Order pronounced in the open court on 02 nd August, 2023. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 02/08/2023 Giridhar, Sr.PS MA.No. 41/MUM/2023 Shri Rajaram Shankarlal Sonagra Page No. 9 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum Date Initials 1. Draft dictated on: Sr. PS/PS 2. Draft placed before author: 3. Draft proposed & placed before the second member: JM/AM 4. Draft discussed/approved by Second Member: JM/AM 5. Approved Draft comes to the Sr. PS/PS: Sr. PS/PS 6. Order pronounced on: Sr. PS/PS 7 Dictation pad is enclosed 8. Date on which the final order is upload on the website of ITAT 9. File sent to the Bench Clerk: 10. Date on which file goes to the Head Clerk: 11. Date on which file goes to AR 12 Date of dispatch of Order: