CENTRALISED PROCESSING CENTRE, BENGALURU V. DRISHTI LIFESAVING PVT. LTD, MUMBAI

MA 42/MUM/2023

AI Insights

The case involves Drishti Lifesaving Pvt. Ltd., which had its appeal allowed by the ITAT in a previous decision, permitting the deduction of employee's contributions to PF and ESI. The revenue filed a Miscellaneous Application seeking recall of this order, citing a Supreme Court decision that changed the legal interpretation regarding the timing of such contributions. The ITAT, acknowledging the Supreme Court's authority and the change in legal interpretation, allowed the MA and directed the case for fresh adjudication.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123920 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 24-05-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-03-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 16-01-2023
• Other Referred Cases: Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT, Checkmate Services Pvt. Ltd. Vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 2; 43B; 143(3); 143(1); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘B’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Aby T. Varkey (JM) M.A. No. 42/Mum/2023 I.T.A. No. 1076/Mum/2022 (A.Y. 2019-20) ITO-5(1)(1) R. No. 570, 5 th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. Vs. Drishti Lifesaving Pvt. Ltd. Top Floor, Mehta Mahal, Mathew Road, Mumbai- 400007. PAN No.AAFCD0528C (Appellant) (Respondent) Assessee by Ms. Neelam Jadhav Department by Ms. Vranda U. Matkari (Sr. AR) Date of He aring 17/03/2023 Date of P ronounceme nt 25/05/2023 O R D E R Per Aby T. Varkey (JM) :- Through this Miscellaneous Applications revenue is seeking for recall of the order passed by the Tribunal in ITA. No. 1076/MUM/2022 dated 30.06.2022 for the A.Y. 2019-20. 2. We observe from the record that the order was pronounced on 30.06.2022 and MA has been filed by revenue on 17.01.2023. According to revenue, it has received the certified copy of impugned order only after few days, so relying on the decision of the Hon'ble Jurisdictional High Court in the case of Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT [2021] 123 taxmann.com 301 (Bombay) wherein it was held that “period of limitation prescribed in section 254(2) would commence from date when affected party got knowledge of decision in question and it would not commence from date when M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 2 the order was passed”. Therefore, according to revenue, the Miscellaneous Application filed by the revenue is within the limitation period and so, we proceed to dispose the MA. 3. In the Miscellaneous Application, revenue submitted as under: - “Brief facts of the case: 1 In this case, Return of Income filed on 22.10.2019 declaring total income of Rs.2,35,27,317/-. The return was processed under section 143(1) of the IT Act, on 07.05.2020, after making disallowance of Rs. 1,05,44,018/on account of delay in payment of employees contribution to PF and ESIC under section 36(1)(va) of the Act apart from making some other additions and disallowances. Aggrieved by the same the assessee filed appeal before Ld CIT (A) Mumbai. 2. The Hon’ble ITAT, Mumbai in their decision in the case of the assessee (ITA No.1076/Mum/2022 dated 30.06.2022) have held as under: - “9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be 'due date' in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression 'due date' has been defined under Explanation (now Explanation 1)to Section 36(1)(va) provides that "For the purposes of this clause, 'due date' means 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 under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise", one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 3 the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted "disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return" as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is "indicative" of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon'ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well.” 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 4 context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 6. Respectfully following the aforesaid decision, the disallowance made u/s 36(1)(va) on account of employee’s contribution to PF and ESI is deleted.” 3. The Hon’ble Supreme Court of India in their judgment in case of M/s. Checkmate Services Pvt. Ltd. Vs. CIT in Civil Appeal No. 2833 of 2016 dated 12.10.2022, held 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 2(24)(x) - unless the conditions spelt by M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 5 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 amounts 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 provision of Section 43B which is to ensure timely payment before the returns 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 the 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’ contributions- 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 date 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 M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 6 concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an 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 the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.” In view of the judgment of Hon’ble Supreme Court as above, the order of Hon’ble ITAT allowing relief of Rs. 1,05,44,018/- disallowed u/s 36(1)(va) of the Act is erroneous and needs to be rectified. PRAYER: In the light of the above mentioned decision of the Hon’ble Supreme Court of India, it is submitted that the Hon’ble ITAT may kindly rectify their Order dated 30/06/2022 under the provisions of section 254(2) of the I.T. Act, 1961 and uphold the addition of employees’ contribution to Provident Fund and Employees State Insurance of Rs. 1,05,44,018/- claimed under sections 36(1)(va) of the Act.” 4. Before us, the Ld. Departmental Representative (DR) submitted that in this case, the Tribunal allowed the appeal of the Assessee and held that employee’s contribution to ESI/PF paid by the assessee before due date of filing of return of income was allowable in terms of section 43B of the Income-tax Act, 1961 (in short ‘the Act’). He further submitted that now in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT (448 ITR 518), the controversy of allowability of employees contribution to PF/ESI u/s 36(1)(va) vis-à-vis section 43B of the Act is no longer res-integra; and any such payment of employees contribution for ESI/PF paid after due date under the relevant enactment [PF/ESI Act] are not eligible for deduction in terms M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 7 of section 36(1)(va) of the Act. None appeared on behalf of assessee, but we take judicial notice of Hon’ble Apex Court order in Checkmate Services (supra) and proceed to dispose of the MA preferred by Revenue. 5. Heard Ld DR and perused the relevant material on record. The Tribunal in the impugned order has allowed the appeals of assessee and directed the Assessing Officer to delete the disallowance, on account of, what is termed as, delayed payments of PF and ESI contributions. 6. We find that the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) has after taking note of relevant provisions of the Act and various decisions of the High Courts held that employee’s contribution to ESI/PF remitted after the due date under relevant enactment of PF/ESI Acts are not covered u/s 43B of the Act; and therefore, same are liable to be disallowed in terms of section 36(1)(va) of the Act. 7. It is trite that the law laid down by the Hon’ble Supreme Court relates back the date of inception of the relevant provisions of the Act. Therefore, in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), the order of the Tribunal is recalled for fresh adjudication and registry is directed to fix the appeal in due course. 8. In the result, the miscellaneous application filed by the revenue is allowed. Pronounced in the open court on 25/05/2023 Sd/- Sd/- (B.R. BASAKARAN) (ABY T. VARKEY) Accountant Member Judicial Member Mumbai; Dated : 25/05/2023 Vijay Pal Singh, (Sr. PS) M.A. No.42/Mum/2023 A.Y. 2019-20 Drishti Lifesaving Pvt. Ltd. 8 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard File. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai