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TMI Blog2022 (3) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... DER This is an appeal filed by the assessee against the order of learned CIT(A) dated 18/08/2021. In this appeal the assessee has taken the following grounds: 1. Because National Faceless Appeal Centre (NFAC), Delhi hereinafter referred to as CIT(A), has erred in law and on facts, in upholding an addition of ₹ 3,16,479/- which represented employees' contribution to Provident Fund (PF) and Employees' State Insurance dues (ESI), on the ground that the assessee company had deposited the above dues beyond the due date mentioned in the provisions of relevant Acts; 2. for the reasons that- a) although the deposits in Government Account were beyond the dates mentioned in the provisions of relevant Acts, yet the deposits had been made before filing the return under section 139(1) of the Act; and b)and for the purposes of allowing corresponding deduction, the provisions of section 43B had become applicable. 3. various case laws as have been referred to in the appellate order, had been delivered by different High Courts and the same could not be held/treated to be binding authority in the instant case; 4. on the hand, for the reason that su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the addition and in this respect my attention was invited to the findings of learned CIT(A) where he has particularly relied on the decision of Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 and on the decision of Hon'ble Kerala High Court in the case of Merchem Ltd. [2015] 61 Taxmann.com 119 (Ker). Learned D. R. further submitted that a clarificatory amendment was brought in by the Finance Act, 2021 which is applicable retrospectively, it was prayed that the addition sustained by learned CIT(A) be upheld. 4. I have heard the rival parties and have gone through the material placed on record. I find that the only issue involved in this appeal is the action of learned CIT(A) by which he has upheld the addition made by CPC regarding employees contribution towards ESI and PF. There is no dispute between the parties regarding the dates of deposit of ESI and PF which clearly are beyond the prescribed date of deposit as applicable under the respective acts. However, there is no dispute between the parties that these deposits were made before the filing of return of income for the relevant assessment year. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 24,89,41,130/ (short fall in employees contribution to provident fund) and ₹ 1,93,55,580/ (short fall in employers contribution to provident fund) observing that employees contribution/employers contribution was deposited before filing Return under Section 139(1) of Act 1961 for the relevant period. Revenue, in its turn, preferred appeal before Tribunal. Relying on judgment in Commissioner of IncomeTax Vs Alom Extrusions Ltd. (supra) , Tribunal dismissed appeal and confirmed order passed by CIT(A). That is how matter came before High Court in appeal. Court considered following question, posed in para 7.01, reads as under: Short question which is posed for consideration of this court is with respect to the disallowance of the amount being the employees contribution to the PF account/ESI contribution which admittedly which the concerned assessee did not deposit with the PF Department/ESI Department within due date under the PF Act and/or the ESI Act. 18. Gujrat High Court referred to Section 2(24)(x) and found that any sum received by Assessee (employer) from his employees as contributions to any provident fund or superannuation fund or any fund set u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relates to employers contribution and whether amendment in Section 43B by Finance Act, 2003 would operate retrospective or not, Supreme Court had no occasion to consider deduction with reference to Section 36(1)(va). For the same reason Gujrat High Court dissented with the judgments of Rajasthan High Court in Commissioner of IncomeTax Vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd., (2014) 366 ITR 163, Punjab Haryana High Court in Commissioner of IncomeTax Vs Hemla Embroidery Mills P. Ltd., (2014) 366 ITR 167, Himachal Pradesh High Court in Commissioner of IncomeTax Vs Nipso Ployfabriks Ltd., (2013) 350 ITR 327 and Karnataka High Court in Commissioner of IncomeTax Vs Sabri Enterprises, (2008) 298 ITR 141 . 21. Karnataka High Court had an occasion to consider, whether it should dissent with the view taken in the earlier judgments and follow the view taken by Gujrat High Court in Commissioner of IncomeTax Vs Gujrat State Road Transport Corporation (supra) and this occasion came in Essae Teraoka P. Ltd. Vs Deputy Commissioner of IncomeTax, (2014) 366 ITR 408 . Dispute relates to A.Y. 200809. Assessee filed Return on 26.09.2008. Return was processed under Section 143(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution used in clause (b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribution is deposited on or before due date for furnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is entitled for deduction. 23. Though in a short judgment, but Punjab Haryana High Court in Commissioner of IncomeTax Vs Hemla Embroidery Mills (P.) Ltd., (supra) not only followed Commissioner of Income- Tax Vs Alom Extrusions Ltd. (supra) but also its own earlier judgment in Commissioner of IncomeTax Vs Rai Agro Industries Ltd., (2011) 334 ITR 122 , to hold that Section 43B shall apply to both 'contributions' i.e. employers' and employees'. 24. Kerala High Court in recent judgment in Commissioner of IncomeTax Vs Merchem Ltd., (2015) 378 ITR 443 , has followed the decision of Gujrat High Court in Commissioner of IncomeTax Vs Gujrat State Road Transport Corporation (supra) and dissented with the otherwise judgments of Rajasthan High Court in Commissioner of IncomeTax Vs State Bank of Bikaner and Jaipur, (2014) 363 ITR 70 , Karnataka High Court in Commissioner of IncomeTax Vs Spect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Finance Act, 1989 w.e.f. 01.04.1989. 27. Court held that Assessee/employer thus would be entitled to deduction only if contribution stands credited on or before due date given in the Act 1952 or Act 1948. Second proviso created difficulties, inasmuch as under Act, 1981, due date was after the date of filing of returns and thus industries made representations to the Ministry of Finance. Court, looking to the history of amendments held, it is evident that Section 43B, when enacted in 1984, commences with a non obstante clause. The underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, Section 43B made it mandatory for the Department to grant deduction in computing income under Section 28 in the year in which tax, duty, cess etc. is actually paid. Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under Provident Fund Act, Municipal Corporation Act (Octroi) and other Tax laws. Therefore, by way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal, in the case of Tirubala International Pvt. Ltd. vs. DCIT in I.T.A. No.726/Lkw/2016, vide order dated 17/05/2018, has followed the judgment in the case of Sagun Foundry (supra) and again vide order dated 31/07/2019, the Lucknow Bench of the Tribunal in the case of Axis Motors Pvt. Ltd. vs. DCIT in I.T.A. No.289/Lkw/2019 has again followed the same judgment of Hon'ble High Court. The Allahabad Bench of the Tribunal, in the case of JCIT, Circle-2, Allahabad vs. Bharat Pumps and Compressors Ltd. in I.T.A. No.147 148/Alld/2016, after taking into account the amendment brought out by Finance Act, 2021, has again decided the issue in favour of the assessee by holding the amendment to be applicable from April 2021 only. The findings of the Tribunal are reproduced below: There is a recent amendment to Section 36(1)(va) by Finance Act, 2021, wherein Explanation 2 was inserted, which reads as under: 36(1)(va) .. Explanation 2- For the removal of doubts , it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the 'due date' u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from 01st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. It is also to be noted that several of the tax-payers (except in the State of Gujarat and Kerala , and such other States where Hon'ble jurisdictional High Court has decided this issue in favour of Revenue) situated in the States where Hon'ble Jurisdictional High Court has decided this issue in favour of tax-payers, have already been allowed the deduction towards employee contribution received by employer which was deposited late by employer beyond the time stipulated u/s 36(1)(va) , but before the due date as prescribed for filing of return of income u/s 139(1) of the 1961 Act, and there cannot be a class different now at this stage where the deduction is to be denied on the ground of strict interpretation of the provisions of Section 36(1)(va) , unless the amendment made by Finance Act, 2021 is made specifically applicable retrospectively from the date of insertion of the provision or any other specified earlier date in the Finance Act, rather on the other hand , the Memorandum to Finance Bill, 2021 has specifically made this amendment applicable from 01.04.2021 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of subsection (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who misutilize employee's contributions. Accordingly, in order to provide certainty, it is proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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