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TMI Blog2022 (6) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - As this amendment has been brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employee's contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. Thus we are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue against the aforesaid judgement is pending before the Supreme Court. Even though these questions with respect to interpretation of Section 43B of the Act were answered against the revenue, but they are subject to the final order of the Supreme Court on these questions. Shailendra Garg, C/O Garment Craft India (P) Ltd. February 15, 2018 (Raj HC) Delayed payment of PF ESI contribution - ITAT deleted the addition - Held that:-As decided in State Bank of Bikaner and Jaipur [2014 (5) TMI 222 - RAJASTHAN HIGH COURTI where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income u/s. 139(1), cannot be disallowed u/s. 43B or u/s. 36(1)(va) of the IT Act CIT vs. State Bank of Bikaner Jaipur 99 DTR 131 CIT vs. Jaipur Vidyut Vitran Nigam Ltd. 363 ITR 307 CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 366 ITR 163 Principal Commissioner of Income-Tax v/s Rajasthan state Seed Corporation Ltd. [2016] 386 ITR 267 (Raj) Income Tax vs. M/s. State Bank of Bikaner and Jaipur (2014) 363 ITR 70 (Raj) Deputy Commissioner of Income Tax vs Jaipur Vidyut Vitran Nigam Limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's appeal is allowed. 9. Similarly the Jaipur Bench of the ITAT in the case of Dhabriya Polywood Ltd. vs. ADIT, CPC, Bengaluru 133 taxmann.com 135 (Jaipur-Trib.) held as under:- Admittedly and undisputedly, the employee's contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s. 139(1) of the Act. Further, it is noted that the ld. CIT(A) has referred to the explanation to section 36(1)(va) and section 43B introduced by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance bill, 2021, however, he has simply failed to consider the express wordings in the said memorandum which say these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . The impugned assessment year is assessment year 2019-20 and therefore, the said amendment cannot be applied in the instant case. 10. The reliance was also placed on the decisions of the ITAT Jaipur Bench in the following cases:- Moona Dewan vs. CPC, Bengaluru in ITA No. 282/JP/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata. The Relevant findings have been given in para 4 of the said order, which read as under;- 4. We have heard both the parties and perused the record. First of all we do not countenance this action of the Ld. CIT(A) for the simple reason that the Explanation 5 was inserted by the Finance Act, 2021, with effect from 01.04.2021 and relevant assessment year before us is AY 2019-20. Therefore the law laid down by the Jurisdictional Hon'ble High Court will apply and since this Explanation-5 has not been made retrospectively. So we are inclined to follow the same and we reproduce the order of Hon'ble Calcutta High Court in the case of Vijayshree Ltd. supra wherein the Hon'ble Calcutta High Court has taken note of the Hon'ble Supreme Court decision in CIT vs. Alom Extrusion Ltd. reported in 390 ITR 306. The Hon'ble Calcutta High Court's decision in Vijayshree Ltd. supra is reproduced as under: This appeal is at the instance of the Revenue and is directed against an order dated 28th April, 2011 passed by the Income Tax Appellate Tribunal, A Bench, Kolkata in ITA No. 1091/Kol/2010 relating to assessment year 2006-07 by which the Tribunal dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of Rs. 1,09,343/- and Rs. 3,52,622/-, the assessee's and revenue's stand is that the same has been paid before the due date of filing sec. 139(1) return and after the due date prescribed in the corresponding statutes; respectively. I notice in this factual backdrop that the legislature has not only incorporated necessary amendments in Sections 36(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the foregoing legislative amendments have proposed employers contributions; disallowances u/s. 43B as against employee u/s. 36 (va) of the Act; respectively. However, keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, I hold that the impugned disallowance is not sustainable in view of all these latest developments even if the Revenue's case is supported by the following case law. (i) CIT vs. Merchem Ltd., [2015] 378 ITR 443(Ker) (ii) CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj.) (iii) CIT vs. South India Corporation Ltd. (200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the deduction i.e. accrual basis and the same was being allowed, as the liability did exist but the said amount though claimed as a deduction was not being deposited even after lapse of several years. Therefore, to put a check on the said claims/deductions having been made, the said provision was brought in to curb the said activities and which was approved by the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. (supra). 21. A conjoint reading of the proviso to Section 43-B which was inserted by the Finance Act, 1987 made effective from 01/04/1988, the words numbered as clause (a), (c), (d), (e) and (f), are omitted from the above proviso and, furthermore second proviso was removed by Finance Act, 2003 therefore, the deduction towards the employer's contribution, if paid, prior to due date of filing of return can be claimed by the assessee. In our view, the explanation appended to Section 36(1)(va) of the Act further envisage that the amount actually paid by the assessee on or before the due date admissible at the time of submitting return of the income under Section 139 of the Act in respect of the previous year can be claimed by the assessee for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ala High Courts. Given the divergent views taken by the various High Courts and in the instant case, the fact that the jurisdiction over the Assessing officer lies with the Hon'ble Rajasthan High Court, in our considered view, the ld. CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as evident from series of decisions referred supra, as the same is binding on all the appellate authorities as well as the Assessing officer under its jurisdiction in the State of Rajasthan. 18. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the addition by way of adjustment while processing the return of income u/s. 143(1) amounting to Rs. 4,38,530/- so made by the CPC towards the delayed deposit of the employees's contribution towards ESI and PF though paid well before the due date of filing of return of income u/s. 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decisions of the Hon'ble Rajasthan High Court. 11. Since the facts of the present cases are identical to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above discussion, it is clear that there are series of decisions of various Hon'ble High Courts on this issue and even Hon'ble Jurisdictional High Court in the case of M/s. Industrial Security Intelligence India P Ltd., (supra) held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s. 139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. Now, the question arises, whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause. In our opinion, this amendment has been brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employee's contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 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 employer 40 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 sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. Accordingly, in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up together for adjudication. 9.2 The provision of Section 143(1) is reproduced below: 143.(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or loss shall be computed after making the following adjustments, namely; ........................... (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; ....................... (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; 9.3 In the instant case the dates of actual deposit of employee's contribution to PF and ESI vis- -vis due date of deposit is required to be entered under column 20(b) of the Tax Auditor Report. Although the auditor is not required to specifically mention the disallowance, the fact of delayed deposit leading to disallowance in apparent from the details filed. These details have been filed by the appellant itself and that processing has been done without any human interface. In view of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. 9.4.5 There is a distinction between employer contribution and employee's contribution towards welfare fund. While the due date for depositing the employees' contribution is 15th of the month next to the month for which the contribution was collected as per the respective Acts, u/s. 4(b) the due date for depositing the employer's contribution is the due date for filing of the return of income u/s. 139(1). 9.4.6 If any of the deposit of the Em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 employer get unjustly enriched by keeping the money belatedly to the employees. Clause (va) of sub-section (1) of Section 36 of the Act has inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. 9.4.9 In this regard, Finance Act 2021, has made the following amendments: In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:- '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 under this clause; In section 43B of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely:- Explanation 5.-For the removal of doubts, it is hereby clarified that the provisions of this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of statutes as follows: The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the Corm. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, there is no question of reading both provisions together to consider as to whether the taxpayer is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the taxpayer/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) read with Section 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). If the payment was not done within the stipulated time prescribed under the relevant enactment, the benefit of deduction cannot be claimed, since such belated payment is not a valid payment to attract deduction, under the purview of the Income Tax Act. 9.5 The appellant has relied upon various court decisions in support of its claim. These decisions of various courts have been issued prior to the amendments made to Section 36(1)(va) and 43B of the Act. As stated in para 9.4.11 above, Section 43B is deemed to have never applied to the employees contribution. Reliance, in this regard, is also placed on the case of Vedvan Consultants Pvt. Ltd. Vs DCIT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so categorically states that this amendment will take effect from 1st June, 2002 . These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend S. 92F. Clause iii (a) of S. 92F is amended so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract. This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of 3 concepts: (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. Thus, it was a conscious decision of the legislature, even when the legislature knew the implication thereof and took note o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year in which the search is initiated under section 132 or requisition is made under section 132A of the income-tax Act. Addition of this proviso in the Finance Act, 2003 further makes it clear that such a provision was necessary to provide for surcharge in the cases of block assessments and thereby making it prospective in nature. The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to Section 113, is clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from June 1, 2002. 18. As per ratio laid down by the judgment of Hon'ble Supreme Court in Vatika Township P. Ltd. (Supra), there cannot be imposition of any tax without t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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