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TMI Blog2022 (3) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... the act resulting into the disallowance of the contribution made by the assessee. Thus AO was not justified in denying, the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income - Decided in favour of assessee. - ITA No. 62/Agr/2021, ITA No. 100/Agr/2021 And ITA No. 112/Agr/2021 - - - Dated:- 22-3-2022 - Shri Anil Chaturvedi, Accountant Member And Sh. Laliet Kumar, Judicial Member For the Appellant : Sh. K.K. Jain, Adv., Sh. Mahesh Agarwal, C.A. Sh. Sushil Kumar Maheshwari, C.A. For the Respondent : Sh. Waseem Arshad, Sr. D.R. ORDER PER BENCH The present appeals are filed by the above mentioned assesses feeling aggrieved by the orders passed by appellate authority for various assessment years mentioned hereinabove. The Bench had summarized the common ground raised by the assessee, which are to the following effect :- 1- Because the impugned Disallowances under section 36(1)(v)(a), confirmed by the Ld. CIT(A) (NFAC) (of Employees Contribution to Provident Fund/ E.S.I deposited during the Financial Year itself before due date of filing of Return) is grossly arbitrary, highly unjust, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn shall be processed in the following manner, namely: (a) the total income or loss shall be computed after making the following adjustments, namely: (i) (ii) .. (iii) ........ (iv) disallowance of expenditure indicated in the Audit Report but not taken into account in computing the total income in the return; This shows that CPC is within the power to make such adjustment as Appellant's auditor himself has indicated in the tax audit report that such payments have been made beyond the due date prescribed in section 36(1)(va) of the I T Act, 1961, but Appellant has claimed it in the Return of Income against the Audit Report The submission of the appellant in respect of disallowance of employee's contribution is duly considered. However, the same cannot be accepted in view of the amendments made to section 36 and 43B by the Finance Act, 2021. The Finance Act, 2021 has amended section 36, which reads as under- In section 36 of the Income-tax Act, in sub-section (I), 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year, in which such sum is actually paid by him. Proviso to the said section provides that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. By virtue of insertion of Explanation 5 to this section, the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 applies. 4.5 Reference is also made to the Supreme Court judgment in the case of Commissioner of Income Tax-I, Ahmedabad vs. Gold Coin Health Food Pvt. Ltd. (2018) 9 SSC 622 wherein while dealing with a similar issue. Hon'ble Supreme Court in Para 15 of the decision has quoted the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If a new Act is to explain an earlier act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have a retrospective effect (ibid., pp.46B-69). Where a statute is passed for the purpose of supplying an obvious omission in a former statute or to 'explain' a former statute, the subsequent statute has relation back to the time when the prior Act was passed. The rule against retrospectively is inapplicable to such legislations as these are explanatory and declaratory in nature. - Zile Singh vs. State of Haryana, (2004) 8 SCC 1. 4.6 From the wordings above, it is also clear that the above clarificatory amendment brought in by the Finance Act, 2021 applies to the issue in the instant appeal also. The amendment declares that provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution or a state industrial development corporation (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a cooperative bank other than a primary cooperative agricultural and rural development bank (c) any sum payable by the assessee as an employer in lieu of any leave at the credit of an employees (g)any sum payable by the assessee for use of Railway assets shall be allowed (irrespective of the previous year in which such liability was incurred by the assessee according to the method of accounting employed by him) only in computing the income referred to in sec 28 of that previous year in which sum is actually paid by him. First Proviso Provide that nothing contained in this section shall apply in relation to any to any sum [referred to in clause (a) or clause(c) or clause(d) or clause(e) or clause(f)] which is actually paid by the assessee on or before the due date applicable in the case of filing the return of income under section 139(1).. in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee alongwith the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) IS ENTIRELY DISTINCT FROM 36(va).The plain language of the statute is explicitly different. REMOVAL OF ANOMALY ONLY WITH RESPECT TO EMPLOYER'S CONTRIBUTION. FURTHER ALOM EXTRUSIONS LTD SUPREME COURT 319 ITR 306 RECOGNISED THE DILEMNA AS BETWEEN TAX DUTY FEE CESS PAYMENT OF CONTRIBUTION TO AN AS PER ANY STATUTE EMPLOYEES WELFARE FUND (this referred to employers payment of his contribution) PARA 8 OF THE SUPREME COURT, WITH RESPECT TO THE AMENDMENT IN PROVISO FIRST . THE TAX DUTY AND CESS AND FEE WAS EQUATED WITH THE EMPLOYERS CONTRIBUTION i.e. with respect sec 43B (b) not sec 36 (va). Further para 9 of ALOM EXTRUSIONS REFERS ONLY TO THE EXTENT OF SECOND PROVISO 43B(b). G. THUS LANGUAGE OF STATUTE AND SUPREME COURT REFERS TO THE REMOVAL OF ANOMALY ONLY IN RESPECT OF 43B(b) EMPLOYER'S CONTRIBUTION. H. FURTHER, Controversy Assessee's favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990 SCR (3) 441. Paragraph of 24 of IndusInd Bank addresses M.M. ACQUA TECHNOLOGIES . C. QUESTION THEREFORE IS WHEN THE LANGUAGE OF THE STATUE IS EXPLICIT AS TO DATE OF EFFECT AND AMENDMENT DECLARATORY AND CURATIVE SHOULD THE DATE AS IN THE EXPLANATORY MEMORANDUM BE TAKEN AS THE DATE FROM WHICH THE STATUE IS INTENDED TO BE OPERATIVE. D. Para 10 Planman HR Private Limited ITAT Delhi Vinay Cement SC SLP dismissed was in the context of 43B insertion distinguishable on facts. 4) We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of the hearing by both parties. At the outset, it may be relevant to mention here that recently in the matter of Mahadev Cold storage, the coordinate bench had the occasion to deal with the issue of disallowance under section 43B of the act and after elaborate examining the law on the subject, it was held that the disallowance under section 43B of the act is not permissible if the assessee had made the contribution before the due date of filing of the return of income. The same principle, continues to hold good for issue under consideration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this clause. For ready reference, we reproduce the Explanation-2 to Section 36(1)(va) as under: Section 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 purpose of determining the 'due date' under this clause' 18. We find that this amendment has been brought in the Act to provide certainty about the applicability of Section 43B in respect of belated payment of employees' contributions. In order to test whether the amendment brought in later is retrospective or not one has to apply the test as laid by the Hon'ble Supreme Court in the case of M/s Snowtex Investment Ltd. (supra) wherein the Hon'ble Supreme court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. and held that the intent of the Parliament/legislature need to be looked into for ascertaining whether the amendment should be retrospective or not. In Vatika Township Ltd. (supra) the Hon'ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislative intent; b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by Finance Act 2021 is concerned, notes on clauses to the Finance Bill 2021 clearly states that the amendment will take effect from 1st April 2021 and will apply in relation to the assessment year 2021-22 and subsequent assessment year. In such a situation, we are of the view that the amendment brought out by Finance Act 2021 does not apply to the assessment year under consideration. As far as the reliance of Revenue on the decision of Vedvan Consultants Pvt. Ltd. (supra) is concerned, we find that the various division Benches of the Delhi other Tribunal have held the delayed deposits of PF/ESIC Contributions to be allowable expenditure if the same are deposited with the appropriate authorities before filing of return of income by the assessee. Further, it is settled law that when two judgments are available giving different views, then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon ble Supreme Court. We therefore, following the decision rendered by Hon ble Apex Court in the case of M/s. Vegetable Products Ltd. (supra) and AIMIL Ltd. (supra), are of the view that no disallowance u/s 36(1)(va) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORATION CIRCLE 3 (2), CHENNAI The scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee 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 assessee/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) r.w.s. 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). Accordingly, the writ petition fails and the same is dismissed. KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015 THE COMMISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED The distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities. Considering section 36(1)(va) of the Income Tax Act as it stands, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer as just and proper. 9. Similarly, the judgments of Hon ble High Court of Delhi in case of CIT Vs. Bharat Hotels Ltd. 410 ITR 417 held that the amounts were not allowable u/s 36(1)(va). The relevant portion is as under: 7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held as under: 17. We find that with respect to employees contribution to Provident Fund, as to whether disallowable or not with reference to Section 36(1)(va) read with Section 43B, a simi lar question came up for consideration before Gujarat High Court in Commissioner of Income-Tax v. Gujarat State Road Transport Corporation, (2014) 366 ITR 170. Therein Assessee collected Rs. 51,06,02,712/ - from its employees towards provident fund contribution but deposited Rs. 21,16,61,582/ - with provident fund trust. Thus there was a short fall of Rs. 24,89,41,130/-. This amount of short fall was treated by Assessing Officer as income of Assessee vide Section 2(24)(x) read with Section 36(1)(va) of Act 1961. Assessing Officer also added Rs. 1,93,55,580/being the amount of short fall towards employers contributory provident fund and disallowed the same under Section 43B of Act 1961. He also disallowed the said amount of Rs. 1,93,55,580/ - from expenses claimed by Assessee for the A.Y. in question i .e. 200506 as per provisions under Section 43B. Dissatisfied with assessment order, Assessee preferred appeal before CIT(A) who vide order dated 25.06.2009 partly allowed the same and del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the employers contribution the second proviso to Section 43B which provided that even with respect to the employers contribution (Section 43B(b)), the Assessee was required to credit the amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that Section 36(1)(va) has been deleted and/or amended. 19. That is how Gujarat High Court held that Section 43B would not be attracted in a case where dispute relates to employees contribution only. Section 43B would be confined only to employers contribution. It further said: Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees account in the relevant fund or funds on or before the due date mentioned in the Explanation to Section 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in Section 28 of the Act. 20. Gujarat High Court distinguished judgment of Commissioner of Income-Tax v. Alom Extrusions Ltd. (supra) on the ground that therein actual d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d within due date the Assessee is straightaway entitled for deduction under Section 36(1)(va). However Section 43B provides for certain deductions allowable only on actual payment. It gives an extension to the employer to make payment of contribution to provident fund or any other fund, till due date applicable for furnishing of Return under Section 139(1) of Act 1961, in respect of previous year in which liability to pay such sum was incurred, and evidence of such payment is furnished by Assessee along with such Return. Court then said: In short, this provision states, notwithstanding anything contained in any other provision contained in this Act, a deduction otherwise allowable in this Act in respect of any sum payable by the assessee as an employer by way of contribution to any fund such as provident fund shall be allowed if it is paid on or before the due date as contemplated under Section 139(1)of the Income-Tax Act. This provision has nothing to do with the consequences, provided for under the PF Act/PF Scheme/ESI Act, for not depositing the contribution on or before the due dates therein. (emphasis added) 22. It also said that the word contribution used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. This is the reason why every Assessee/Employer was entitled to deduction even prior to April, 1, 1984, keeping books on mercantile system of accounting, as a business expenditure, by making provision in his books of account in that regard. Assessee was capable of keeping money with him and just by mentioning in accounts, was able to claim deduction as business expenses. Section 43B was inserted to check this practise and it resulted in discontinuing mercantile system of accounting with regard to tax, contributions etc. With induction of Section 43B an Assessee could claim deduction on actual payment basis. By Finance Act, 1988 Parliament inserted first proviso w.e.f. 01.04.1988 which inter alia provides that any sum payable by Assessee by way of tax, duty, cess or fee, if payment is made after closing of accounting year but before date of filing of Return under Section 139(1), Assessee would be entitled to deduction on actual payment basis. This proviso did not include within its ambit, contributions under labour welfare statutes. By Finance Act, 1988, Second Proviso thus Second proviso was further amended by Finance Act, 1989 w.e.f. 01.04.1989. 27. Court held that Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. 29. Therefore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab and Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both contributions i.e. employer and employee. Otherwise view taken by Gujarat High Court and followed by Kerala High Court, with great respect, we find expedient to dissent therewith. 11. Thus, we find that the Judgment of Hon ble Allahabad High Court has duly reflected on the judgments of various Hon ble Courts and taken a considered decision on this issue. 2. With regard to the predentary value in deciding the issue before us, we have gone through the following judgments: The Hon ble Allahabad High Court in K. N. Agarwal v. CIT 189 ITR 769 held that, Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing officer and since he a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State will be bound by the decisions of the High Court. 18. In order to have fixity, finality and conclusiveness of the judicial proceedings, the precedents have a remarkable role in the formation of judicial opinions, judicial orders and dispensation of justice. The concept of Stare decisis et non quieta movere , which translates as 'to stand by things decided and not disturb settled points'. The doctrine of stare decisis, or binding precedent, is the principle by which judges are bound by decisions of superior courts. The principal abet in predictability, uniformity and judicial fairness. 1. We have also given considerable thought to the words of the Hon ble Judges of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd vs. Union of India 1985 AIR 1585 wherein it was held that, To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter A.M.Y. at page 18: a Judge ought to be wise enough to know that he is fallible therefore everyday to learn: great and honest enough to discard all mere pride ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The respondent assessee had fi led its return on 30-10-2002 declaring income at Rs. 7,95,430. During the assessment proceedings, the Assessing Officer (AO) found that the assessee had deposited employers' contribution as well as employees' contribution towards provident fund and ESI after the due date, as prescribed under the relevant Act/Rules. Accordingly, he made addition of Rs. 42,58,574 being employees' contribution under section 36(1)(va) of the Act and Rs. 30,68,583 being employers' contribution under section 43B of the Act. Felt aggrieved by this assessment order, the assessee preferred appeal before the CIT(A) who decided the same vide orders dated 15-7-2005. Though the CIT(A) accepted the contention of the assessee that if the payment is made before the due date of filing of return, no disallowance could be made in view of the provisions of section 43B, as amended vide Finance Act, 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the CIT(A) for rectification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition filed by the department against the High Court Order of 26th June, 2006 in ITA No. 2/05 and ITA No. 56/03 and ITA No. 80/03 of the High Court of Guwahati, Assam and it is order dated 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under : 'In the present case we are concerned with the law as it stood prior to the amendment of section 43B. In the circumstances the assessee was entitled to claim the benefit in section 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return. The special leave petition is dismissed. 29. Thus, we find that the Co-ordinate bench of ITAT and the Hon ble Jurisdictional high Court of Delhi have relied on the judgment of Vinay Cements Ltd. (supra). 7. Further, the Hon ble Jurisdictional High Court of Delhi in the case of PCIT Vs. Pro Interactive Services (India) Pvt. Ltd. in ITA 983/2018 dated 10.09.2018 while dismissing the appeal of the Revenue held that the legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with to rationalization of various provisions, the issue of clause (24) of Section 2 sub-clause (x), Section 36(1) clause (va), Section 43B with regard to provisions of sub-Section (1) of Section 139 have been dealt at length. The gist is as under: Rationalization of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide 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 set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Subsection (1) of the said section provides for various deductions allowed while computing the income under the head Profits and gains of business or profession . Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date under this clause; and (i) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. [Clauses 8 and 9] 33. Thus, the matter has been finally decided and the controversy has been put to rest. 34. Having gone through the Orders of the Co-ordinate Bench of Tribunal al lowing the delayed payment pertaining to employees contribution, Orders of the Co-ordinate Bench of Tribunal disallowing the delayed payment pertaining to employees contribution, Judgments of various Hon ble Courts disallowing the delayed payment, Judgments of various Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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