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TMI Blog2024 (5) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... see against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short "Ld. CIT(A)"), National Faceless Appeal Centre (in short "NFAC"), Delhi vide order dated 08.12.2022 for Assessment Year 2018-19. 2. The Assessee has taken the following grounds of appeal:- "1. That on the facts, and in the circumstances of the case and in law, it is objected that the intimation dated 24/12/2019 issued u/s. 143(1)[here in after referred as intimation] by Dy.CIT, CPC, Bangalore [here in after referred as AO] by making adjustments without following the mandatory procedures as under: (i) Neither any intimation nor any show cause notice was issued as specified in Proviso 1 to Section 143(1) before making such adjustments; (ii). Adjustments are made without passing a judicious order and not communicating the reasons of adjustments thus mandatory procedure given in Proviso 2 to section 143(1) not followed. Assessee-Appellant prays before the Hon'ble Tribunal to delete the adjustments made in the intimation dated 24/12/2019 because neither the mandatory procedures nor the Principles of Natural Justice was followed before making such adjustments. GROUNDS OF APPEAL RELATING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot; and as income under the head "income from other sources", accordingly assessee prays to tax the amount of Rs. 20, 39, 969/- as "income from other sources" not as income under the head "business or profession". 5. That the above grounds of appeal are independent and prejudice to each other and the appellant craves leave to add, alter, withdraw or replace any ground or grounds of appeal before or at the hearing of the appeal." 3. We observe that when the case was called out for hearing, none appeared on behalf of the assessee and accordingly request for adjournment filed by the Counsel for the assessee is hereby rejected. The issue has come up for hearing on several occasions and the issue involved in the present appeal is with respect to addition made under Section 36(1)(va) of the Act on account of delay in deposit of employees' contribution to PF and ESI, for the impugned year under consideration which has now been settled / clarified by the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC). Accordingly, we see no reason why the issue be kept pending and litigation be prolonged on this issue any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees' contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. 9. We observe that ITAT Ahmedabad in the case of Adani Infrastructure and Developers (P.) Ltd. 152 taxmann.com 564 (Ahmedabad - Trib.) has on identical facts, decided the issue against the assessee with the following observations: "4. We observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. (supra) wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 36(1)(va) of the Act. Again, recently Pune ITAT in the case of Cemetile Industries v. ITO [2022] 145 taxmann.com 209/[2023] 198 ITD 322 (Pune - Trib.) held that where assessee-employer deposited amount of employees contribution towards employees' provident fund and employees' state insurance corporation beyond due date stipulated in respective Acts, disallowance made under section 36(1)(va) was justified. The ITAT further held that adjustment under section 143(1)(a) by means of disallowance made for late deposit of employees' share to relevant funds beyond date prescribed under respective Acts was proper. 4.1 In view of the above observations respectfully following the decision of the Honourable Supreme Court in the case of Checkmate Services (P.) Ltd. (supra) and Harrisons Malayalam Ltd. (supra) and in the light of our observations, we hereby dismiss the assessee's appeal. 5. In the result, the appeal of the assessee is dismissed." 10. In the case of Ms. Nalina Dyave Gowda [2023] 146 taxmann.com 420 (Bangalore - Trib.) the assessee during, financial year 2018-19 (Assessment Year 2019-20) made payment of employees' contribution to ESI an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of PR Packaging in ITA No. 2376/Mum/2022 and Kalpesh Synthetics 137 Taxmann.com 475 (Mumbai), this claim of deduction u/s 36(1)(va) of the Act cannot be disallowed u/s 143(1) of the Act (more specifically under sub-clause (d) to 143(1) of the Act). Secondly, the counsel argued that the issue at the time when the disallowance was made, issue was debatable and accordingly could not be the subject matter of disallowance under section 143(1) of the Act. 15. Regarding the argument that the auditors did not specifically mention in the audit report regarding inadmissibility of claim with respect to contributions received from the employees for various funds as referred to in section 36(1)(va) of the Act, it would be useful to reproduce section 143(1) of the Act, which reads as under: "Assessment. 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:-- (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, the audit report does not require the auditor to make a specific observation regarding "admissibility/inadmissibility" of the above expenditure. 17. Therefore, once the auditor has mentioned the "actual" dates of ESI/PF remittance and the "due" dates of ESI/PF remittance by the assessee u/s 36(1)(va) of the Act at serial number 20(b) of the audit report, then, in our considered view, the requirement of section 143(1) of the Act viz. "disallowance of expenditure ….indicated in the tax audit report" stands satisfied and the Department is permitted to make disallowance in terms of section 143(1) of the Act. 18. Regarding the alternate argument of the Counsel for the assessee that the claim of the assessee is allowable under Section 37 of the Act, we would like to refer to the decision of Hon'ble Jodhpur ITAT, in the case of Tarun Construction Company vs. ITO 157 taxmann.com 727 (Jodhpur - Tribunal) and the relevant extracts of the ruling are reproduced for ready reference:- "From the plain reading of the section it can be noted that 'due date' has been defined in the Explanation to mean the date by which assessee is required to credit the employees contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract of service or otherwise." Prior to the above clause was inserted to s. 36 giving statutory deductions of payment of tax under the provisions of the Act, s. 43B(b) was inserted by the Finance Act, 1983, which came into force with effect from 1st April, 1984. Therefore, again the provision of s. 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including s. 36(1) clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by the Finance Act, 1987, which came into effect from 1st April, 1988, the letters numbered as clause (a), or cl. (c) or cl. (d) or cl. (e) or cl. (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of s. 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not amounting to income. When Parliament introduced the amendments in 1988-89, inserting s. 36(1)(va) and simultaneously inserting the second proviso of s. 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions-especially second proviso to s. 43B-was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Sec. 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income-it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 s. 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 ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". It is submitted that after treating the employees' contribution as income of the assessee, once it is paid or a liability is accrued for payment being an ascertained liability, the same is allowable as an expenditure under section 37 of the Act. 12. While section 37 provides that the expenditure should not be an expenditure of the nature described in section 30 to 36 of the Act, it is submitted that section 36 of the Act does not provide details on nature of expenditure, rather provides specific cases of deductions in computing the total income of the assessee. Further, section 36(1)(va) of the Act starts with the words "any sum received by the assessee" hence the restriction on the expenditures covered under section 30 to 36 of the Act, which is provided in section 37 of the Act is not applicable to section 36(1)(va) of the Act which deals with employees contribution to PF and ESI. In other words, allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /CTK/2022 (Arising out of ITA No. 07/CTK/2022) order dt.13-1-2023 (Cuttack) (Trib.) The Hon'ble ITAT by following the decision of Nirakar Security & Consultancy Services Pvt Ltd v. ITO in ITA No. 98/CTK/2022 for AY 2016-17 order dated 17-10-2022, restored the issue to the file of AO to consider the allowability under section 37(1) of the Act on the payment of employees contribution to PF & ESI. In view of above, even if addition is confirmed under section 36(1)(va) in view of the decision of Hon'ble Supreme Court, amount paid by the assessee during the relevant AYs be directed to be allowed under section 37(1) of the Act." 5. We have given a thoughtful consideration to rival submissions and perused materials on record. We have also applied our mind to various decisions cited before us. 6. In so far as factual aspect of the issue is concerned, there is no dispute between the parties that the employees' contribution to PF and ESI were not deposited within the due date prescribed under the PF and ESI Acts in terms of Explanation-1 to section 36(1)(va) of the Act. The said provision makes it clear that if employees' contribution to PF and ESI is not paid wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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