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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 ..... gainst 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 TO MERITS AND FACT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 further. 4. The brief facts of the case are that the assessee had filed return of income on 11.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit 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's contribution which were deducted from their income and was held in trust by assessee-employer as per sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 and PF beyond due date specified under relevant Act and claimed deduction of same under Section 36(1)(va). The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor 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 contribution in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The section nowhere provides that the due da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84. 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 under s. 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dum 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 amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time- by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction [s. 36(1)(va)]. The other important feature is that this dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orne 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, allowance of an expenditure is provided in section 37 of the Act and in section 36 of the Act, few deductions are provided. The other conditions of section 37 of the Act i.e. not being personal or capital in nature and being expended wholly and exclusively and for the business of the assessee are fulfilled and therefore the amount contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontribution 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 within due date provided under the respective statutes, it has to be treated as income of the concerned assessee under section 2(24)(x) of the Act. In accordance with the statutory provision, the departmental authorities have made the disallowances. 19. Accordingly, in view of the decision of the Hon ble Supreme Court referred to above in our view, the issue stands decided against the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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