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TMI Blog2023 (9) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered opinion, the adjustment clearly falls within the ambit of section 143(1)(a)(iv) read with Explanation (a). Therefore, we reject assessee s contention in this regard. The concept of prima facie adjustment under section 143(1)(a) has long been obliterated, as, after the amendment of section 143(1), first and second proviso to section 143(1)(a) provide for complying with the requirements of rule of natural justice in case of any adjustment. Thus, we do not find any merit in the submissions of the assessee contesting the adjustment made under section 143(1)(a) of the Act. Effect that the amendment to section 36(1)(va) by introducing Explanation-2 will apply prospectively - Even, accepting assessee s aforesaid contention, as we have already discussed earlier in the order, section 36(1)(va) in its original form, sans the amendment, had no ambiguity, as it clearly provided that no deduction in respect of employees contribution to PF and ESI can be granted unless such contribution is remitted within the due date prescribed under the relevant Acts. Therefore, retrospective or prospective application of the amendment to section 36(1)(va) would be of no help to the assessee. Decided a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under section 10AA or under any of the provisions of Chapter VI-A under the heading C. Deductions in respect of certain incomes , if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return . Explanation. For the purposes of this sub-section, (a) an incorrect claim apparent from any information in the return shall mean a claim, on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or otherwise; (emphasis supplied) Thus, the deduction of the said income/ sum is allowed if such sum is credited to the employees account maintained in the relevant fund on or before the due date. As mentioned above, section 143(1)(a)(iv) provides for adjustment by way of disallowance of expenditure indicated in the audit report but not considered while computing the total income. 5. In the audit report, the tax auditor at clause 20(b) is required to furnish the following information only: 20 b Details of contributions received from employees for various funds as re erred to in section 36(1)(va) S.No. Nature of fund Sum received from employee Due date for payment The actual amount paid The actual date of payment to the concerned authorities On perusal of the above, it can be noted that the heading itself states details of contributions received from employees for various funds as referred to in section 36(1)(va) of the Act . Thus, information on contribution received by the employer from its employees, due date of payment, actual amount paid and actual date of payment is required to be reported in the said clause by the tax auditor. The tax auditor in the said clause not where in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income. As stated supra, the tax auditor had not stated in the instant case to disallow Employees' Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, in our considered opinion, the said action of the learned CPC Bangalore in disallowing the employees' contribution to provident fund while processing the return under s. 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum). The relevant portion of the decision is reproduced below:- .. 5. We are conscious of the fact that the issue on merits is decided against the assessee by the recent decision of the Hon ble Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT reported in 143 taxmann.com 178 (SC) dated 12/10/2022. This decision was rendered in the context where assessment was framed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the law laid down by Hon ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such adjustment was to be permissible in the scheme of section 143(1), whether the insertion of Explanation 2 to section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to this assessment year 2021-22 are concerned, the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid amendments to Income Tax Act by way of Finance Act, 2021 are retrospective or prospective, is debatable and controversial. (c) Adjustments made by Revenue u/s 143(1) of Income Tax Act, whereby aforesaid additions were made to the income of the respective assessee, were unfair, unjust and bad in law. (d) Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of Section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments. (e) Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act, on the basis of retrospective amendment to Income Tax Act is beyond the scope of Section 143(1) of Income Tax Act. (f) In the present appeals before us, additions of aforesaid amount have been made by way of adjustments and intimation u/s 143(1) of Income Tax Act, on a debatable and controversial issue. (C.2.1) In the light of the foregoing conclusions in paragraph (C. 2) of this order and the preceding discussion, we are of the view that the aforesaid additions by way of adjustment and intimation u/s 143(1) of Income Tax Act, were beyond the scope of Section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the Finance Bill, 2021 provided as under in relation to the aforesaid amendment: Accordingly, in order to provide certainty, it is proposed to (i) amend clause (va) 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 (ii) 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. As evident above, the Finance Bill, 2021 in unequivocal terms provided that the amendment in section 36(1)(va) and section 43B of the Act is applicable from 1 April 2021 and will accordingly apply to AY 2021-22 and onwards. The subject case of the assessee is of AY 2018-19 and therefore the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees. 43(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity or any other fund for the welfare of employees, or . 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s. 28 . . (va) any sum received by the assessee from any of his employees to which the provisions sub-clause (x) of clause (24) of s. 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation. Fur the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. 13. This clause is inserted by the Finance Act with effect from 1st April, 1988. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 54 held as under:- 51. The analysis of the various judgments cited on behalf of the assessee i.e., CIT vs. AIMIL Ltd. Ors. (2010) 229 CTR (Del) 418 : (2010) 35 DTR (Del) 68 : (2010) 321 ITR 508 (Del) , (Delhi High Court); CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar) (Karnataka High Court).; CIT vs. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 : (2008) 3 DTR (Bom) 66 : (2009) 313 ITR 137 (Bom) (Bombay High Court); CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 265 CTR (Raj) 59 : (2014) 98 DTR (Raj) 109 : (2013) 35 taxmann.com 616 (Raj) [Rajasthan High Court] and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to s. 43B(b). No doubt, many of these decisions also dealt with s. 36(va) with its Explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of s. 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary precondition for allowing the expenditure. 53. The distinction between an employer s contribution which is its primary liability under law in terms of s. 36(1)(iv), and its liability to deposit amounts received by it or deducted by it [s. 36(1)(va)] is, thus crucial. The former forms part of the employers income, and the latter retains its character as an income (albeit deemed), by virtue of s. 2(24)(x) - unless the conditions spelt by Explanation to s. 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts the employer s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under s. 43B. 54. In the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereunder or under any standing order, award, contract of service or otherwise. Thus, even if the amount is deposited with delay as per the time limit provided under the relevant fund/law but deposited within the permissible time as provided under the Act, it should be allowed as a deduction to the assessee. Hence, this decision of Hon ble Supreme Court vis- -vis the amendment made in section 36(1)(va) by introducing Explanation 2 by Finance Act, 2021 is applicable from AY 2021-22 and not for earlier AYs. Amount is allowable as an expenditure under section 37 of the Act 10. Without prejudice to above, it is submitted that the amount of employees contribution paid by the assessee should be treated as an expenditure allowable as deduction under section 37 of the Act due to the reason that the employees contribution is treated as income of the assessee under section 2(24)(x) of the Act. Further the said amount is allowable as a deduction under section 36 of the Act wherein section 36(1) provides The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 . 11. Section 37(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer with the following directions: 6. Liberty is granted to the ld AR to make all submissions in respect of allowability of disallowed contribution of the employees to PF and ESI under other relevant provisions in the interest of justice. This direction is being given because ld AR has submitted that as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act, the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/s 2(24)(x) and on subsequent payment of the same, it would be a business expenditure, which can be claimed u/s.37(1) of the Act. We are not expressing any opinion in regard to his arguments as it has not been examined by the lower authorities. Liberty is also granted to the assessee to raise all arguments as are found necessary by him before the lower authorities. 7. As the issue in the present appeal is also identical to the issue in the case of Nirakar Security Consultancy Services Pvt Ltd.,(supra), on identical findings the issue in this appeal is restored to the file of the AO for re-adjudication after gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, which clarifies that the provisions of section 43B shall not apply for the purpose of determining the due date, vis a vis, section 36(1)(va), will apply prospectively. Without prejudice, even if it is not allowable under section 36(1)(va), alternatively, it has to be allowed under section 37 of the Act in the year of actual payment. 8. In our considered opinion, none of these submissions of the assessee are acceptable for the reasons to be discussed by us in ensuing paragraphs. 9. Section 36 is a deduction provision under the Act. A reading of section 36(1)(va) makes it clear that in respect of any sum received by an assessee from his employees, to which section 2(24)(x) applies, the assessee can get deduction only if such sum is credited to the employees accounts in the relevant fund or funds on or before due date. Explanation-1 to section 36(1)(va) clarifies the meaning of expression due date by stating that it means the date, by which the assessee is required as an employer to credit employees contribution to the employees account in the relevant funds under any Act, Rule or Order or Notification issued thereunder. Section 2(24)(x) provides that any sum received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression due date was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer s contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, employers contribution ) is described a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head profits and gains of business or profession it will be assessed under the head income from other sources. ** ** ** 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volves the principle of construction to be placed on the provisions of Finance Act, 2003 . ** ** ** 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. Eagle Flask Industries Ltd Vs. Commissioner of Central Exercise 2004 Supp (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements as follows: 23 . In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actments 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. 11. The aforesaid observations of Hon ble Supreme Court would leave no room for doubt or ambiguity regarding the real intent and purport of section 36(1)(va) read with section 2(24)(x) of the Act. Thus, as per the clear language of the aforesaid provisions, unless employees contribution to PF and ESI are deposited within the due date prescribed under the PF and ESI Acts, not only the assessee would get no deduction under section 36(1)(va), but the amount in question has to be treated as assessee s income under section 2(24)(x) of the Act. To that extent, the issue stands squarely settled by the ratio laid down by Hon ble Supreme Court in case of Checkmate Services (P) Ltd. (supra). 12. Now reverting back to the contention of the assessee that the adjustment made is not within the scope and ambit of section 143(1)(a)(iv) of the Act, it is necessary to look into the said provision, which reads as under : 143. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of prima facie adjustment under section 143(1)(a) has long been obliterated, as, after the amendment of section 143(1), first and second proviso to section 143(1)(a) provide for complying with the requirements of rule of natural justice in case of any adjustment. Thus, we do not find any merit in the submissions of the assessee contesting the adjustment made under section 143(1)(a) of the Act. 16. Another contention of the assessee is to the effect that the amendment to section 36(1)(va) by introducing Explanation-2 will apply prospectively. Even, accepting assessee s aforesaid contention, as we have already discussed earlier in the order, section 36(1)(va) in its original form, sans the amendment, had no ambiguity, as it clearly provided that no deduction in respect of employees contribution to PF and ESI can be granted unless such contribution is remitted within the due date prescribed under the relevant Acts. Therefore, retrospective or prospective application of the amendment to section 36(1)(va) would be of no help to the assessee. 17. Lastly, the assessee has made an alternative claim that the deduction can be allowed under section 37 of the Act. In this regard, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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