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TMI Blog2024 (11) TMI 225X 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 Section 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 terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is arbitrary, baseless and not justified. 3. I.d. CIT(A) erred in confirming disallowance of Rs. 352355/- on account of delayed payment of employee's contribution to any other fund made by the A.O invoking Sec.36(1)(va). The disallowance made by the Ld.CIT(A) is arbitrary, baseless and not justified. 4. Without prejudice to above grounds, Ld.CIT(A) erred in confirming the disallowance made by the A.O without appreciating the fact that the adjustment made by AO/CPC is not permissible u/s. 143(1). 5 The appellant reserves the right to add, alter, and omit all or any of the grounds of appeal with the permission of the Hon'ble ITAT. 2. Succinctly stated, the Centralized Processing Centre (CPC), Bengaluru while processing the return of income of the assessee had vide an intimation u/s. 143(1) of the Act disallowed his claim for deduction of delayed deposit of employees share of contribution towards ESIC and EPF of Rs. 1,41,16,990/-. 3. As is discernible from the record, the assessee had, inter alia, assailed the disallowance of the delayed deposit of employees share of contribution towards ESIC and EPF vide an application filed u/s. 154 of the Act, dated 07.12.2020, which was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Admittedly, it is a matter of fact borne from record that the Hon ble Apex Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I, Civil Appeal No.2833 of 2016 dated 12.10.2022, while clarifying the position of law, had held that the delayed deposit of employee s share of contributions towards labour welfare funds, viz. Employee s Provident fund (EPF) and Employee s State Insurance (ESI) is liable to be disallowed as per the mandate of Section 36(1)(va) r.w.s. 2(24)(x) of the Act. Considering the law laid down by the Hon ble Apex Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I (supra), we concur with the CIT(Appeals) that the disallowance of the assessee's claim for deduction of delayed deposit of employees share of contribution towards ESIC EPF made by the CPC, Bengaluru u/s. 143(1) of the Act had, thereafter, rightly been upheld by the A.O vide his order passed u/s. 154 of the Act. 10. The Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra) had observed that the employee s share of contributions towards ESI EPF deposited by the assessee beyond the due dates prescribed under the said resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) which defines various kinds of income inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament, is extracted below: Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees - 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. Due date means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee/employer to claim deduction towards contribution as an employer, by way of contribution to any provident fund . The second proviso was substituted by Finance Act, 1989 with effect from 01.04.1989 and read as under: Provided further that no deduction shall in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or to by issue of a cheque or draft or by any other mode on or before the due date as defined in the explanation below Clause (va) of sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the same has been realised within 15 days from the due date. 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and State and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. 42. The rationale for introduction of Section 43B was explained by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi: 16 19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non- obstante Clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only actual payment , as contrasted with incurring of a liability, can allow for a deduction. 43. This condition, i.e., of payment of actual amount on or before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income under Section 139(1) of the Act, the assessee(s) would be entitled to deduction under Section 43-B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To this effect, the first proviso stood introduced with effect from 1-4-1988. *** 15. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that the Finance Act, 2003, was amendatory and it applied prospectively, particularly when Parliament had expressly made the Finance Act, 2003 applicable only with effect from 1-4-2004. *** 18. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under Section 43-B of the Act. 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, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003 . 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corporation Ors. vs. Commissioner of Income 17 this court held as follows: 27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 Act. Initially, the provision included deductions in respect of sum payable by Assessee by way of tax or duty or any sum payable by the employer by way of contribution to any provident fund or superannuation fund. It is noteworthy that the legislature explained the inclusion of these deductions by citing certain practices of evasion of statutory liabilities and other liabilities for the welfare of employees... *** 23. With the passage of time, the legislature inserted more deductions to Section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by the employer and repayment of dues to the railways. Thus understood, there is no oneness or uniformity in the nature of deductions included in Section 43B. It holds no merit to urge that this Section only provides for deductions concerning statutory liabilities. Section 43B is a mix bag and new and dissimilar entries have been inserted therein from time to time to cater to different fiscal scenarios, which are best determined by the government of the day. It is not unusual or abnormal for the legislature to create a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein. See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. This was also reaffirmed in a number of judgments, such as Commissioner of Income Tax v. Ace Multi Axes Systems Ltd. 22 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar Co. 23 endorsed as following: 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly. 51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises 25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 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 Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee s contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees 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 pre-condition for allowing the expenditure. 53. The distinction between an employer s contribution which is its primary liability under law in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1) (va)) is, thus crucial. The former forms part of the employers income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed. 11. Apropos the Ld. AR's claim that the A.O could not have disallowed the delayed deposit of employees share of contribution towards ESIC EPF u/s. 36(1)(va) r.w.s. 2(24) (x) of the Act prior to the judgment of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra), vide an intimation issued u/s. 143(1)(a) of the Act we are unable to persuade ourselves to subscribe to the same. We find that the aforesaid issue, i.e. as to whether or not the delayed deposit of employees share of contribution towards ESIC EPF could have been made by the A.O prior to the judgment of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra) vide an intimation u/s. 143(1) of the Act, had been looked into by the Hon'ble High Court of Chhattisgarh in the case of M/s. BPS Infrastructure Vs. ITO, Ward-1(3), Raipur, TAXC No.87 of 2024, dated 12.04.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) had further brought the aforesaid order of the CIT (Appeals) on 29.09.2021, to the notice of his chartered account, viz. Shri Ajay Agrawal that he was informed that the appeal of the assessee firm had been dismissed by the CIT(Appeals) Raipur. The Ld. AR further submitted that as the order of the CIT(Appeals) was dropped in the email account, viz., [email protected] i.e. email account that was generated by his accountant Shri Amitabh Paul and the partners of the assessee firm had no access to the same, thus, it was for the said bonafide reason that they had remained unaware about the order passed by the CIT/Appeals) dated 29.09.2021 .. 11. The reason that the delay in filing of the present appeal can by no means be held to be justified for the reason that partners of the assessee firm had remained unaware about the order passed by the CIT (A) dated 29.09.2021 which was dropped in the e-mail account of his accountant, viz. Shri Amitabh Paul. As the reason given by the assessee firm regarding the inordinate delay involved in filing of the present appeal does not inspire any confidence, and in fact reveals a lackadaisical conduct of the partners of the assessee firm, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bombay High Court).; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. [2013] 35 taxmann.com 616 (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 Section 43B (b). No doubt, many of these decisions also dealt with Section 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 Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee s contribution being considered as part of the employer s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 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 Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer s obligation to deposit the amounts retained by it or deducted by it from the employee s income, unless the condition that it is deposited on or before the due date, is correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Checkmate Services Pvt. Ltd. Vs. CIT (supra), we are unable to concur with the Ld. AR that the A.O/CPC, Bengaluru had erred in rejecting the assessee's application filed u/s. 154 of the Act, wherein the latter had sought for setting aside the disallowance of his claim for deduction of delayed deposit of employees share of contributions towards ESIC EPF u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act made by the AO/CPC, Bengaluru vide an intimation u/s. 143(1)(a) of the Act prior to the judgment of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra). We, thus, in terms of our aforesaid deliberations, finding no infirmity in the view taken by the CIT(Appeals) uphold the same and sustain the disallowance of Rs. 1,41,16,990/- made by the A.O u/s. 36(1)(va) r.w. Sec.2(24)(x) of the Act. Thus, the Ground of appeals No. 1 to 4 raised by the assessee are dismissed in terms of our aforesaid observations. 12. Ground of appeal No.5 being general in nature is dismissed as not pressed. 13. In the result, appeal of the assessee is dismissed in terms of our aforesaid observations. Order pronounced in open court on 04th day of September, 2024. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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