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EMPLOYEES CONTRIBUTIONS TO FUNDS- UN-NECESSARY LITIGATION BY REVENUE.

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EMPLOYEES CONTRIBUTIONS TO FUNDS- UN-NECESSARY LITIGATION BY REVENUE.
By: CA DEV KUMAR KOTHARI
October 15, 2019
All Articles by: CA DEV KUMAR KOTHARI       View Profile
  • Contents

Relevant provisions:

S.2.24.x, 36.1.va and 43B of IT Act.

Judgments referred on the issue:

  1. COMMISSIONER OF INCOME TAX, JAIPUR-II Versus JAIPUR VIDYUT VITRAN NIGAM LTD AND RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD - 2014 (1) TMI 1085 - RAJASTHAN HIGH COURT
  2. Commissioner of Income Tax Versus M/s. State Bank of Bikaner & Jaipur and Jaipur Vidyut Vitaran Nigam Ltd. - 2014 (5) TMI 222 - RAJASTHAN HIGH COURT
  3. COMMISSIONER OF INCOME TAX II Versus GUJARAT STATE ROAD TRANSPORT CORPORATION - 2014 (1) TMI 502 - GUJARAT HIGH COURT
  4. Commissioner of Income Tax, Udaipur Versus M/s. Udaipur Dugdh Utpadak Sahakari Sangh Limited, Udaipur - 2014 (8) TMI 677 - RAJASTHAN HIGH COURT

There are some old  judgments of the Supreme Court, on the same issue which are not cited, but observations have  been made by Ld. CIT(A) and  honorable Tribunal about such judgments.

From order of CIT(A) as reproduced by ITAT in its order we find Ld. CIT(A) has in paragraph 9.3 mentioned as follows:

9.3 Further, in view of the above judgements of the Hon'ble Supreme Court which has been subsequently followed by the Jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in depositon of ESI & PF.

Honorable Tribunal has taken note of judgments of the Supreme Court in following terms in paragraph  4.4 of its order:

     “It is also pertinent to mention that Hon'ble Supreme Court has passed the judgment in favour of the assessee on the issue in question”.

The following judgments and orders of honorable Supreme Court are directly relevant on the issue:

2007 (3) TMI 346 - SC ORDER  Other Citation: 213 CTR 268, [2009] 313 ITR (St.) 1 CIT VERSUS VINAY CEMENT LTD. read with :

2006 (6) TMI 71 - GAUHATI HIGH COURT  Other Citation: [2006] 284 ITR 619

COMMISSIONER OF INCOME-TAX VERSUS GEORGE WILLIAMSON (ASSAM) LIMITED.

PRINCIPAL COMMISSIONER OF INCOME TAX-II, JAIPUR Versus M/s. RAJASTHAN STATE BEVERAGES CORPORATION LTD. 2017 (3) TMI 150 - SUPREME COURT read with

Commissioner of Income Tax Versus M/s. Rajasthan State Ganganagar Sugar Mills Ltd. 2016 (5) TMI 1326 - RAJASTHAN HIGH COURT Other Citation: [2017] 393 ITR

Commissioner of Income Tax Versus M/s. Alom Extrusions Limited  2009 (11) TMI 27 - SUPREME COURT  also reported as  [2009] 319 ITR 306 (SC),

Relevant portion from recent judgment of ITAT Jaipur  dt. 03.10.2019

2019 (10) TMI 396 - ITAT JAIPUR

THE DCIT CENTRAL CIRCLE-2 JAIPUR VERSUS M/S. J.K. INTERNATIONAL

ITA No. 716, 717 & 718/JP/2018

Dated: - 03 October 2019

Editorial notes:

Delayed employees’s contribution towards PF and ESIC - HELD THAT:- Employee’s contribution towards GPF, CPF and ESI deposited by the assessee on or before the due date of filing the return u/s 139, though beyond the due dates as given under the respective Acts, cannot be disallowed u/s 43B or 36(1)(va). SEE CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. [2014 (1) TMI 1085 - RAJASTHAN HIGH COURT]

From Judgment / Order

Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM

For the Assessee : Shri S.L. Poddar,, Advocate

For the Revenue : Shri Varinder Mehta, (JCIT)

ORDER

PER BENCH.

4.1 Now we take up the grounds of appeal No. 2 of the Revenue for the Assessment Year 2012-12 (sic.2012-13)  wherein the AO during the course of assessment proceeding noted that the assessee collected employees’s contribution towards PF and ESIC but did not paid it within the due date prescribed by relevant legislation to ₹ 28650/- and 79510/- respectively.

The AO asked the assessee to state its case in respect of provisions of Section 36(1)(va) of the I.T. Act, 1961 for which the assessee could not give proper justification to the assesse (sic. AO). The AO taking the resort of Hon'ble Gujarat High Court judgement in the case of CIT vs Gujarat State Road Transport Corporation (ITA No 637 of 2013 dated 2601202913) made the addition of ₹ 32,868/- by observation as under:-

‘’therefore, ₹ 18160/- (i.e.28650 plus 79510/-) is treated as income u/s 2(24(x) and deduction u/s 26(1)(va) is declined as the amount had been paid after the due date as prescribed in the relevant legislation.’’

4.2 In first appeal, the ld. CIT(A) has deleted the addition made by the AO by observing as under:-

‘’9. I have gone through the assessment order as well as submissions made by the appellant including the judicial citations given therein and find that an addition of ₹ 32,868/- for A.Y. 2012-13)of employees contribution to ESI/employees contribution to PF/ESI have been made by the AO on account of delay in deposition of employees contribution towards ESI and PF u/s 36(1)(va) r.w.s. 2(24)(x) of the Act, AO has noted that payments have been deposited after few days of the due date and therefore, no deduction could be claimed under the provisions.

9.2 The appellant has stated that all the payments on account of ESI and PF have been made before the due date of filing of return of income and therefore, no disallowance could be made on this account. Further, reliance has been placed on the decisions of Hon'ble Rajasthan High Court in the case of CIT vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2013) 35 Taxmann.com 616 and also in the case of CIT vs State Bank of Bikaner and Jaipur 265 CTR 471.

In view of the above decisions, I find that it is not disputed that the payments on account of ESI and PF have not been deposited by the appellant.

9.3 Further, in view of the above judgements of the Hon'ble Supreme Court which has been subsequently followed by the Jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in depositon of ESI & PF.

On the facts and in the circumstances of the cae, these payments have been made before the due date of filing of return and therefore, such additions are directed to be deleted. Appellant’s appeal on this ground for A.Y. 2012-13 to A.Y. 2014-15 is allowed.

4.3 During the course of hearing, the ld. DR relied on the order of the AO while the ld.AR of the assessee relied on the order of the ld. CIT(A)

4.4 We have heard the rival contentions and perused the materials available on record. It is not imperative to repeat the facts of the case concerning the issue in question as the ld. CIT(A) has deleted the addition taking into consideration the decisions of Hon'ble Jurisdictional High Courts. The relevant observations of the Hon'ble Jurisdictional High Court in the above case are as under:-

CIT Vs. State Bank of Bikaner & Jaipur (2014) 363 ITR 70 (Raj) (HC) :-Where PF and/or EPF, CPF, GPF, etc., was paid after the due date under the respective acts but before filing of return of income u/s 139(1), it could not be disallowed u/s 43B or u/s 36(1)(va).

CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. (2014) 363 ITR 307 (Raj.) (HC):- The assessee claimed payment of GPF, CPF and ESI u/s 36(1)(va) r.w.s. 43B of the IT Act on the ground that the same was deposited on or before the due date of furnishing the IT return u/s 139. The AO disallowed the payment on the ground that though the amount was paid by the assessee, but was not paid within the due date as given under the respective Acts of GPF, CPF and ESI. It was held that the employee’s contribution towards GPF, CPF and ESI deposited by the assessee on or before the due date of filing the return u/s 139, though beyond the due dates as given under the respective Acts, cannot be disallowed u/s 43B or 36(1)(va).

CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 366 ITR 163 (Raj.) (HC):- Payment of employee’s contributions towards PF and ESI made belatedly but within the due date of filing the return, cannot be disallowed u/s 43B.

It is also pertinent to mention that Hon'ble Supreme Court has passed the judgment in favour of the assessee on the issue in question. In view of the facts, circumstances of the case and the judgements (supra), we concur with the findings of the ld. CIT(A). Thus Ground No. 2 of the Revenue is dismissed.

Per author:

ITA No. 716, 717 & 718/JP/2018  supra were filed in 2018 although the issue was well settled in favour of assesse. Merely because some High Courts have taken different view  and appeal of assesse is pending before the Supreme Court in case of Gujarat State Road Transport Corporation , should not be a reason for not following well settled legal position and in preferring appeal by revenue.

Besides, it is also important that unless deduction is allowed in year of actual payment, the deemed income u/s 2.24.x will remain taxed in hands of assesse/ employer, although the sums deducted from salary is not income of employer and is received with overriding title and with legal obligation to deposit the same with PF authority.

The provision of S.2.24.x is patently beyond power of Union Of India to impose tax on income. However, it has not been challenged because deduction is allowed on payment. However, in case the government and some High Courts are adamant to hold such deductions as income and not allowable in case deposit is delayed, and suppose Supreme Court also change its view  then it will be necessary to consider constitutional validity of S.2.24.x.

GSRTC can also challenge the virse of s.2.24.x  and that will definitely result into  real relief from illegal expansion of meaning of income by including deduction or receipts from employees for onward deposit with funds, as income .

Tendency of the government to do illegal and un-constitutional legislations must also be checked. Inclusion of various capital receipts in scope of income is a serious unconstitutional legislation.

Request to The Supreme Court:

Our judges shows serious concern about pending cases. However, author , with due respect feel that there is no seriousness to dispose of cases and in fact it can be said that by keeping appeals pending and not passing  judgments , accumulation of more or more cases are allowed. It is also surprising that revenue is not taking steps for early disposal of many cases. The professionals form legal profession are also interested in accumulation of more and more cases.

We can take an example of judgment on issue of green leaf cess. The matter was kept pending before the supreme Court and it appears that wrong picture was placed that there is difference of opinion between  Guwahati High Court and Calcutta High Court. Large number of cases were filed at different levels. AO used to disallow green leaf cess and litigation accumulated over a long period of time merely because SLP was admitted by the Supreme Court. After long pendency the judgment of the Supreme court was rendered. It is surprising that  senior counsels in those cases also tried to mislead the Supreme Court over a long period of time and even during hearing.

Similar thing is happening in the matter of S.2.24.x, 26.1.va and 43B about employees contributions which are credited by way of book entry and in fact there is no actual receipt of sums from employees. Still employers are being harassed by tax authorities besides PF authorities for some delay in deposit.

All these are causing litigation and harassment of businessman, still government claims that it is business friendly.  

 

By: CA DEV KUMAR KOTHARI - October 15, 2019

 

Discussions to this article

 

Provident fund being statutory liability must be deposited by the employer. There should not be delay in payment of the same into government account. However, due to unavoidable reason the delay in depositing the fund happens then the deduction should not be denied under section 43B. However, such binding on the company ensure timely deposit if the fund into employees account. As last the provident fund is the social security of the employee. There has been instances where the provident was not deposited in the government by the company . In some cases the fund is deposited but does not gets credited in the accounts of the employees. This is painful scenario. System must improve. I am taking the focus of the reader on the practical aspect of the government practices in the giving treatment to the provident fund of the employee.

The article is nicely written. Thanks for sharing this with the readers.

By: Ganeshan Kalyani
Dated: 15/10/2019

 

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