TMI Blog2022 (3) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... arish Gidwani, D. R. ORDER This is an appeal filed by the assessee against the order of learned CIT(A) dated 31/08/2021. In this appeal the assessee has taken the following grounds: 1. Because the CIT (A) has erred on facts and in law in upholding the disallowance of ₹ 3,31,740/- being employees contribution to ESIC and EPF under section 43B read with 36(i)(va), paid after the due date but before the filing of the income tax return, which disallowance is contrary to facts, bad in law be deleted. 2. Because the CIT(A) has failed to appreciate that the contribution towards ESIC EPF are all expenditure incurred for the purposes of business and are to be allowed, irrespective of the time frame, provided deposited before the filing of the tax return, the disallowance be deleted. 3. Because the CIT(A) has erred on facts and in law in upholding dated the disallowance of Rs. ₹ 33,188/- being donation made, which disallowance is contrary of facts, bad in law be deleted. 2. Learned counsel for the assessee, at the outset, submitted that the first issue, involved in this appeal, is the addition sustained by CIT(A) of ₹ 3,31,740/- representing e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and not retrospective and therefore, it was prayed that the addition sustained by learned CIT(A) be upheld. 3.1 As regards the second issue, Learned D. R. fairly accepted the contentions of learned A.R. 4. I have heard the rival parties and have gone through the material placed on record. I find that the first issue involved in this appeal is the action of learned CIT(A) by which he has upheld the addition made by CPC regarding employees contribution towards ESI and PF. There is no dispute between the parties regarding the dates of deposit of ESI and PF which clearly are beyond the prescribed date of deposit as applicable under the respective acts. However, there is no dispute between the parties that these deposits were made before the filing of return of income for the relevant assessment year. Hon'ble Allahabad High Court in the case of Sagun Foundry (P.) Ltd. vs. CIT [2017] 78 taxmann.com 47 (Allahabad) has dealt with similar issue and after taking into account the judgment of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusion Ltd. reported in (2009) 319 ITR 306 has decided the similar issue in favour of the assessee by holding as under: 16. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions Ltd. (supra) , Tribunal dismissed appeal and confirmed order passed by CIT(A). That is how matter came before High Court in appeal. Court considered following question, posed in para 7.01, reads as under: Short question which is posed for consideration of this court is with respect to the disallowance of the amount being the employees contribution to the PF account/ESI contribution which admittedly which the concerned assessee did not deposit with the PF Department/ESI Department within due date under the PF Act and/or the ESI Act. 18. Gujarat High Court referred to Section 2(24)(x) and found that any sum received by Assessee (employer) from his employees as contributions to any provident fund or superannuation fund or any fund set up under Act, 1948, or any other fund for welfare of such employees, constitute income. However, Section 36 of Act 1961 provides for deduction in computing income referred to in Section 28. The relevant provision of Section 36 applicable to the case before Gujarat High Court was Section 36(1)(va) with which we are also concerned. It entitles an Assessee for deduction in computing income referred to in Section 28 with respect to any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Commissioner of IncomeTax Vs Hemla Embroidery Mills P. Ltd., (2014) 366 ITR 167, Himachal Pradesh High Court in Commissioner of IncomeTax Vs Nipso Ployfabriks Ltd., (2013) 350 ITR 327 and Karnataka High Court in Commissioner of IncomeTax Vs Sabri Enterprises, (2008) 298 ITR 141 . 21. Karnataka High Court had an occasion to consider, whether it should dissent with the view taken in the earlier judgments and follow the view taken by Gujrat High Court in Commissioner of Income Tax Vs Gujrat State Road Transport Corporation (supra) and this occasion came in Essae Teraoka P. Ltd. Vs Deputy Commissioner of Income Tax, (2014) 366 ITR 408 . Dispute relates to A.Y. 200809. Assessee filed Return on 26.09.2008. Return was processed under Section 143(1) and thereafter on scrutiny, notice under Section 143(2) was issued. Assessing Officer completed assessment by order dated 24.12.2010 under Section 143(3) disallowing ₹ 12,51,737/ under Section 36(1)(va) and also disallowing ₹ 1,04,621/ under Section 14A read with Rule 8D. In appeal, CIT (A) reversed findings of Assessing Officer but on appeal preferred by Revenue, Tribunal restored Assessing Officer s order and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., (supra) not only followed Commissioner of Income- Tax Vs Alom Extrusions Ltd. (supra) but also its own earlier judgment in Commissioner of Income Tax Vs Rai Agro Industries Ltd., (2011) 334 ITR 122 , to hold that Section 43B shall apply to both 'contributions' i.e. employers' and employees'. 24. Kerala High Court in recent judgment in Commissioner of Income Tax Vs Merchem Ltd., (2015) 378 ITR 443 , has followed the decision of Gujarat High Court in Commissioner of Income Tax Vs Gujarat State Road Transport Corporation (supra) and dissented with the otherwise judgments of Rajasthan High Court in Commissioner of Income Tax Vs State Bank of Bikaner and Jaipur, (2014) 363 ITR 70 , Karnataka High Court in Commissioner of Income Tax Vs Spectrum Consultants India P. Ltd. (supra) and Bombay High Court in Commissioner of Income Tax Vs Ghatge Patil Transports Ltd., (2014) 368 ITR 749 . 25. Before following a particular view when there is divergence in views of different High Courts, we find it appropriate to examine Supreme Court judgment in Commissioner of Income Tax Vs Alom Extrusions Ltd. (supra) to find out whether it can be confined only in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the history of amendments held, it is evident that Section 43B, when enacted in 1984, commences with a non obstante clause. The underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, Section 43B made it mandatory for the Department to grant deduction in computing income under Section 28 in the year in which tax, duty, cess etc. is actually paid. Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under Provident Fund Act, Municipal Corporation Act (Octroi) and other Tax laws. Therefore, by way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would than be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under socia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des the above, there are number of judgments of various Tribunals, which have taken a similar view and which the assessee has relied. As regards the argument of Learned D. R. that after the passing of judgment in the case of Sagun Foundry, there has been amendment in the Act. I find that such amendment is applicable w.e.f. 01/04/2021 and is prospective and is not retrospective. The Allahabad Bench of the Tribunal, in the case of JCIT, Circle-2, Allahabad vs. Bharat Pumps and Compressors Ltd. in I.T.A. No.147 148/Alld/2016, after taking into account the amendment brought out by Finance Act, 2021, has again decided the issue in favour of the assessee by holding the amendment to be applicable from April 2021 only. The findings of the Tribunal are reproduced below: There is a recent amendment to Section 36(1)(va) by Finance Act, 2021, wherein Explanation 2 was inserted, which reads as under: 36(1)(va) .. Explanation 2- For the removal of doubts , it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the 'due date' under this clause; Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will accordingly apply to assessment year 2021-22 and subsequent assessment years. It is also to be noted that several of the tax-payers (except in the State of Gujarat and Kerala , and such other States where Hon'ble jurisdictional High Court has decided this issue in favour of Revenue) situated in the States where Hon'ble Jurisdictional High Court has decided this issue in favour of tax-payers, have already been allowed the deduction towards employee contribution received by employer which was deposited late by employer beyond the time stipulated u/s 36(1)(va) , but before the due date as prescribed for filing of return of income u/s 139(1) of the 1961 Act, and there cannot be a class different now at this stage where the deduction is to be denied on the ground of strict interpretation of the provisions of Section 36(1)(va) , unless the amendment made by Finance Act, 2021 is made specifically applicable retrospectively from the date of insertion of the provision or any other specified earlier date in the Finance Act, rather on the other hand , the Memorandum to Finance Bill, 2021 has specifically made this amendment applicable from 01.04.2021 and specified that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. Accordingly, in order to provide certainty, it is proposed to - (1) amend cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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