TMI Blog2023 (4) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... late back to the date of consequential amendment brought in by legislatures in respective provisions of the act and it was to be presumed that the legal position was always like that i.e., both the contributions were to be treated differently since inception and the Employee s contribution was always subjected to rigors of Sec.36(1)(va). If the assessee complies with the same only then the deduction would be allowed to the assessee otherwise the same would continue to form the income of the assessee. The said decision, in our opinion, is to be given full consequential effect. Thus the impugned disallowances stand confirmed. - ITA. No. 37/JPR/2023 - - - Dated:- 28-2-2023 - DR. S. SEETHALAKSHMI, JM SHRI RATHOD KAMLESH JAYANTBHAI, AM For the Assessee : Shri Prabha Rana (Adv.) For the Revenue : Ms Monisha Choudhary (Addl. CIT) ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as NFAC/CIT(A) ], dated 16.12.2022 for the assessment years 2018-19. 2. The assessee has raised the following grounds:- 1. The ld. CIT(A) erred in confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the A.O. and therefore, the action of the A.O. is hereby upheld. 9. In the result, the appeal of the appellant is dismissed. 6. Being aggrieved by the CIT(A) order, the assessee is in appeal before us. Before the CIT (A), the assesee has reiterated its submissions. Before us the Ld AR for assessee submitted a detailed Written submissions which are as under :- 2. Facts in Brief The sole substantive issue of ESI and PF disallowance of Rs. 1,31,254/- and Rs. 3,96,908/-, the assessee's and Revenue's plea that the same has been paid before the due date of filing Sec. 139(1) return and after the due date prescribed in the corresponding statutes; respectively. SUBMISSION This appeal is filed by the assessee against order dated 16.12.2022 passed by the National Faceless Appeal Centre ( NFAC for short) relating to the assessment year 2018-19. 2. THE INTIMATION ISSUED UNDER SECTION 143(1) DATED 16.10.2019 IS AGAINST FIRST PROVISO TO SECTION 143(1)(A), AND THEREFORE, THE ENTIRE 143(1) PROCEEDINGS IS INVALID IN LAW. a) Brief facts of the case is that the assessee is a Private Limited Company. For the Asst.Year 2018-19, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us 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 82[or increase ill income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed tinder 83[section 10AA or under any of the provisions of Chapter VI-A under the heading C Deductions in respect of certain incomes , yl 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: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: (underline is ours) Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response isreceived within thirty days of the issue of such intimation, such adjustments shall be made: Provided also that no adjustment shall be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Centralised Processing of Returns 28.1. Generally. tax administrations across countries adopt a two-stage procedure of assessment as part of risk management strategy. In the first stage, all tax returns are processed to correct arithmetical mistakes, internal inconsistency. tax calculation and verification of tax payment. At this stage, no verification of the income is undertaken. In the second stage, a certain percentage of the tax returns are selected for scrutiny/audit on the basis of the probability of detecting tax evasion. At this stage, the lax administration is concerned with the verification of the income. 28.2. In India, the scheme of summary assessment being in force since the 1st day of June, 1999 does not contain any provision allowing for prima facie adjustment. The scope of the present scheme is limited only to checking as to whether taxes have been correctly paid on the income returned. Under 11w existing provisions of sub-section (1) of section 143, there is no provision for correcting arithmetical mistakes or internal inconsistencies. This leads to avoidable revenue loss. With an objective to reduce such revenue loss, subsection (1) of section 143 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to fringe benefits. Applicability - These amendments have been made applicable with effect fron 1- 04-2008. b) The A/R relied the decision held by Hon'ble SC decision in case of Vodafone Idwa Limited vs ACIT 424 ITR 664 (on scope of sec 143(1) vis a vis sec 143(2): The For your honour ready reference the relevant scanned portion is as under:- clause (a) of sub-section (1) of section 143 has six sub-clauses specifying the kinds of adjustments which are required to be made for computing the total income or loss. Such adjustments arc in the nature of arithmetical error in the return; incorrect claim apparent from any information in the return; disallowance of loss if the return of the previous year with respect to which such loss is claimed was furnished beyond the due date; disallowance of expenditure indicated in the audit report if it has not taken into account in computing the total income; disallowance of deductions specified in subclause if the return is furnished beyond the due date; and addition of income as specified in sub-clause (vi) if it was not included in computing the total income. All these features deal with matters which are apparent from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner. In other words, the veracity of the return is checked threadbare rather than considering mere apparent inconsistencies from the return. The power under sub-section (1) of section 143 is summary in nature designed to cause adjustments which are apparent from the return while that under sub-sections (2) and (3) is to scrutinize the return and cause deeper probe to arrive at the correct determination of the liability of the assessee. [Para 13] Held precisely : The power under sub-section (1) of Section 143 of the Act is summary in nature designed to cause adjustments which are apparent from the return while that under sub-sections(2) and (3) is to scrutinize the return and cause deeper probe to arrive at the correct determination of the liability of the assessee. c) The A/R furter relied the specific decisions of Delhi bench of ITAT in case of : SVS Guarding Services Pvt Ltd ITA231/De1/2022 (order dated 24.05.2022: In the present appeal before us, addition of aforesaid amount of Rs. 29,52,674/- has been made by way of adjustments and intimation u/s 143(1) of Income Tax Act, on a debatable and controversial issue, and Ld. C1T(A) did err in law, in not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his employees to which provisions of 2(24)(x) applies. This makes amply clear that the provisions will be applied retrospectively, but the memorandum explaining the finance bill says that these amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years, which creates ambiguity about the applicability of the said explanations. d) The memorandum explaining the provision states that this amendment will take effect from Ist April , 2021 and will , accordingly , apply in relation to the assessment year 2021 -22 and subsequent assessment years (2021) 430 ITR 214 (st) (243). In the case of CIT vs. Hindustan Organics Chemicals Ltd [2014] 366 ITR 1 (Born.) (Para 9) held that where assessee company made payment of employees contribution towards provident fund, assessee's claim could not be disallowed on account of delayed payment in view of amendment to section 43B. In CIT v. Vatika Township (2014) 367 ITR466 (SC) (Five Judges Bench) Levy of surcharge on block assessment years pertaining prior to ist June 2002 is held to be not valid. The court held that proviso to section 113 of the Income tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Discipline and the binding effect of Judicial Precedent i. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws. ii. The doctrine of judicial discipline obligates each quasi-judicial authority to follow the decision of a jurisdictional higher authority and, in the absence of the same, even the decision of a non jurisdictional authority must be followed. iii. The department, once having accepted the principles laid down in the earlier case, cannot be permitted to take a contra stand in the subsequent cases. iv. The Courts of co-ordinate jurisdiction, should have consistent opinions in respect of an identical set of facts or on questions of law. h) The Binding Effect of the Judicial Precedent: i. What is binding as a judicial precedent is 'ratio decidendi' viz., the general reasons upon which the decision has been made. ii. The Law declared by the Supreme Court shall be binding on all courts wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent Roadways Private ... vs Dy. CIT, ... on 1 July, 2021 ITA No. 1952/Hyd./2018, ITAT- Hyderabad: Secunderabad Hotels Private ... vs ACTT, on 29 June, 2021 ITA No. 268/Hyd./2020 and ITAT- Hyderabad: Chiphercloud India Private ... vs Income Tax Officer, Ward-1(2), ... on 29 June, 2021 ITA No. 1367/Hyd./2018, ITAT-'Hyderabad: Chiphercloud India Private ... vs ITO, Ward-1(2), ... on 29 June, 2021 ITA No. 1367/Hyd./2018 and ITAT- Hyderabad Sundar Tajmahal Hotels Private ... vs DCIT.. on 16 June, 2021 ITA No. 605/Hyd/2020. It was held that the legislature has not only incorporated necessary amendment in Sections 36(1)(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. Keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, we hold that the impugned disallowance is not sustainable in view of all these latest developments. The impugned ESI/PF disallowance is deleted therefore. j) The Explanation 5 was inserted by the Finance Act, 2b21, with effect from 01.04.2021 and the relevant assessment year before us is AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s State Bank of Bikaner and Jaipur (2014) 363 ITR 70 (Raj) iv. DCIT vs. Jaipur Vidyut Vitran Nigam Ltd. the ITAT Jaipur Bench B ITA No. 1287/JP/2019 Jan 18, 2021 (2021) 61CCH 0057 Jaipur Trib v. So your honour the impugned ESI/PF disallowance is requested to order to delete the addition. Kindly allow the assessee s appeal 7. Per contra, the ld. Sr. DR supported the contentions raised in the order of the ld. CIT(A) and vehemently argued that the disallowance are evidently not paid in time the same is disallowable and for that he has relied upon the decision of Hon ble Apex Court in case of Checkmate Services P. Ltd. vs CIT Appeal No. 2833 of 2016 dated 12.10.2022. 8. We have considered the rival contention and perused the orders of the authorities and the material available on record. We find that now this issue has been decided by Hon ble Supreme Court in favor of revenue in its recent decision in bunch of appeals titled as Checkmate Services P. Ltd. vs. CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022). In this decision, it was noted by Hon ble Court that there was divergent of opinion amongst various Hon ble High Courts viz. High Courts of Bombay, H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill, 1987, presented to the Parliament, 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that Section 43B was inserted. 39. Original Section 43B(b) enabled the assessee/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect from 1st April, 2004 and will accordingly apply in relation to the assessment year 2004- 05 and subsequent years. 41. The Notes on Clauses inter alia, reads as follows: It is also proposed to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (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: 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 mercan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, it was, inter alia, laid down, in the context of any sum payable by the assessee(s) by way of tax, duty, cess or fee, that if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of 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 retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2003 will operate retrospectively with effect from 1-4-1988 (when the first proviso stood inserted). 23. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance 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 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner 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. 20 See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. 21 State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. 30 This was also reaffirmed in a number of judgments, such as Commissioner Income Tax v. Ace Multi Axes Systems Ltd. 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar Co. 23 endorsed as following: 24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 nonobstante 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 depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. 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) and therefore, subjected to conditions spelt out by Explanation to Section 36(1)(va) 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 contributions the employer s liability is to be paid out of its income whereas the second is deemed to be 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. If the same is not deposited as per mandate of Sec.36(1)(va), the deduction of the same would not be available to the assessee. Thus, this issue stands in favor of revenue and we respectfully follow the same. 9. At the same time, we are of the considered opinion that this decision of Hon ble Court would relate back to the date of consequential amendment brought in by legislatures in respective provisions of the act and it was to be presumed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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