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TMI Blog2022 (3) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... erse, wrong, illegal and bad in law. 2- Because in any view, the above-impugned Disallowances were by the Ld. CIT(A) (NFAC) in summary and prejudiced manner, without even considering and refuting the Judgments including that of Jurisdictional Hon'ble "Allahabad High Court" cited in favour of the Appellant. The impugned Order of Ld. CIT(A), NFAC is perverse, in the light of M/s Sagun Foundry (P) Ltd. vs CIT (2017) 78 Taxmann 47 vide ITA No.41& 42/Agr/2021 of A.Y.2018-19 and A.Y. 2019-20 M/s Mahadev Cold Storage. vs. Assessing Officer, Circle-4(1)(2), Aligarh and ITA No.20& 2I/Agr/2021 of A.Y.2018-19 & 2019-20 Vinod Thanwerdas vs. Assessing Officer Ward-1(1)(5), Agra. 1) At the outset the Ld.AR for the assessee had submitted that the CIT(A) had wrongly concluded that the amended provision was retrospective in nature and therefore had wrongly denied the benefit of section 43B to the assessee. It was submitted that the amendment to the provision was creating a new liability and therefore it was not retrospective rather it was prospective nature he relied upon the decision of the coordinate bench in the matter of M/s Mahadev cold storage ITA no 21/agra/2021, Delhi Bench decision in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is hereby clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;'." The finance Act, 2021 has also amended section 43, as under- "In section 438 of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely: "Explanation 5. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies." 4.3 Thus, the Finance Act, 2021, has amended section 36 of the Income-tax Act, relating to other deductions. Sub-section (1) of the said section provides for allowing of deductions provided for in the clauses thereof for computing the income referred to in section 28 of the said Act. 'Clause (va) of the said sub-section provides for allowance of deduction for any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows:- The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court. For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law or the meaning or effect of any statute. Such Acts are usually held to be retrospectives. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to be substance rather than to the form. If a new Act is 'to explain' an earlier act, it would be without object unless construed retrospective. An explanatory A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of determining the due date. Therefore, in view of the above discussions, the sum of Rs 1,85,482/- being the employee's contribution to the PF and ESI, not deposited by the appellant within the due date as per section 36((l)(va) of the I T Act, 1961, cannot be allowed and accordingly, this ground is dismissed." 3) it was submitted by the Ld.DR that the order passed by the CIT(A) is required to be upheld. The Ld DR had also filed the written submissions to the following effect:- A Distinction between statutory liability and contractual liability reasons for insertion of sec 438 vide Kedarnath Jute 82 ITR 363 Pope the King Match Factory 50 ITR 495 Mad high court affirmed by supreme court Kalinga Tubes ltd 218 ITR 164 Supreme court A statutory liability arises at the stage of obligation to pay, irrespective of the whether it is disputed .Thus an assessee following a mercantile system of accounting would be eligible for deduction simply on the accrual of the liability i.e. at the stage of Book Entries IRRESPECTIVE OF PAYMENT OR WHETHER IT WAS DISPUTED. This is distinct from a contractual liability which crystallises only on the cessation of dispute. B to overco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de finance Act 2003 wef 10-4-2004) read as "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 be issue of cheque or draft or by any other mode on or before the due date as defined in the explanation below clause (va)of subsection (1) of section(36) Thus, prior to amendment 43B(b)referred to be paid as per to employers contribution to a provident nine time limit specified superannuation fund or gratuity fund for employees or any other employee welfare fund contribution as defined in the Act governing the relevant fund. Section 36(iv) any sum paid by the assessee as an employer by way of contribution to a recognised superannuation fund. Language of 36(iva) any sum paid by an assessee as an employer by way of contribution towards a pension scheme 36(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund. 36(va)any sum received by the assessee from his employees to which the provisions of sub clause (x)of clause (24) of section 2 apply if such sum is credited by the assessee to the employees account and the explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UND (this referred to employers payment of his contribution) PARA 8 OF THE SUPREME COURT, WITH RESPECT TO THE AMENDMENT IN PROVISO FIRST . THE TAX DUTY AND CESS AND FEE WAS EQUATED WITH THE EMPLOYERS CONTRIBUTION i.e. with respect sec 43B (b) not sec 36 (va). Further para 9 of ALOM EXTRUSIONS REFERS ONLY TO THE EXTENT OF SECOND PROVISO 43B(b). G. THUS LANGUAGE OF STATUTE AND SUPREME COURT REFERS TO THE REMOVAL OF ANOMALY ONLY IN RESPECT OF 43B(b) EMPLOYER'S CONTRIBUTION. H. FURTHER, Controversy Assessee's favour Sagun Foundries Allahabad High Court 145 DTR 0285 Rajasthan High Court said bank & banker and Jaipur 43B(b) u/s 36(va) ITAT is perverse should be 43B(b) read with time limits as u/s 36(va) 43B(b) to 36(iv) not 36(va) In Revenue's favour High Court 06.09.2018 Bharat Hotels ITA 271/2005 Ravindra Bharti A.K. Chandra 10 ITR 417 Kerala High Court CIT Vs. Merchem (2015) 6 taxmann 119 South India Enterprises 108 taxmann 322 Popular Vehicles and services (P) Ltd. (2018) Gujarat High Court 2014 95 ITC GSRTC 41 Taxmann.com 100 Madras High Court 2015 100 Taxmann.Com 244 In view of the dichotomy en-controversies existing 2014 we amendment came above wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that recently in the matter of Mahadev Cold storage, the coordinate bench had the occasion to deal with the issue of disallowance under section 43B of the act and after elaborate examining the law on the subject, it was held that the disallowance under section 43B of the act is not permissible if the assessee had made the contribution before the due date of filing of the return of income. The same principle, continues to hold good for issue under consideration as the assessment years under consideration, are much prior to the year of amendment which was inserted in the Act by Finance Act 2021, which had provided the consequence of not depositing the amount within the time provided by the act resulting into the disallowance of the contribution made by the assessee. The aforesaid view of the amendment being not applicable to the assessment years prior to AY 2021 has been followed by various benches of the Tribunal 5) Recently in the decision Lumino Industries Ltd. I.T.A. Nos. 231 & 365/Ko1/2021 Kolkata tribunal had examined the entire gamut of the argument of the revenue and thereafter the same was rejected. We are reproducing hereinbelow the relevant findings of the Kolkata tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra) wherein the Hon'ble Supreme court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. and held that the intent of the Parliament/legislature need to be looked into for ascertaining whether the amendment should be retrospective or not. In Vatika Township Ltd. (supra) the Hon'ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislative intent; because it has to be borne in mind that Parliament/legislature is aware of three concepts before an amendment is brought in, which can be discerned from reading of the "Notes on Clauses" to the Bill which are (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. So when we adjudicate whether the view of Ld CIT(A) that the explanation 2 brought in by Finance Act, 2021 is retrospective, let us look at the "Notes on Clauses and the relevant clauses 8 & 9 of the Finance Bill, 2021 (supra) pertaining to the issue in hand which in clear and unambiguous terms spells out the intention of Parlia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come by the assessee. Further, it is settled law that when two judgments are available giving different views, then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon'ble Supreme Court. We therefore, following the decision rendered by Hon'ble Apex Court in the case of M/s. Vegetable Products Ltd. (supra) and AIMIL Ltd. (supra), are of the view that no disallowance u/s 36(1)(va) of the Act is warranted in the present case. We therefore direct the AO to delete the addition. Thus the assessee's ground is allowed." 7) Similarly in the matter of Prowiz Mansystems Pvt. Ltd., and others in ITA no 818/Del/2021 vide order dated 28/2/2022 (114 appeal), the coordinate Delhi Bench had held as under :- "6. We have gone through amendments in the Income Tax Act inserted by Finance Act 2021, Memorandum, plethora of orders passed by the various benches of Tribunal and the judgments of Hon'ble High Courts of various Judicatures. 7. Co-ordinate Benches of the Tribunal have been taken view that the employee's contribution to PF and ESI, if paid before the due date of filing of the Income Tax Return u/s 139(1), is an allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED The distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities. Considering section 36(1)(va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees ' account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act. BOMBAY HIGH COURT: [2014] 368 ITR 749 (Bom): October 14, 2014 THE COMMISSIONER OF INCOME TAX VERSUS GHATGE PATIL TRANSPORTS LTD. The employer assessee would be entitled to deduction only if the contribution to the employee's welfare fund stood credited on or before the due date and not otherwise - following the decision in Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees' Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions - made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief. 8. Having regard to the specific provisions of the Emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutory provident fund and disallowed the same under Section 43B of Act 1961. He also disallowed the said amount of Rs. 1,93,55,580/ - from expenses claimed by Assessee for the A.Y. in question i .e. 200506 as per provisions under Section 43B. Dissatisfied with assessment order, Assessee preferred appeal before CIT(A) who vide order dated 25.06.2009 partly allowed the same and deleted disallowance of Rs. 24,89,41,130/ - (short fall in employees contribution to provident fund) and Rs. 1,93,55,580/ - (short fall in employers contribution to provident fund) observing that employees contribution/employers contribution was deposited before filing Return under Section 139(1) of Act 1961 for the relevant period. Revenue, in its turn, preferred appeal before Tribunal. Relying on judgment in Commissioner of Income -Tax v. Alom Extrusions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant fund or funds on or before the due date mentioned in the Explanation to Section 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in Section 28 of the Act." 20. Gujarat High Court distinguished judgment of Commissioner of Income-Tax v. Alom Extrusions Ltd. (supra) on the ground that therein actual dispute relates to employers contribution and whether amendment in Section 43B by Finance Act, 2003 would operate retrospective or not, Supreme Court had no occasion to consider deduction with reference to Section 36(1)(va). For the same reason Gujarat High Court dissented with the judgments of Rajasthan High Court in Commissioner of Income-Tax v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., (2014) 366 ITR 163, Punjab and Haryana High Court in Commissioner of Income-Tax v. Hemla Embroidery Mills P. Ltd., (2014) 366 ITR 167, Himachal Pradesh High Court in Commissioner of Income-Tax v. Nipso Ploy Fabriks Ltd., (2013) 350 ITR 327 and Karnataka High Court in Commissioner of Income-Tax v. Sabri Enterprises, (2008) 298 ITR 141. 1. Karnataka High Court had an occasion to consider, whether it should dissent with the view take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed if it is paid on or before the due date as contemplated under Section 139(1)of the Income-Tax Act. This provision has nothing to do with the consequences, provided for under the PF Act/PF Scheme/ESI Act, for not depositing the "contribution" on or before the due dates therein." (emphasis added) 22. It also said that the word "contribution" used in clause (b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribution is deposited on or before due date for furnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is entitled for deduction. 1. Though in a short judgment, but Punjab and Haryana High Court in Commissioner of Income-Tax v. Hemla Embroidery Mills (P.) Ltd., (supra) not only followed Commissioner of Income -Tax v. Alom Extrusions Ltd. (supra) but also its own earlier judgment in Commissioner of Income-Tax v. Rai Agro Industries Ltd., (2011) 334 ITR 122, to hold that Section 43B shall apply to both contributions i.e. employers and employees. 2. Kerala High Court in recent judgment in Commissioner of Income-Tax v. Merchem Ltd., (2015) 378 ITR 443, has followed the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of filing of Return under Section 139(1), Assessee would be entitled to deduction on actual payment basis. This proviso did not include within its ambit, contributions under labour welfare statutes. By Finance Act, 1988, Second Proviso thus Second proviso was further amended by Finance Act, 1989 w.e.f. 01.04.1989. 27. Court held that Assessee/employer thus would be entitled to deduction only if contribution stands credited on or before due date given in the Act 1952 or Act 1948. Second proviso created difficulties, inasmuch as under Act, 1981, due date was after the date of filing of returns and thus industries made representations to the Ministry of Finance. Court, looking to 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on this issue. 2. With regard to the predentary value in deciding the issue before us, we have gone through the following judgments: The Hon'ble Allahabad High Court in K. N. Agarwal v. CIT 189 ITR 769 held that, "Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing officer and since he acts in a quasi judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore merely on the ground that the Tribunal's order is the subject matter of revision in the High Court or the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases. It would lead to a chaotic situation". 3. The Hon'ble Apex Court in Baradakanta Mishra vs. Bhimsen Dixit AIR 1972 SC 2466 held that it would be anomalous to suggest that a Tribunal over which a High Court has superintendence can ignore the law declared by it and if a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision as in respect of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter A.M.Y. at page 18: "a Judge ought to be wise enough to know that he is fallible therefore everyday to learn: great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead: and courageous enough to acknowledge his errors". 2. Thus, we see a fine balance between the fixity and the flexibility. 21. In this background, the various decisions of the Hon'ble Jurisdictional High Courts have been perused. 3. In the case of CIT Vs. Bharat Hotels Ltd. 410 ITR 417, the question of law at serial no. 2 framed by the Hon'ble High Court reads as under: (order dated 06.09.2018) "2. Whether the payment of provident fund and employees state insurance dues deposited by the assessee within the grace period would qualify for deduction under Section 43B of the Income Tax Act, 1961?" 4. The said question was dealt at para 7 & 8 of the order, it has been held that the assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were infact deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the CIT(A) for rectification of the mistake. After having satisfied that payment had, in fact, been made, the CIT(A) rectified the mistake and deleted the addition by holding that the assessee had made the payment before the due date of filing of the return, which was a fact apparent from the record. " The decision of ITAT: 27. The Co-ordinate Bench of ITAT relied on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Vinay Cements Ltd. 213 CTR 268 to support its decision to the effect that if the employers' as well as employees' contribution towards provident fund and ESI is paid before the due date of filing of return, no disallowance can be made by the Assessing Officer. 7. The relevant part of the order of the ITAT relying on the CIT Vs. Vinay Cements Ltd. (supra) is as under: "11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order ld. Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractive Services (India) Pvt. Ltd. in ITA 983/2018 dated 10.09.2018 while dismissing the appeal of the Revenue held that "the legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act." 8. Further, this issue has been examined in the Finance Act, 2021 which are as under: "Section 2 (24) (x) of the Income Tax Act, 1961 reads: "any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund 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." FINANCE ACT, 2021 [13 OF 2021] An Act to give effect to the financial proposals of the Central Government for the financial year 2021-2022.BE it enacted by Parliament in the Seventy-second Year of the Republic of India as follows:- CHAPTER I PRELIMINARY Short title and commencement. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 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 to the said clause provides that, for the purposes of this clause, "due date to mean 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 there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntribution, Orders of the Co-ordinate Bench of Tribunal disallowing the delayed payment pertaining to employees contribution, Judgments of various Hon'ble Courts disallowing the delayed payment, Judgments of various Hon'ble Courts disallowing the delayed payment, provisions of Section 2(24)(x), Section 36(1)(va), Section 43B, Section 139(1) of the Income Tax Act, 1961, provisions of Finance Act 2021, Memorandum explaining the provisions in Finance Bill, 2021 and the specific amendments which will take effect from 01.04.2021, we hereby hold that no disallowance is called for belated payment of the employee's contribution to the respective ESI and EPF fund in the case of assessee who have deposited the same before the due date of filing of Income Tax Return. " 8. Before us revenue has not placed any material on record to demonstrate that the aforesaid order cited hereinabove has been overruled/stayed/set aside by higher judicial forum. In view of the aforesaid facts, we are of the view that the AO was not justified in denying, the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income. Admittedly in all the above-stated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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