Tribunal was correct in deleting the addition made by the Assessing Officer on the ground that the assessee had deposited employers’ as well as employees’ contribution towards PF/ESI after the due date, as prescribed under the relevant Act/Rules, but before date of filing return.
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF DELHI, IN THE CASE OF : CIT v. AIMIL Ltd., APPEAL NO: ITA Nos. 1063 of 2006, 755,1214 and 1246 of 2008, 50, 78 and 204 of 2009, DECIDED ON: December 23, 2009
3. It was now the turn of the Revenue to feel agitated by these orders and, therefore, the Revenue approached the Income Tax Appellate Tribunal (ITAT) challenging the orders of the CIT (A). The department has, however, remained unsuccessful as the appeal preferred by the department is dismissed by the ITAT vide its impugned decision dated 31.12.2007, which is the subject matter of appeal before us.
Perusal of the order of the Tribunal would show that it has relied upon the judgment of the Supreme Court in the case of CIT v. Vinay Cement Ltd., 213 CTR 268, to support its decision to the effect I 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 AO.
4. In some other appeals preferred by the assessees, the ITAT has taken contrary view and upheld the addition made by the AOs. these circumstances, all these appeals were admitted and heard on the following question of law :-
“Whether the ITAT was correct in law in deleting the addition relating to employees .contribution towards Provident Fund and ESI made by the Assessing Officer under Section 36(1)(va) of the Income Tax Act,1961?”
12. Since the ITAT while holding that the amount would qualify for deduction even if paid after the due dates prescribed under the Provident Fund/ESI Act but before the filing of the income tax returns by placing reliance upon the Supreme Court judgment in Vinay Cement (supra), at this juncture we take note of the discussion of ITAT on this aspect :-
“11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order Ld. AO has categorically stated that what the amount due was for which month in respect of EPF, Family Pension, PF inspection charges and ESI deposits and what were the due dates for these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23 rd May 2001 to 23 rd April 2002. The latest payment is made on 23 rd April 2002 and assessee being limited company had filed its return on 20 th October, 2002 which is a date not beyond the due date of filing of the return. Thus, it is clear beyond doubt that all the payments which have been disallowed were made much earlier to the due date of filing of the return. The disallowance is not made by the AO on the ground that there is no proof of making such payment but disallowance is made only on the ground that these payments have been made beyond the due dates of making these payments under the respective statute. Thus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a factual aspect then according to latest position of law clarified by Hon .ble Supreme Court in the case of CIT Vs Vinay Cement Ltd. that no disallowance could be made if the payments are made before the due date of filing the return of income. This issue came before Hon .ble Supreme Court in the case of CIT Vs. Vinay Cement Ltd. which was a special leave petition filed by the department against the High Court Order of 26 th June, 2006 in ITA No. 2/05 and ITA No. 56/03 and ITA No. 80/03 of the High Court of Guwahati, Assam and it is order dated 7 th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under :-
“In the present case we are concerned with the law as it stood prior to the amendment of Sec. 43B. In the circumstances the assessee was entitled to claim the benefit in Sec. 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return.
13. It is clear from the above that in Vinay Cement (supra), the SLP preferred by the Revenue against the judgment of the Guwahati High Court was dismissed making the aforequoted observations. The reasons are given and, thus, it amounts to affirmation of the view taken by the High Court of Guwahati.
14. When we keep that proposition in mind and also take into consideration various judgments where Vinay Cement (supra) is applied and followed, it will not be possible to accept the contention of the Revenue.
15. In CIT v. Dharmendra Sharma, 297 ITR 320, this Court specifically dealt with this issue and relying upon the aforesaid judgment of the Guwahati High Court, as affirmed by the Supreme Court in Vinay Cement (supra), the appeal of the Revenue was dismissed. More detailed discussion is contained in another judgment of this Court in CIT v. P.M. Electronics Ltd. (ITA No. 475/2007 decided on 3.11.2008). Specific questions of law which were proposed by the Revenue in that case were as under :-
“(a) Whether amounts paid on account of PF/ESI after due date are allowable in view of Section 43B, read with Section 36(1)(va) of the Act? (b) Whether the deletion of the 2 nd proviso to Section 43B by way of amendment by the Finance Act, 2003 is retrospective in nature?”
16. These questions were answered by the Division Bench in the following manner :-
“7. Having heard the learned counsel for the Revenue, as well as, the assessee, we are of the view that the view taken by the Tribunal deserves to be sustained as it is no longer res integra in view of the decision of the Supreme Court in the case of CIT v Vinay Cement Ltd: 213 ITR 268 which has been followed by a Division Bench of this Court in the case of CIT v. Dharmendra Sharma: 297 ITR 320.
10. In view of the above, it is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertain to a period prior to the amendment brought about in Section 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to Section 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra). Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT v. Nexus Computer (P) Ltd by a judgment dated 18.8.08 passed in Tax Case (A) No. 1192/2008 discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed and Others v. State of Kerala and another: 119 STC 505 at page 526 in Paragraph 40 and noted the following observations: -
“It the order refusing leave to appeal is a speaking order, ie., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country, But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.”
11. Upon noting the observations of the Supreme Court in Kunhayammed and Others (supra) the Division Bench of the Madras High Court in the case of Nexus Computer Pvt. Ltd (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was non declared by the Supreme Court under Article 141 of the Constitution. 12. We are in respectful agreement with the reasoning of the Madras High Court in ITA No. 1063/2008 & batch Nexus Computer Pvt Ltd (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in M/s Pamwi Tissues Ltd (supra).
14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed.”
It also becomes clear that deletion of the 2 nd proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the 1 st proviso
17. We may only add that if the employees . contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).
18. We, thus, answer the question in favour of the assessee and against the Revenue. As a consequence, the appeals filed by the assessees stand allowed and those filed by the Revenue are dismissed. No costs.