Case Law Details
Nakoda Ispat Ltd. Vs DCIT (ITAT Raipur)
Admittedly and undisputedly, the employees’s contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Till this provision is enacted in as the due amounts on one pretext or the other were not being deposited by the assessees though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said amounts were not deposited. It is pertinent to note that the respective Act such as PF / ESIC etc. also provides that the amounts can be paid later on subject to payment of interest and other consequences and to get benefit under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 of the IT Act. Thus, we are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. This view is rendered in CIT vs. Jaipur Vidyut Vitran Nigam Ltd., CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., and CIT vs Rajasthan State Beverages Corportation Limited. In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act.
We further note that though the ld. CIT(A) has not disputed the facts of the case that the amount has been deposited by the assessee before the due date of filling return of income but has followed the decision of Hon’ble Gujarat HC in the case of CIT-II Vs. Gujarat State Road Transport where in the HC held that amendment in section 43B vide Finance Act 2003 will apply only for employer’s contribution. So far as employee’s contribution is concerned it is not governed by section 43B but by section 2(24)(x) and 36(1)(va).
Based on the above discussion and findings that the amendment is prospective and not retrospective and when there are two views on the issue one which is favourable to the assessee holds better footing. Therefore, based on the above findings we allow the claim of the assessee for Rs. 18,12,622/- being the employees contribution towards EPF/ESIC and direct the AO to deleted the said disallowance.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal)- I, Raipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2012-13 dated 05.06.2018.
2. The hearing of the appeal was concluded through audio-visual medium on account of Government guidelines on account of prevalent situation of Covid-19 Pandemic, both the parties have placed their written as well as oral arguments during this online hearing process.
3. The assessee has taken following grounds in this appeal;
“1. On the facts and circumstances of the case, the CIT(A) has erred in sustaining the order the order of the AO. wherein the AO has erred in making disallowances of Rs. 18,12,622/- out of employment contribution towards EPF/ESIC. The disallowance made by the AO and Confirmed by the CIT-A is unjustified, unwarranted and Uncalled for.
2. The assessee reserves the right to add, amend or alter any grounds of appeal at any time of hearing.”
4. Briefly stated facts of the case are that the assessee is a company and is engaged in the business of manufacturing & selling of sponge iron, ingots, billets and generation of power. The assessee company filed return electronically on 28.09.2012 declaring total income at Rs. Nil. The assessment proceedings was completed u/s. 143(3) of the Act by order dated 31.03.2015 after making following disallowance
Disallowance u/s. 14A r.w.r 8D Rs. 10,24,043
Employee Contribution towards EPF/ESIC Rs. 18,12,622
5. Aggrieved, from the said assessment the assessee company moved an appeal before the first appellate authority wherein the disallowance u/s. 14A is allowed and assessee did not succeed for the second addition and thus, against the said order of CIT(A), the assessee is in appeal before us.
6. During the course of hearing, the ld. AR submitted that the assessee-company deposited employee’s contribution of PF/ESI though with a delay of few days from the due dates mentioned in the respective Acts, however the same was deposited well before the due date of filing of return of income. It was submitted that the said fact is not under dispute and where such contribution has been deposited before the due date of filing of the return of income, no disallowance U/s 36(1)(va) of the Act can be made and in support, reliance was placed on the following decisions:
- Bihar State Warehousing Corporation Ltd. Vs. Commissioner of Income Tax & Anr. (2016) 96 CCH 0112 PatHC
- Commissioner of Income Tax vs. Jaipur Vidyut Vitran Nigam Ltd. (2014) 88 CCH 0010 RajHC
- Commissioner of Income Tax vs. Aimil Ltd. & Ors.*(2009) 77 CCH 1185 DelHC
- Premier Car Sales Ltd. vs. Assistant Commissioner of Income Tax (2022) 65 CCH 0054 Lucknow Trib
- Sandhu Automobiles Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2022) 65 CCH 0063 Chd Trib
- Taj Granites Pvt. Ltd. & Anr. vs. Deputy Commissioner of Income Tax & Anr. (2022) 65 CCH 0052 Jaipur Trib
- Deputy Commissioner of Income Tax and Anr. vs. Godawari Power & Ispat Ltd. and Anr. (2018) 54 CCH 0360 Raipur Trib
- Deputy Commissioner of Income Tax vs. Hira Ferro Alloys Ltd. (2018) 52 CCH 0665 Raipur Trib.
Relying on the decision of the co-ordinate Raipur bench decision the ld. AR of the assessee argued that the bench has considered the view that the same if paid before the due date of filling the return of income the same is allowable as deduction.
7. Au contraire, learned counsel for the revenue [ for short “ld DR” ] submitted that the explanation added to Section 36(1)(va) of the Act by the Finance Act, 2021 being clarificatory in nature may be considered and the claim of the assessee thus not allowable.
8. In the rejoinder the ld. AR of the assessee argued that the clarification will take effect from 1st April, 2021 and will apply from the assessment year 2021-22 and subsequent assessment years and not to the impugned assessment year and therefore, relying on the judicial precedent of the various relied upon decision and decision of this co-ordinate bench the claim is allowable.
9. Since, the ld AR and DR both quoted the amendment made in Finance Act, 2021, it is worthwhile to record the extract here in below the memorandum explaining the change made in the relevant provisions of the Act.
Rationalisation of various Provisions
Payment by employer of employee contribution to a fund on or before due date
Clause (24) of section 2 of the Act provides an inclusive definition of the income. Subclause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head =Profits and gains of business or profession‘.Clause (va) of the said subsection 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 entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. 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 employer 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 – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the “due date” under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.
These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
10. Thus, it is clear that the provision is not retrospective and prospective. Before us, the ld. AR of the assessee has submitted that this issue is covered by the various decisions of High Courts and Various Benches of Tribunal and when two views are possible one view which is favourable to the assessee should be taken.
11. We have heard the rival contentions and persuaded the material available on record. Admittedly and undisputedly, the employees’s contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Till this provision is enacted in as the due amounts on one pretext or the other were not being deposited by the assessees though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said amounts were not deposited. It is pertinent to note that the respective Act such as PF / ESIC etc. also provides that the amounts can be paid later on subject to payment of interest and other consequences and to get benefit under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 of the IT Act. Thus, we are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. This view is rendered in CIT vs. Jaipur Vidyut Vitran Nigam Ltd., CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., and CIT vs Rajasthan State Beverages Corportation Limited. In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act.
12. We further note that though the ld. CIT(A) has not disputed the facts of the case that the amount has been deposited by the assessee before the due date of filling return of income but has followed the decision of Hon’ble Gujarat HC in the case of CIT-II Vs. Gujarat State Road Transport where in the HC held that amendment in section 43B vide Finance Act 2003 will apply only for employer’s contribution. So far as employee’s contribution is concerned it is not governed by section 43B but by section 2(24)(x) and 36(1)(va).
13. Based on the above discussion and findings that the amendment is prospective and not retrospective and when there are two views on the issue one which is favourable to the assessee holds better footing. Therefore, based on the above findings we allow the claim of the assessee for Rs. 18,12,622/- being the employees contribution towards EPF/ESIC and direct the AO to deleted the said disallowance.
14. In the result the appeal of the assessee is allowed.
Order pronounced in open court on 27th day of May, 2022.
