Contribution to EPF/ESI beyond due date of respective Act duly disallowed: ITAT Jaipur

Sanjiv Prakashan Vs ACIT (ITAT Jaipur)

ITAT Jaipur held that disallowance of contribution of EPF/ESI of employees contribution justified since amount deposited beyond the due date of respective Acts. Notably, deduction is not allowance even if contribution is deposited before filing of return u/s. 139(1).

Facts- The assessee is engaged in the business of educational publication. AO in his order assessed the income of the assessee at Rs.5,61,08,400/- after making disallowance u/s 36(1)(va) of the Act amounting to Rs. 16,46,879 (i.e. Rs.15,51,701/- towards PF and Rs. 95,178/- towards ESI) due to the fact that contribution of EPF/ESI of employees contribution was deposited beyond the due date of respective Acts. The assessee claimed that the same had been deposited in Govt. account before filing of the return of income u/s 139(1) of the Act. But ld. AO made an addition of Rs.16,46,879/- on account of late deposit of employees’ contribution towards EPF/ESI u/s. 143(1) of the Act.

CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed by the assessee.

Conclusion- Held that the disallowance of payment of ESI & PF while processing the return of income u/s. 143(1)(a) of the Act, the ld. CIT(A) has followed the judgment of CIT-1 vs. Checkmate Service Pvt. Ltd. and disallowance so made was considered in accordance with law clarified by the Hon’ble Apex Court.

Hon’ble Supreme Court considered the conflicting decisions on the subject and finally held that deductions or adjustments could be claimed only when the Assessee deposits the contribution before the due date provided under the Employees Provident Fund/Employee State Insurance Act. If the employees’ contributions are deposited after the due date set out under the said Act, there is no question of deduction or adjustment on the ground that such contributions were deposited before the filing of returns under section 139(1) of the IT Act.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This appeal is filed by the assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi [Here in after referred as (NFAC)] for the assessment year 2020-21 dated 17.11.2022, which in turn arises from the order passed by the AO/ACIT, CPC, Bangalore passed under Section 143(1) of the Income tax Act, 1961 (in short ‘the Act’) dated 25.08.2021.

2. The assessee has taken following grounds in this appeal;

“1. The order of the learned CPC u/s 143(1) and the learned C!T(A) are bad in law and against the facts of the case.

2. The learned AO has erred in disallowing a sum of Rs. 16,46,879/- under section 36(1)(va) read with section 2(24)(x) and the learned C!T(A) has erred in confirming the said disallowance.

3. That the assessee craves his right to add, alter, amend or deleteany grounds of appeal at the time of hearing or earlier.

  2.1  Further, the assessee has taken following additional sub‑ grounds in this appeal;

“1. The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.

2. The learned AO/CPC has erred in making adjustments under section 143(1) of !ncome Tax Act for Employees Contribution for PF & ES! which are not covered by permissible adjustments under section 143(1)(a) of !ncome Tax Act, therefore, the adjustment so made are bad in law and should be deleted.”

3. The fact as culled out from the records is that the assessee is engaged in the business of educational publication. For the impugned assessment year, return of income was filed admitting total income of Rs.5,41 ,03,200/-. The AO in his order assessed the income of the assessee at Rs.5,61 ,08,400/- after making disallowance u/s 36(1)(va) of the Act amounting to Rs. 16,46,879 (i.e. Rs.15,51,701/- towards PF and Rs. 95,178/- towards ESI) dueto the fact that contribution of EPF/ESI of employees contribution was deposited beyond the due date of respective Acts. The assessee claimed that the same had been deposited in Govt. account before filing of the return of income u/s 139(1) of the Act. But ld. AO made an addition of Rs.16,46,879/- on account of late deposit of employees’ contribution towards EPF/ESI u/s. 143(1) of the Act.

4. Aggrieved from the order of the National Faceless Assessment Center, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“6.4 It could be seen from the table furnished by the appellant as part of his submission, the payments were made beyond the due dates prescribed under the Provident Fund Act. In view of the above facts and respectfully following the Hon’ble Apex Court’s decision in the case of M/s Checkmate Services P Ltd., which has further clarified the correct interpretation of the provisions of the Act, the disallowance made under Sec.36(1) (va) read with Sec.2(24)(x) of the Act amounting to Rs. Rs. 16,46,879 is upheld. In the result, this ground is “Partly Allowed”.

7. The next ground raised in this appeal relates to disallowance under Sec.43B amounting to Rs.3,43,997. The submission filed by the appellant and the action of the AO has been duly considered. The AO based on the tax audit report, disallowed the sum of Rs.3,43,997 under Sec.43B.

First proviso to Sec.43B clearly states that if tax, duty, cess or fee was paid after the closing of the accounting year but before the due date of filing the return of income under Sec. 139(1) of the Act, the same would be allowed as deduction for the same accounting year. Since the employer’s contribution to PF and ESI are covered by first proviso to Sec.43B, and the appellant has made the payments before filing the return of income under Sec.139(1), the disallowance under Sec.43B is not warranted and the addition of Rs.3,43,997 is deleted. This ground is “Allowed”.

8. Ground No (i) and (iv) are general in nature and does not require any separate adjudication and treated as dismissed.

9. In the result, the appeal is “Partly Allowed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove.

The co-ordinate bench of this tribunal vide order dated 02.06.2023 disposed the appeal of the assessee. Thereafter the assessee moved a miscellaneous application u/s. 254(2) of the Act stating that in the above order there was an apparent mistake on record as two grounds raised by the assessee before the Bench were not decided. That ground was raised vide letter dated 6/3/2023 before the Bench, filed on 09/03/2023, in which the assessee has raised following Additional Grounds of appeal no. (1 A) and (1 B) which reads as under;

Ground No. 1A

‘The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.’

Ground No. 1B

‘The learned AO/CPC has erred in making adjustments under section 143(1) of Income Tax Act for Employees Contribution for PF & ESI which are not covered by permissible adjustments under section 143(1 )(a) of Income Tax Act, therefore, the adjustments so made are bad in law and should be deleted.’

Considering the interest of principles of natural justice, that miscellaneous application filed by the assessee was allowed vide order dated 19.12.2023. In support of these two additional grounds so raised by the assessee he has relied upon the following written submission:

Ground No. 1A:

‘The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.’

Submissions:

1. It is submitted that the learned AO/CPC has erred in making adjustments under section 143(1) without giving advance intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1). In this manner, the AO(CPC) has erred in passing order under section 143(1) of the Income Tax Act, 1961, without following the procedure as laid down under such section.

2. The provisions of Sec. 143(1) of the Income tax Act are as under:

143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:—

(a)  the total income or loss shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the return;

(ii) can incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous 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 ⁶⁸[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under ⁶⁹[section 1 0AA or under any of the provisions of Chapter VI-A under the heading “C.— Deductions in respect of certain incomes”, if] 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 1 6A 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:

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 is received within thirty days of the issue of such intimation, such adjustments shall be made:

Provided also that no adjustment shall be made under sub clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;

3. It is submitted that as per provisions of Proviso first and second to Sec. 143(1), before making any adjustment in income of the assessee u/s 143(1), advance intimation will be given to him to seek his response, and the response so received will be considered before making any adjustment.

4. In this case no intimation was given to the assessee, either in writing or in electronic mode, before making such adjustments in the income of the assessee and no opportunity was given to him to file his This is in clear violation of provisions of Proviso first and second to Sec. 143(1).

5. In support of this we are also producing before the Hon’ble Bench the screen shot of the assesses account on E filing portal of the Income tax department for AY 2020-21. From this screen shot also, it can be gathered that no such advance intimation was given to the assesee at any point of time.

6. That the Hon’ble ITAT has decided present appeal on the basis of decision of Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. V. CIT as well as order of Hon’ble Delhi ITAT in the case of Salveen Kaur vs Income Tax Officer [2023] 147 com 402

7. It is submitted that in the above order, Hon’ble Supreme Court has stated that delayed payment of Employees’ Contribution to PF and other funds are to be disallowed under section 36(1)(va) of Income tax Act even if payment has been made before due date of filing of return . Hon’ble Delhi Tribunal in the case of Salveen Kaur (supra) has stated that the above decision of Hon’ble Supreme Court is equally applicable on the orders passed under section 143(1)(a) of Income Tax Act.

8. Even a combined reading of both the judgments of Hon’ble Supreme Court in the case of Checkmate Services P Ltd (Supra) and Hon’ble Delhi ITAT in the case of Salveen Kaur (Supra) do not give a finding that an order u/s 143(1)(a) can be passed for disallowances without giving advance intimation to the assessee.

9. In this case no such advance intimation was given to the assessee before making the disallowance of Rs. 16,46,879 u/s 36(1)(va). Therefore order of the learned AO passed under section 1 43(1)(a) is bad in law and deserves to be quashed.

10. It is submitted that an intimation u/s 143(1)(a) is not an Time and again, various Courts have categorically held that 143 (1) intimation cannot be considered as a regular assessment. Therefore, only prima facie adjustments as mentioned in Sec 143(1)(a) can be made in the income of the assessee without going into details of the case. These adjustments can be made only after giving the assessee an opportunity of being heard as per scheme of the Act.

11. The case of the assessee is squarely covered by the following decisions in favour of the assessee:

12. Therefore, the action of the ld. AO(CPC) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the entire such order, being illegal and void ab initio.

Ground No. 1B:

‘The learned AO/CPC has erred in making adjustments under section 143(1) of Income Tax Act for Employees Contribution for PF & ESI which are not covered by permissible adjustments under section 143(1 )(a) of Income Tax Act, therefore, the adjustments so made are bad in law and should be deleted.’

Submissions:

1. The adjustment made while processing the return of income is illegal because it does not fall in any of the circumstances specified in 143(1 )(a) of Income tax Act. AO/CPC has also not specified the relevant clause, in their order u/s 143(1), under which adjustment has been made in the income of the assessee.

2. The learned AO/CPC has specified in their intimation u/s 143(1) that the adjustment has been made pursuant to provisions of Sec. 36(1)(va) of Income tax Act. Therefore, most likely this adjustment has been made u/s 1 43(1)(a)(iv) of Income tax Act.

3. It is submitted that u/s 143(1)(a)(iv) only a claim/expenditure whose disallowance has been indicated in the audit report but the same not been taken into account in computing the total income in the return can be adjusted while processing the return of income. The relevant section is reproduced in earlier paragraphs.

4. In the case of assessee the auditor in clause 20(b) ( Copy at Pb page no. .26-back page…) provided details of contribution received from employees for various funds as referred to in section 36(1)(va).

He has done only factual reporting, which was mandated, and no opinion was expressed regarding the disallowance. Otherwise also no disallowance can be made on the basis of mere reporting in Audit Report. The disallowance can be made only on the basis of relevant law and taking into account judicial view in that regard.

5. While giving his report, the auditor has not indicated any amount of disallowance under this head. Ld. AO(CPC) simply matched the due dates of payment and actual date of payment while processing the return of income and any difference between the said dates has been assumed to be disallowance. But in actual scenario there is no disallowance but only difference in due date and actual date of Hence, when there is no disallowance, provisions of section 143(1)(iv) cannot be invoked.

6. Attention is drawn towards the fact in Section 143(1)(a)(iv), words ‘increase in income’ has been added by Finance Act, 2021 e.f. 1.4.2021. In view of provisions of Sec. 2(24)((x), the adjustments made in this case are in the nature of ‘increase in income’. The right to make adjustments u/s 143(1)(a)(iv) for ‘increase in income’ has been conferred only w.e.f. 1.4.2021 i.e. AY 2021-22. Thus, invoking this clause for making adjustment in the returned income is without jurisdiction.

7. It is further submitted that provisions of section 143(1)(a)(iv) can be invoked with reference to other clauses like, for example, the following wherein the auditor is required to express his opinion with reference to disallowance:

clause 21(b)- Amounts inadmissible under section 40(a),

clause 21(d)-Disallowance/deemed income under section 40A(3),

clause 21(f)-Any sum paid by the assessee as an employer not allowable under section 40A(9) etc.

However, in the case of the assessee, the auditor has not reported any amount of disallowance.

8. Reliance is placed on the following decisions in favour of the assessee:

Prayer: In view of the above, the adjustment made by ld. AO (CPC) is illegal and without jurisdiction. Relief may please be granted by quashing such intimation.”

6. To support the contention so raised in the written submission reliance was placed on the following decisions:

7. The ld. AR of the assessee in addition to the written submitted argued that upon co-joint reading of both the judgments of Hon’ble Supreme Court in the case of Checkmate Services P Ltd (Supra) and Hon’ble Delhi ITAT in the case of Salveen Kaur (Supra) do not give a finding that an order u/s 143(1)(a) can be passed for disallowances without giving advance intimation to the assessee. In the case of the assessee no such advance intimation was given to the assessee before making the disallowance of Rs. 16,46,879 u/s 36(1)(va). Therefore order of the learned AO passed under section 143(1)(a) is bad in law and deserves to be quashed.

8. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A) and also submitted that the decision of the co-ordinate bench in the case of Salveen Kaur (Supra) deals with the intimation u/s 143(1 )(a) of the Act and even the co-ordinate bench of Jaipur after that judgment not considered the plea of the assessee.

9. We have heard the rival contentions, perused the material placed on record and gone through the judicial decision relied upon by both the parities to drive home to their contentions. So far as the ground Nos. 1A & 1B in relation to the disallowance of payment of ESI & PF while processing the return of income u/s. 143(1)(a) of the Act, the ld. CIT(A) has followed the judgment of CIT-1 vs. Checkmate Service Pvt. Ltd.(supra) and disallowance so made was considered in accordance with law clarified by the Hon’ble Apex Court.

9.1 As argued and decided by the bench that similar issue has also been decided by the ITAT Delhi Bench in favour of the Revenue in the case of Salveen Kaur Vs Income Tax Office vide its order darted 9th January 2023 (in IT Appeal Nos. 2197,2249, 2250 and 2293 (Delhi) of 2022 – A.Y. 201 7-18 to 201 9-20 [2023] 147 taxmann.co. 402 (Delhi-Trib) by observing as under:-

‘’4. The undisputed fact in the captioned appeals is that there was a delay in depositing the employees’ contribution and the contribution has been deposited beyond the date stipulated under the relevant Fund Act.

5. Though the quarrel is no more res integra, as it has been settled by the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd 143 com 178. But, before us, the decision of the co-ordinate bench at Mumbai has been placed in the case of PR Packaging Service in ITA No. 2376/MUM/2022 and it has been seriously argued that the co-ordinate bench has considered the decision of the Hon’ble Supreme Court and yet decided the quarrel in favor of the assessee and against the Revenue.

6. Another argument taken before us is that the disallowance made by the CPC Bengaluru while processing the return u/s 143(1) of the Act is beyond the scope of provisions of section 143(1(a) of the Act and,therefore, cannot be sustained.

7. We have carefully perused the decision of the co-ordinate bench in the case of M/s P R Packaging Services [supra]. We find that the co-ordinate bench has not given any independent finding but has simply relied upon another decision of the co-ordinate bench in the case of Kalpesh Synthetics Pvt Ltd 195 ITD 142 wherein the co­ordinate bench has based its decision on the interpretation and binding decision of the Hon’ble Jurisdictional High Court. In the case of Kalpesh Synthetics Pvt Ltd [supra], the Tribunal has held that the CPC Bengaluru cannot override the binding decision of the Hon’ble Bombay High Court while making the impugned disallowance on account of delay in the deposit of employees’ contribution to PF/ESI.

8. It would be apt to refer to the relevant part of the decision of the Tribunal in the case of Kalpesh Synthetics [supra] followed in P R Packaging Service [supra] wherein it has been held as under:-

“8. When the law enacted by the legislature has beenconstrued in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon ’ble High Court to read any other manner than as read by the Hon ‘ble jurisdictional High Court. The views expressed by the tax auditor in sucha situation, cannot be reason enough to disregard the binding views of the Hon’ble jurisdictional Court. To that extent, the provisions of section 143(1)(a)(iv) must be read down. What essentially follows is the adjustments under section 143(1)(a) in respect of” disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon’ble Courts above”. That is where the quasi judicial exercise of dealing with the objections of the assessee against proposed adjustments under section 143(1), assumes critical importance in the processing of returns, also important to bear in mind the fact that what constitutes jurisdictionalHigh Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, rule 11(1) of the Central Processing of Returns Scheme, 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income Tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer” Thensitus of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether theCPC is within the jurisdiction of Hon’ble Bombay High Court or not, as for the regular Assessing Officer of the assesseeand the assessee are located in the jurisdiction of Hon ‘bleBombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon’ble Bombay High Court. In our considered view, it cannot be open tothe Assessing Officer CPC to take a view contrary to the view taken by the Hon’ble jurisdictional High Court- moreso when his attention was specifically invited to bindingjudicial precedents in this regard. For this reason also, the inputs in question in the tax audit report cannot be reason enough to make the impugned disallowance. The assesseemust succeed for this reason as well.”

9. With our utmost respect to the findings of the co-ordinate bench [supra], we are of the considered view that the co-ordinate bench has ignored the binding ratio decidendi of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra]. It would be pertinent to refer to the most relevant observations of the Hon’ble Supreme Court on the impugned quarrel which read as under:-

“32. The scheme of the provisions relating to deductions, such as Sections 32 – 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (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 fulfillment 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) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)).

33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, “employers’contribution”) is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that “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.” The essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date.

34. It is therefore, manifest that the definition of contribution in Section 2 (c) is used in entirely different senses, in the relevant deduction clauses. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification under the IT Act, between the two.35.

It is instructive in this context to note that the Finance Act, 1987, introduced 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 penalizing 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 (1) of the Finance Act)

12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.”

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44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B,which mandated that unless the amount of employers’contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available.

45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va).Furthermore, the separate provisions in Section 36(1) foremployers’ contribution and employees’ contribution, too went The court observed inter alia, that:

“15. …It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare fundsof employee(s) on the other. This is one more reason whywe hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P)Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effectfrom 1st April, 1988 [when the first proviso stoodinserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to theassessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example – in the present case, the respondents have deposited the contributions with the R.P.F.C. 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 43B 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 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”.

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48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. Eagle Flask Industries Ltd Vs. Commissioner of Central Exercise 2004Supp (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations.

49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements as follows: “23…. In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate.

24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications.

25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rulemust be strictly observed, substantial compliance might suffice in the case of a directory rule.

26. Whenever the statute prescribes that a particular act is to be done in a particular manner 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, non­compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.”

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53. The distinction between an employer’s contribution which is 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 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.

54. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions-which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income,monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income,is treated as a Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date.”

10. In our understanding, the aforementioned binding observations of the Hon’ble Supreme Court cannot be brushed aside simply because the decision was rendered in the context where the assessment was framed u/s 143(3) and not u/s 1 43(1)(a) of the Act. In our considered opinion, the decision of the Hon’ble Supreme Court is in the context of allowability of deposit of PF/ESI after due date specified in the relevant Act.

11. The Hon’ble Supreme Court has categorically held that the employees’ contribution deposited after respective due date cannot be allowed as deduction, and, therefore, it would be incorrect to say that the decision of the Hon’ble Supreme Court is applicable only in the case of an assessment farmed u/s 143(3) of the Act. In our considered view, the ratio decidendi is equally applicable for the intimation framed u/s 143(1) of the Act.

12. Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon’ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru.

13. The provisions of section 143(1 )(a) read as under:-

“143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of Section 143, such return shall be processed in the following manner, namely;-

(a) The total income or loss shall be computed after making the following adjustments, namely;-

(i) Any arithmetical error in the return;

(ii) An incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) Disallowance of loss claimed, if return of the previous 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 [or increase in income]indicated in the audit report but not taken into account in computing the total income in the return;

(v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain income”, if] 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;”

13.1 A perusal of the afore-stated provisions show that at every stage in sub-section (1) of the Act, the return submitted by the assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses are found,appropriate adjustments are to be made. It is an open secret that hardly 3 to 5% of the returns are selected for scrutiny assessment, out of which, more than 50% are because of AIR Information under CASS and the Assessing Officer cannot go beyond the reasons for scrutiny selection and such cases are called Limited Scrutiny cases and only the remaining returns are taken up for complete scrutiny u/s 143(3) of the Act.

13.2 Meaning thereby, that exercise of power under sub­section (2) of section 143 of the Act leading to the passing of an order under sub-section (3) thereof, is to be undertaken where it is considered necessary or expedient to ensure that the assessee has not understated income or has not computed excessive loss, or has not under paid the tax in any manner.

14. If any narrow interpretation is given to the decisions of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra], it would not only defeat the very purpose of the enactment of the provisions of section 143(1) of the Act but also defeat the very purpose of the Legislators and the decision of the Hon’ble Supreme Court would be made redundant because there would be discrimination and chaos, in as much as, those returns which are processed by the CPC would go free even if the employees’ contribution is deposited after the due date and in some cases the employer may not even deposit the employees’ contribution and those whose returns have been scrutinized and assessed u/s 143(3) of the Act would have to face the disallowance.

15. This can neither be the intention of the Legislators nor the decision of the Hon’ble Supreme Court has to be interpreted in such a way so as to create such discrimination amongst the tax payers. Such interpretation amounts to creation of class [tax payer] within the class [tax payer] meaning thereby that those tax payers who are assessed u/s 143(3) of the Act would have to face disallowance because of the delay in deposit of contribution and those tax payers who have been processed and intimated u/s 143(1) of the Act would go scot- free even if there is delay in deposit of contribution and even if they do not deposit the contribution.

16. We are of the considered view that the ratio decidendi of the Hon’ble Supreme Court is equally applicable to the intimation u/s 143(1) of the Act and, therefore, the decision of the co-ordinate bench relied upon by the assessee is distinguishable. Therefore, respectfully following the binding decision of the Hon’ble Supreme Court [supra], all the three appeals of the assessee are dismissed and that of the revenue is allow

17. In the result, all the three appeals of the assessee in ITA No. 249/DEL/2022, 2250/DEL/2022 and 21 97/DEL/2022 are dismissed whereas the appeal of the Revenue in ITA No. 2293/DEL/2022 is allowed.’’

In view of the above deliberations and the decision taken by the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. vs CIT-1 (supra), the decision of ITAT Delhi Bench in the case of Savleen Kaur (supra), the Bench sustains the addition confirmed by the ld. CIT(A). As is evident that above decision also deals with the facts of intimation u/s. 143(1)(a) of the Act. We also get support of these view from the recent decision of Hon’ble Bombay High Cout in the case of Rohan Korgaonkar v. Deputy Commissioner of Income-tax [2024] 159 taxmann.com 321 (Bombay) wherein also the Bombay high court that the decision of the apex court though deals with the fact of case in 143(3) but that aspect of the matter being law laid down by the apex court will apply while processing the ITR u/s. 1 43(1 )(a) also. The relevant finding of the Hon’ble high court in the matter is reproduced herein below for the sake of brevity and to decide the ground no. 1A and 1 B raised by the assessee;

1. Heard Ms Priyanka Kamat for the Appellant and Ms S. Linhares for the Respondent.

2. This is an appeal under section 260A of the Income Tax Act, 1961 (IT Act) to challenge the orders made by the Assessing Officer, CIT (Appeals) and the ITAT, disallowing an adjustment under section 141 (l)(a)(iv) read with section 36 (l)(va) of the IT Act in respect of delayed remittance of employees’ contributions to Employee State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018-2019.

3. The ITAT, in this case, has noted that the Assessee failed to deposit contributions to ESI and PF in the employees’ accounts for the relevant assessment year before the due date under the PF/ESI Acts. However, such contributions were deposited before the Assessee filed returns under Section 139 (1) of the IT Act. The ITAT relying upon the decision of the Hon’ble Supreme Court in Checkmate Services (P.) v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/448 ITR 518 (SC) held that based upon such delayed deposits, no adjustments or deductions could be claimed.

4. In Checkmate Services (P.) Ltd. (supra), the Hon’ble Supreme Court considered the conflicting decisions on the subject and finally held that deductions or adjustments could be claimed only when the Assessee deposits the contribution before the due date provided under the Employees Provident Fund/Employee State Insurance Act. If the employees’ contributions are deposited after the due date set out under the said Act, there is no question of deduction or adjustment on the ground that such contributions were deposited before the filing of returns under section 139(1) of the IT Act.

5. The ITAT has relied upon Checkmate Services (P.) Ltd. (Supra), and its reasoning is entirely consistent with the law laid down in Checkmate Services (P.) Ltd. (supra). Therefore, no case is made to interfere with the AO, CIT(appeals), and ITAT decisions.

6. However, Ms Kamat submitted that Checkmate Services (P.) (Supra)was a matter where the assessment was made under section 143(3) of the IT Act and not under section 143 (1) (a) as in the present case. She also relied upon P.R. Packaging Service v. Asstt. CIT [2023] 148 taxmann.com 153/199 ITD 724 (Mum. – Trib) ITA No. 2376/MUM/2022, decided by the ITAT 07/12/2022 to support her contention.

7.Though the decision cited was that of the ITAT, we have considered the same. In our judgment, however, the fact that the assessment order in Checkmate Services (P.) Ltd. (supra) was incidentally under section 143(3) and the assessment order in the present case is under section 143(1)(a) of the IT Act, makes no difference to the principle involved in this matter. The ITAT decision does not discuss why this circumstance constitutes a distinguishing feature based on which the ratio of Checkmate Services (P.) Ltd. (supra) could be departed from.

8. Checkmate Services (P.) Ltd. (Supra)holds that the deductions can be claimed or adjustments can be made under section I4l(l)(a)(iv), read with section 36(1)(va) only when the employer deposits the contributions in the employees’ accounts on or before the due date prescribed under the Employees Provident Fund /Employees State Insurance Act. In this case, admittedly, the contributions were deposited in the employees’ accounts beyond the due date. The circumstance that the assessment order was made under section 1 43(1)(a) of the IT Act can make no difference.

9. Therefore, in our judgment, no substantial questions of law as proposed arise in this appeal. The concurrent decisions of the three authorities call for no interference.

10. This appeal is, accordingly, liable to be dismissed and is, hereby, dismissed with no order as to costs.

The case law relied upon by the ld. AR of the assessee do not deal with the judgment of Salveen Kaur (Supra) which we have considered while deciding the ground no. 1 & 2 raised by the assessee and now while dealing with the ground no. 1 A & 1 B we get support of the decision of the Bombay High Court which is decided by the higher court then ITAT in Salveen Kaur (Supra) and therefore, respectfully following the decision of the Bomaby High Court in the case of Rohan Korgaonkar v. Deputy Commissioner of Income-tax (supra) we do not find any merits in the grounds so raised by the assessee. Based on the discussion so recorded we sustain the addition confirmed by the ld. CIT(A) by dismissing the ground no. 1, 1A, 1B and 2 raised by the assessee. Ground no. 3 being general in nature does not require our adjudication.

In the result, the appeal of the assessee is dismissed.

Order pronounced in the open court on 09/09/2024.