2018 (7) TMI 488 - HC - Income Tax

Interpretation of Income Tax Act sec. 43B: Retroactive Application of Second Proviso

A.T.E. Pvt. Ltd. Versus Assistant Commissioner of Income-Tax, Circle-1 (1) and Ors.

The Court interpreted Section 43B of the Income Tax Act, 1961, focusing on the disallowance of expenses and the application of the second proviso. The ... Addition u/s 43B - appellant was admittedly accounting for the expenditure on a cash basis - second proviso to Section 43B - P.F. contribution by employer - Held that:- The issue of the deletion of the second proviso to Section 43B now stands concluded in favour of the appellant – assessee by the decision in the case of Commissioner of Income Tax Vs. Alom Extrusions Limited (2009 (11) TMI 27 - SUPREME COURT) as held that the omission made by the Finance Act, 2003 by deletion of second proviso to section 43B would operate retrospectively from 1st April 1988 from the time it was first introduced. Thus, in the absence of the second proviso to Section 43B of the Act, the only requirement of the statute is that the payment to the various funds should be made before the filing of the return of income under Section 139(1) as required by the first proviso thereof. It is an undisputed position before us that this condition is satisfied in this case. So far as the payment of the employees' contribution to P.F. is concerned, it would also be covered by the first proviso to Section 43B of the Act. It has been so held by this Court in the case of CIT Vs. Ghatge Patil Transport Limited [2014 (10) TMI 402 - BOMBAY HIGH COURT] wherein this Court held that the Apex Court decision in the case of Alom Extrusions (2009 (11) TMI 27 - SUPREME COURT) would apply. - Decided in favour of assessee. Issues:1. Interpretation of Section 43B of the Income Tax Act, 1961 regarding disallowance of expenses.2. Application of the second proviso to Section 43B in disallowing certain payments.Analysis:Issue 1 - Interpretation of Section 43B:The appeal under Section 260A of the Income Tax Act, 1961 was filed challenging the order of the Income Tax Appellate Tribunal (the Tribunal) dated 24th February, 2003. The substantial question of law raised was whether the Tribunal was correct in upholding the disallowance of a specific amount under Section 43B, despite the appellant accounting for the expenditure on a cash basis. Initially, the appellant sought to reframe the question to focus on the second proviso to Section 43B. The Court admitted this reframed question as a substantial question of law for consideration. However, during the final hearing, the appellant did not press the first question, leading to no discussion or opinion on it.Issue 2 - Application of the Second Proviso to Section 43B:The Tribunal had disallowed certain payments made by the appellant to various funds, citing the second proviso to Section 43B of the Act. These payments included P.F. employer's and employee's contributions, Gratuity Fund payments, and Employer's Contribution for Superannuation fund. The Tribunal held that although the payments were made before the due date for filing the income tax return, they were beyond the due date prescribed under the relevant Act, leading to disentitlement under the second proviso to Section 43B. However, the appellant argued that the omission of the second proviso from 1st April 2004, through the Finance Act 2003, should be applied retrospectively, entitling the appellant to claim the benefit of Section 43B. This argument was supported by a Supreme Court decision in Commissioner of Income Tax Vs. Alom Extrusions Limited. The Court agreed with the appellant's interpretation, noting that the only requirement under the statute was payment before filing the income tax return under Section 139(1) of the Act. Additionally, the Court referenced a previous case to support the position that the first proviso to Section 43B covered the employees' contribution to P.F. The Revenue did not dispute this legal position, leading to the issue being concluded in favor of the appellant. Consequently, the substantial question of law was answered in the negative, in favor of the appellant, and against the respondent.In conclusion, the appeal was allowed, and no costs were awarded.