TaxTMI 
TaxTMI 
2021 (6) TMI 506
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....f the Income Tax Act, 1961 by disallowing the contribution received from employees towards ESI and EPF amounting to Rs. 2,54,295/- with complete disregards to the Decision of Jurisdictional Honorable Allahabad High Court in the case of Sagan Foundry (P) Ltd. Vs CIT ( 97CCH 0160 and 145 DTR 0265) as the payments have been made before due date specified u/s 139(1) and assuch are fully allowable. ITA no 42/2021 That the appellant denies its liability to be assessed at total income of Rs. 9.45,640/- as against returned income of Rs. 8,18,607/- and accordingly denies its liability to pay tax, cess and interest demand thereon. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making adjustments u/s 143(1)(a) of the Income Tax Act, 1961 by disallowing the contribution received from employees towards ESI and EPF amounting to Rs. 1,27,032/- with complete disregards to the Decision of Jurisdictional Honorable Allahabad High Court in the case of Sagun Foundry (P) Ltd. Vs CIT ( 97CCH 0160 and 145 DTR 0265)as the payments have been made before due date specified u/s 139(1) andas such are full....
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....visions under section 139(I) of The Income Tax Act 1961, employee contribution towards ESI and PF paid after due date of respective statue but before the filling of Income Tax return due date as per section 139 (1) are allowable expenses and cannot be disallowed under section 36 (1)(va). But the Ld. Assessing Officer (CPC) without appreciating the legal position and facts of the case made the above mentioned addition and the assessee preferred an appeal before the Hon'ble CIT (A)-1, Agra against said order. And then order has been passed by CIT(A), National Faceless Appeal Centre, Delhi. The Hon'ble CIT (A) NFAC also confirmed theabove said addition of Rs. 17,76,883/- and passed the order against the Assessee, on 27/02/2021. Copy of order is enclosed We are reproducing herein the facts of ITA 41/2021, as facts of all the appeals are identical . Brief Facts in AY 2018-19 in ITA no 41/2021 1. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre Delhi in order dated 31/3/2021 in held as under: " The present appeal has been preferred against the intimation passed by the9 CPC, Bangalore, u/s.143(1) of the I.T. Act, 1961 for the assessment ....
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.... Copy of the Judgment is attached as annexure. Hence, in view of above, the issue is aptly clear that payments for labour welfare dues like PF and ESI if paid before the due date of filing of income tax return u/s 139(1) will be allowable deduction is fully covered by section 438 and as such the disallowance of Rs. 254295/- made by the Ld A.O. is bad-in-law and may kindly be deleted." Decision 3.1 .................... 3.2 ...................... 3.3 On the other hand, it was argued by the Appellant that Employee's contribution towards Provident Fund and ESI has been deposited within the time limit prescribed u/s 139(1) of the Act and accordingly contended that the same is allowed as deduction in view of provisions of section 43B of the Act. On carefully consideration of observation of Assessing Officer and contention of Appellant, I observe that entire issue is covered against Appellant by decision of Hon'ble Gujarat High Court in case of State Road Transport Corporation (366 ITR 170) wherein it is held as under: Section 43B, read with section 36(1)(va) of the Income Tax Act, 1961 Business disallowance - Certain ....
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....ficer as well as by the CIT (A). It was submitted that the CIT(A) had noted down jurisdictional High Court decision however he had relied upon the decision of the Gujrat High Court, as the issue has not been finally concluded by the apex court. Therefore he had supported the order passed by the lower authority. 4. In the rebuttal the Ld.AR for the assessee, had submitted that the tax effect in the present case is well below the limit prescribed for filing the appeal before the High Court or before the Supreme Court. It was submitted that the reliance on the Non-jurisdictional High Court judgement had resulted into burdening the litigant unnecessarily, as no appeal can be filed before the High Court against the order of the tribunal, in case the appeal of the assessee is allowed. The net result would be the same. It was submitted that the doctrine of precedent requires this tribunal to follow the decision of the jurisdictional High Court. He had also drawn our attention to the newly inserted provision of the faceless assessment and faceless appeal. 5. We have considered the rival contention of the parties and perused the material available on record, including the ....
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....ile appeal through his registered account on the e-filing portal. However, the process that follows filing of appeal is neither electronic nor faceless. In order to ensure that the reforms initiated by the Department to eliminate human interface from the system reach the next level, it is imperative that an eappeal scheme be launched on the lines of e-assessment scheme.Accordingly, it was proposed to insert sub-section (6A) in section 250 of the Act to provide for the following: • Empowering Central Government to notify an e-appeal scheme for disposal of appeal so as to impart greater efficiency, transparency and accountability. • Eliminating the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible. • Optimizing utilization of the resources through economies of scale and functional specialisation. • Introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner (Appeals). 9. Section 250 of the Act provides as under : Procedure in appeal. 250. ^90 (1) The ^91[***] ^....
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....purposes of giving effect to the scheme made under sub-section (6B), by notification in the Official Gazette, direct that any of the provisions of this Act relating to jurisdiction and procedure for disposal of appeals by Commissioner (Appeals) shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after the 31st day of March, 2022. (6D) Every notification issued under sub-section (6B) and sub-section (6C) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] (7) On the disposal of the appeal, the ^99[***] ^1[Commissioner (Appeals)] shall communicate the order passed by him to the assessee and to the ^2[^3[Principal Chief Commissioner or] Chief Commissioner or ^3[Principal Commissioner or] Commissioner]. 10. The centre while exercising its power under section 6B had introduced Faceless Appeal Scheme and made it effective from September 25, 2020. By The CBDT vide Notification bearing No. 76 & 77 of 2020.Some of the relevant clauses of this are reproduced hereinfor the purposes of completeness and ....
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....e in writing, a draft order in accordance with the provisions of section 251 of the Act; and (b) send such order to the National Faceless Appeal Centre along with the details of the penalty proceedings, if any, to be initiated therein; (xix) the National Faceless Appeal Centre shall upon receipt of the draft order, as referred to in sub-clause (a) of clause (xviii), - (a) where the aggregate amount of tax, penalty, interest or fee, including surcharge and cess, payable in respect of issues disputed in appeal, is more than a specified amount, as referred to in clause (x) of paragraph 13 of the said Scheme, send the draft order to an appeal unit, other than the appeal unit which prepared such order, in any one Regional Faceless Appeal Centre through an automated allocation system, for conducting review of such order. (b) in any other case, examine the draft order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to - i. finalise the appeal as per the draft order; or ii. send the draft order to an appeal unit, other than the unit which prepared ....
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....pellant calling upon him to show cause as to why penalty should not be imposed upon him under the relevant provisions of the Act; C. (1) An appeal against an order passed by the National Faceless Appeal Centre under the said Scheme shall lie before the Income-tax Appellate Tribunal having jurisdiction over the jurisdictional Assessing Officer. (2) Subject to the provisions of paragraph (3) of the said Scheme, where any order passed by the National Faceless Appeal Centre or Commissioner (Appeals) is set-aside and remanded back to the National Faceless Appeal Centre or Commissioner (Appeals) by the Income-tax Appellate Tribunal or High Court or Supreme Court, the National Faceless Appeal Centre shall pass the order in accordance with the provisions of the said Scheme.". 11. From the reading of the notification issued by the Board, it is abundantly clear that, before passing Final appellate order in appeal,it passes through various stages of scrutiny . Firstly a draft order is proposed by AU, than it is sent to review unit ( subject to tax effect) and if review unit suggest some suggestion/s than it is assigned to another AU for concurrence or modification and the....
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.... of precedents grew in England in absence of codified laws. The rule of law requires not over turning precedents too often. Aristotle said "the habit of lightly changing the laws is an evil". ... Precedents: A source of "law" under the Constitution of India Article 141 of the Constitution lays down that the "law declared" by the Supreme Court is binding upon all the courts with the territory of India. The "law declared" has to be construed as a principle of law that emanates from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. Hence, it flows from the above that the "law declared" is the principle culled out on the reading of a judgment as a whole in the light of the questions raised,upon which the case is decided. (See: Fida Hussain v. Moradabad Development Authority (2011) 12 SCC 615; Ambica Quarry Works v. State of Gujarat (1987) 1 SCC 213; and CIT v. Sun Engg. Works (P) Ltd. (1992) 4 SCC 363). ....................... ............................... The High Courts are Court of record under Article 215 of the Constitution. By virtue of the provisions of Article 227,....
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....evelopment of the law. It also provides an assurance to an individual as to the consequence of transactions forming part of his daily affairs. In Mamleshwar Prasad v. Kanahaiya Lal, AIR 1975 SC 907, the Supreme Court held as under:- "Certainty of the law, consistency of rulings and comity of Courts - all flowering from the same principle - converge to the conclusion that a decision once rendered must later bind like cases. We do not intend to detract from the rule that, in exceptional instances where by obvious inadvertence or oversight a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedents. It should be a glaring case, an obtrusive omission." The benefit of this doctrine is to provide certainty, stability, predictability and uniformity. It increases the probability of judges arriving a correct decision, on the assumption that collective wisdom is always better than that of an individual. It also preserve the institutional legitimacy and "adjudicative integrity". It is flexible in nature, as there are ways to avoid precedent....
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.... 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". 21. Similarly A.P. High Court in State of A.P. v. CTO (1988) 169 ITR 564, held as under :- " If any authority or the Tribunal refuses to follow any decision of the High Court on the above grounds, it would be clearly guilty of committing contempt of the High Court and is liable to be proceeded against." 22. The Supreme Court in the case of Union of India v. Kamlakshi Finance Corpn. Ltd. AIR 1992 SC 711; deliberately emphasized on the following "It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his ....
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....er Rule 4(1) of the ITAT Rules, issued a standing order No.63/97 dated 2.7.2013 as amended, inter alia, providing the jurisdiction of the bench dependent upon the areas from where the impugned orders have originated. In the above standing order, Note 4 specifically states that the jurisdiction of a bench will not be determined by the place of business or residence of the assessee but by the location of the office of the Assessing Officer. If the seat of the Assessing Officer were in terms of Section 127 of the Act, to govern/control the jurisdiction of the Authorities other than those listed in Section 116 of the Act, then a specific provision in terms of Note 4 in the standing order issued by the President of the Tribunal was not called for/required. Thus in terms, the above standing order where an assessment proceedings have been transferred from one place to another under Section 127 of the Act, then the bench of the Tribunal before which appeals would lie, may shift with the seat of the Assessing Officer before the filing/hearing of the appeal. Moreover, it is important to note that, the Bombay High Court Rules while providing for appeals from the Tribunal doe....
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....f appeal under the Act, the Court which would entertain the appeal would be a Court different from the Court which would exercise jurisdiction under Articles 226 and 227 of the Constitution. It is to be noted that, for relief under Article 226 of the Constitution, no part of the case of action would have arisen in Mumbai giving rise to the jurisdiction of this Court. Thus, harmonious reading of the various provisions of law would require that the appeal from the order of the Tribunal is to be filed to the Court which exercises jurisdiction over the seat of the Tribunal. 15. In this case, the Karnataka High Court exercises jurisdiction over the Banglore bench of the Tribunal which has passed the impugned order dated 30th July, 2015. However, it may be pointed that Explanation to Section 127 of the Act states that once a direction has been issued therein in respect of the case i.e. Section 127 of the Act, then all Assessment proceedings under the Act in respect of any year which may be pending on the date of such order or which have been completed on or before such date would stand transferred to the transferee assessing Officer. The words "all proceedings under thi....
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....ct and will not govern the jurisdiction of the High Court. The jurisdiction of the High Court would be decided on application of Sections 260A and 269 of the Act. Similarly, the decision of the Delhi High Court in the case of AAR Bee Industries (supra) relied upon by the Revenue noticed the different view taken by Punjab & Haryana High Court in Motorola India Ltd. (supra). However, it held itself bound by the decision of its co-ordinate bench in the case of Sahara India Financial Services (supra) to hold that Section 127 of the Act will govern/decide the Court which will exercise jurisdiction in respect of appeals from the order of the Tribunal. We respectfully disagree with the above view of the Delhi High Court. In our view, Section 127 of the Act can only govern/control the jurisdiction of the Income Tax Authorities as defined in Section 116 of the Act. Therefore, the appeals from the order of the Tribunal to the High Court would be governed by section 260-A and 269 of the Act. 17. We note that Punjab & Haryana High Court in Motorola India Ltd. (supra) has examined the identical issue and on examination of Section 127 of the Act, it held as under:- ....
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....ef should not be refused to the assessee. As per the Notification Clause C (supra ) an appeal against an order passed by the National Faceless Appeal Centre under the said Scheme shall lie before the Income-tax Appellate Tribunal having jurisdiction over the jurisdictional Assessing Officer. As per Section 260 A of the Income Tax Act, the appeal against the ITAT, order shall lie to The High Court and the High court had been defined under section 269 High Court" means- (i) In relation to any State, the High Court for that State . 27. Thus appeal against the tribunal ( Agra in present case )shall lie to the Hon'ble Allahabad High Court and therefore the decision rendered by Hon'ble High court is not only binding on the Tribunal but also on NFAC, ( though sitting in Delhi ) which is deciding the lis pertaining to Agra ITAT Jurisdiction (AllahabadHC Jurisdiction). 28. The purpose of setting up of the centralized NFAC, is to ensure efficiency, transparency and accountability. We have noted down the various stages of finalization of the final appellate order, however as pointed out by us, despite the binding decision of the jurisdictional High Court and tribunal, the centralizedNFA....
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....at in the matter of Gujarat State Road Transport Corpn (supra) relied upon by revenue, in the following manner :- "14. So far as Section 43B is concerned, we find that it was inserted w.e.f. 01.04.1984 to allow deductions provided payments are actually made before filing of return as per due date under Section 139(1) of Act 1961. 'Income' defined under Section 2(24) of Act, 1961, includes 'profits and gains'. Under Section 2(24)(x), any sum received by Assessee from his employees as contribution to any provident fund/superannuation fund or any fund set up under Employees State Insurance Act, 1948, or any other fund for welfare of such employees, constitute 'income'. In respect to such contributions deduction was allowed under Section 36(1)(va) when contributions received by employer is deposited within time prescribed, under relevant labour welfare statute. Prior to 01.04.1984, every Assessee (employer) was entitled to deduction on mercantile system of accounting as a business expenditure by making provision in his books of account in that regard and this situation continued upto 01.04.1984. An Assessee (employer), if maintaining books on accrual sy....
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....d by Supreme Court judgment in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416, but both learned counsels appearing for rival parties admitted that even after the aforesaid judgment, various High Courts have taken divergent views on the question, whether Section 43B can be read alongwith Section 36(1)(va) or both have independent, distinct and separate field of operation. In this back drop, we find it appropriate, first, to examine judgments of various High Courts which have been rendered after considering Supreme Court judgment in Alom Extrusions Ltd. (supra) and thereafter would examine the entire aspect in totality. 17. We find that with respect to employees contribution to Provident Fund, as to whether disallowable or not with reference to Section 36(1)(va) read with Section 43B, a similar question came up for consideration before Gujarat High Court in CIT v. Gujarat State Road Transport Corpn. [2014] 366 ITR 170/223 Taxman 398/41 taxmann.com 100. Therein Assessee collected Rs. 51,06,02,712/- from its employees towards provident fund contribution but deposited Rs. 21,16,61,582/- with provident fund trust. Thus there was a short fall of Rs. 24,89,41,130/-.....
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....accounts in the relevant fund before due date i.e. date prescribed in the relevant statute applicable to the concerned fund. Court also noticed that Section 43B is in respect to certain deductions and applies only on actual payment. It held that amendment was made by deletion of Second Proviso of Section 43B only, but no corresponding amendment was made under Section 36(1)(va). It said: "It is required to be noted that as such there is no amendment in Section 36(1)(va) and even the Explanation to Section 36(1) (va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to the employer's contribution the second proviso to Section 43B which provided that even with respect to the employer's contribution (Section 43B(b)), the Assessee was required to credit the amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that Section 36(1)(va) has been deleted and/or amended." 19. That is how Gujrat High Court held that Section 43B would not be attracted in a case where dispute relates to employ....
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....ed in affirming finding of Assessing Officer and denying Assessee's claim of deduction of employees contribution to PF/ESI alleging that the payment was not made by appellant in accordance with the provisions of Section 36(1)(va) of Act 1961." The Assessee's counsel relied on earlier judgment of Karnataka High Court in CIT v. Spectrum Consultants (P.) Ltd. [2014] 49 taxmann.com 29/227 Taxman 164 (Mag.) while counsel for Revenue attempted to pursue to take a different view following decision of Gujrat High Court. The Division Bench judgment delivered by Hon'ble Dilip B. Bhosale, (as his lordship then was) held, if the contribution of employees fund is deposited within due date the Assessee is straightaway entitled for deduction under Section 36(1)(va). However Section 43B provides for certain deductions allowable only on actual payment. It gives an extension to the employer to make payment of contribution to provident fund or any other fund, till due date applicable for furnishing of Return under Section 139(1) of Act 1961, in respect of previous year in which liability to pay such sum was incurred, and evidence of such payment is furnished by Assessee along wit....
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....t of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Alom Extrusions Ltd. (supra). Court considered the intent, purpose and object in the historical back drop of insertion of Section 43B and its progress by way of various amendments. Referring Section 2(24)(x) it said, income is defined under Section 2(24) which includes profits and gains. Further in clause (x) of Section 2(24) any sum received by Assessee from employees as 'contributions' to any provident fund/superannuation fund or any fund set up under Act 1948, or any other fund for welfare of such employees constitute 'income'. This is the reason why every Assessee/Employer was entitled to deduction even prior to April, 1, 1984, keeping books on mercantile system of accounting, as a business expenditure, by making provision in his books of account in that regard. Assessee was capable of keeping money with him and just by mentioning in accounts, was able to claim deduction as business expenses. Section 43B was inserted to check this practice and it resulted in discontinuing mercantile system of accounting with regard to tax, contributions etc. With ind....
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....roviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. 28. From the aforesaid judgment, we find that irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. 29. Therefore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab & Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both contributions i.e. emp....
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.... from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of tax- payer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman v. Barron 1952(2) AIR 393 and followed by apex Court in Mangalore Chemicals & Fertilizers Ltd. v. Dy. CCT (1992) Suppl. (1) SCC 21 and Novopan India Ltd. v. CCE & C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, "in case of ambiguity, a taxing statute should be construed in favour of a tax-payer does not apply to a provision giving tax-payer relief in certain cases from a section clearly imposing liability". This exception, in the present case, has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. v. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 SC 614. Therefore, what follows is that in the peculiar circumstances of th....
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....discretion only when there is no declared principle to be found, no rule and no authority." Therefore,respectfully following the decision of Hon'ble SC Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., AIR 1997 SC 2477, Sundarjas Kanyalal Bhathija v. The Collector, Thane, Maharashtra, AIR 1990 SC 261 and Tribhovandas Purshottamdas Thakkar v. Ratilal Motilal Patel, AIR 1968 SC 372We deprecate this practice of NFAC in following the decision of Gujrat High court a against the binding decision of Allahabad High .This practice is in contradiction of the objects for which the Notification was issued by the Board at the initiative the Hon'ble Prime Minister, for creating centralized NFAC. The purpose of the scheme is to bring consistency ,transparency, efficiency, accountability and predictability. 36. Having categorically held the allowability of claim under section 43B, by Jurisdictional HC, it is not expected from the revenue to apply inapplicable and not binding decision in the present case . It would be apostle to refer the decision in the the matter of Dnyandeo Sabaji Naik ans ANR Vs Mrs. Pradnya Prakash Khadekar and ORS in Special Leave Petition ....