TaxTMI 
TaxTMI 
2021 (6) TMI 506
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 fully allowable..2. That while rejecting the assessee's submissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 year 2018-1. The appellant e-filed the appeal vide acknowledgement No.190423N761041019Delhi. on 0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 deductions to be allowed on actual payment (employee's contribution) - whether where an employer has not credited sum received by it as employee's contribution to employee&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inally 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 judgments cited at bar during the course of hearing by both the parties. From the reading of the impugned order it is abundantly clear that the NFAC, had relied upon the decision of Gujarat High Court in the matter of Sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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[***] 92[Commissioner (Appeals)] shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the 93[Assessing] Officer against whose order the appeal is preferred. (2) The following shall have the right to be heard at the hearing of the appeal- (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sued 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 record : In exercise of the powers conferred by sub-section (6C) of section 250 of the Incometax Act, 1961 (43 of 1961), for the purposes of giving effect to the Faceless Appeal Scheme, 2020 made under sub-section (6B) of section 250 of the Act, the Central Government hereby makes the following directions, namely:- 1. The provisions of clause (16A) of section 2, section 120, section 129, section 131, section 133, section 134, sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 such order, in any one Regional Faceless Appeal Centre through an automated allocation system, for conducting review of such order; (xx) the appeal unit shall review the draft order, referred to it by the National Faceless Appeal Centre, whereupon it may decide to,- (a) concur with the draft order and intimate the National Faceless Appeal Centre about such concurrence; or (b) suggest such variation, as it may deem fit, to the draft order and send its suggestions to the National Faceless Appeal Centre; (xxi) the National Faceless Appeal Centre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 thereafter final appellate order is passed by NFAC(XXii,XXiii and XXiv of notification ) .Thus enough safeguards were provided by the notification with a view to achieve its objects of impart consistency , efficiency, transparency and accountability. 12. As provided by the notification, order passed by NFAC, subject to challenge before the income tax tribunal having the jurisdiction over the jurisdictional Assessing Officer. 13. In the case on hand, the assessing officer is situated within the jurisdiction of Income Tax Appellate Tribunal, Agra,(falling within the jurisdiction of Allahabad High Court). 14. The jurisdiction of the Income Tax Appellate Tribunal, A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, the High Courts have power of superintendence over all Courts and tribunals in their respective jurisdiction. Thus, it is implied that all Courts and Tribunals in the respective State will be bound by the decisions of the High Court.(See: East India Commercial Co. Ltd. v. Collector of Customs, AIR 1962 SC 1893; Prakash Chandra Pathak v. State of Uttar Pradesh, AIR 1960 SC 195; and Raval & Co. v. K G Ram Chandran, AIR 1974 SC 818). The full form of the principle is "Stare decisis et non quieta movere", which means "stand by decisions and do not move that which is quite". There are vertical and horizontal stare decisis. Thehorizontal one is a rule of prudence, and may be diluted by factors e.g. manifest error, distin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 precedents. It provides equality in treatment and thus prevents bias, prejudice and arbitrariness and avoids inconsistent / divergent decisions. It prevents uncertainty and ambiguity in law [Union of India v. Raghubir Singh, (1989) 2 SCC 754; and Justice R V Raveendran : "Precedents - Boon or Bane", (2015) 8 SCC 1 (J)]. The courts have to nurture, strengthen, perpetuate and proliferate certainty of law and not deracinate its clarity (Vide: State of U.P. v. Ajay Kumar Sharma, (2016) 15 SCC 289)......................................." 17. From the above said article it is clear that the decision of the High Court are binding on the courts/ tribunal situated within the territorial jurisdiction of the High Court. 18. Binding nature of jurisdictional High Court decision on the tribunal working under it umbrella , traces ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erately 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 jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department-in itself an objectionable phrase-and is the subject-matter of an appeal canfurnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assesseesand chaos in administration of tax laws." 23. The Hon'ble Calcutta High Court in Voest Alpine Ind. GmbH v. ITO &Ors. (246 ITR 745, 749 Cal.) held that it is well settled p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her 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 does not specifically exclude its jurisdiction in case of orders passed by the Tribunal at Mumbai or provide for the court entertaining appeals dependent upon the seat of the Assessing Officer at the time of filing the appeal. In fact, the inter se, distribution of Appeals between the different benches of this court is on the basis from where an appeal originated. Therefore, the Appellate Court from which an appeal would lie from the order of the Tribunal would necessarily be the High Court exercising jurisdiction over the places where the Tribunal which passed the order, is situated. 14. The above plain reading of the provisions is also supported by jurisdictional/constitutional principles. The Tribunal which passes orders is bound by the orders passed by the jurisdictional High Court where the Tribunal is situated. In the above view, in the present facts, the Tribunal which passed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 this Act" would not cover appeals under the Act before the High Court as it would run counter to Section 260A and 269 of the Act which provides specifically for the High Court which would have jurisdiction over the orders of the Tribunal. Thus, the words "all proceedings under this Act" have to be harmoniously read with the other provisions of the Act and have to be restricted only to the proceedings under the Act before the authorities listed in Section 116 of the Act. Any other interpretation would render Section 269 of the Act otois. In fact, the Andhra Pradesh High Court in case of CIT v. Parke Davis (India) Ltd. [1999] 106 Taxman 16/239 ITR 820 has dealt with this very submission in the context of a Reference application and inter alia after examining the explanation to Section 127 held as under: - "The words 'All proceedings under the Act in respect of any year' occurring in the Explanation cannot ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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:- "14. A conjoint reading of the aforementioned provisions makes it evident that the Director General or Chief CIT or CIT is empowered to transfer any case from one or more AOs subordinate to him to any other AO. It also deals with the procedure when the case is transferred from one AO subordinate to a Director General or Chief CIT or CIT to an AO who is not subordinate to the same Director General, Chief CIT or CIT The aforementioned situation and the definition of expression 'case' in relation to jurisdiction of an AO is quite understandable but it has got nothing to do with the territorial jurisdiction of the Tribunal or High Courts merely because Section 127 of the Act dealing with transfer has been incorporated in the same chapter. Therefore, the argument raised is completely devoid of substance and we have no hesitation to reject the same." 18. On interpretation of Section 127 of the Act, it held that it has nothing to do with the territorial jur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 centralizedNFAC have chooses to contemptuously ignore the binding precedent of Jurisdictional High Court and have applied the non-jurisdictional High Court decision to deprive the assessee from the benefit of the judicial High Court decision. 29. Predictability and transparencies are important hall mark of matured Justice delivery system .The assessee ( litigant ) are expected to arrange their affairs of doing the business , profession or trade on the basis of the applicable Income Tax Act, applicable Rules thereof and binding precedent of the High Court of the state in which, assessee is situated and of Hon'ble SC . On the basis of the applicable judgement and law, the assessee are drawing their profit and loss account and based on P&L account assessee are filing the return of income. The dream of the Hon'ble Prime Minister of "Honoring theHonest " would only be accomplished if, the revenue treat the assessee Honorably and apply the applicable laws of the High court in right earnest .If the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 system of accounting, even after collecting contribution from his employee, and even without remitting the amount to Regional Provident Fund Commissioner, he i.e. Assessee (employer) would have claimed deduction as 'business expense', by merely making a provision to that effect in his books of account. A similar discrepancy was noticed in the context of sales tax where Assessee collected the same and other indirect taxes, from their respective customers, and claimed deduction only by making provisions in their books, without actually remitting the amount to Exchequer. To curb this practice, Section 43B was inserted w.e.f. 01.04.1984 whereby mercantile system of accounting with regard to tax, duty and contributions to welfare funds stood discontinued. Now it became necessary for Assessee (employer) to account for the aforestated items, not on mercantile basis, but on cash basis. W.e.f. 01.04.1988, Section 43B was again amended and a Proviso was inserted. It provided, inter alia, in the contex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- 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/-. This amount of short fall was treated by Assessing Officer as income of Assessee vide Section 2(24)(x) read with Section 36(1)(va) of Act 1961. Assessing Officer also added Rs. 1,93,55,580/- being the amount of short fall towards employers contributory provident fund and disallowed the same under Section 43B of Act 1961. He also disallowed the said amount of Rs. 1,93,55,580/- from expenses claimed by Assessee for the A.Y. in question i.e. 2005-06 as per provisions under Section 43B. Dissatisfied with assessment order, Assessee preferred appeal before CIT(A) who vide order dated 25.06.2009 partly allowed the same and deleted disallowance of Rs. 24,89,41,130/- (short fall in employees contribution to provident fund) and Rs. 1,93,55,580/- (short fall in employers contribution to provident fund) observing that employees contribution/employers contribution was deposited before filing Return under Section 139(1) of Act 1961 for the relevant period. Revenue, in its turn, preferred appeal before Tribunal. Relying on judgment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amended." 19. That is how Gujrat High Court held that Section 43B would not be attracted in a case where dispute relates to employees contribution only. Section 43B would be confined only to employers contribution. It further said: "Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees' account in the relevant fund or funds on or before the due date mentioned in the Explanation to Section 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in Section 28 of the Act." 20. Gujrat High Court distinguished judgment of Alom Extrusions Ltd. (supra) on the ground that therein actual dispute relates to employers' contribution and whether amendment in Section 43B by Finance Act, 2003 would operate retrospective or not, Supreme Court had no occasion to consider deduction with reference to Section 36(1)(va). For the same reason Gujrat High Court dissented with the judgments of Rajasthan High Court in CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2014] 366 ITR 163/[2013] 217 Taxman 64 (Mag.)/35 taxmann.com 616, Punjab & Haryana High....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pay such sum was incurred, and evidence of such payment is furnished by Assessee along with such Return. Court then said: "In short, this provision states, notwithstanding anything contained in any other provision contained in this Act, a deduction otherwise allowable in this Act in respect of any sum payable by the assessee as an employer by way of contribution to any fund such as provident fund shall be allowed if it is paid on or before the due date as contemplated under Section 139(1) of the Income-Tax Act. This provision has nothing to do with the consequences, provided for under the PF Act/PF Scheme/ESI Act, for not depositing the "contribution" on or before the due dates therein." (Emphasis added) 22. It also said that the word "contribution" used in clause (b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribution is deposited on or before due date for furnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is entitled for deduction. 23. Though in a short judgment, but Punjab & Haryana High Court in Hemla Embroidery Mills (P.) Ltd. (supra) not only followed Alom Extrusions Ltd. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o tax, contributions etc. With induction of Section 43B an Assessee could claim deduction on actual payment basis. By Finance Act, 1988 Parliament inserted first proviso w.e.f. 01.04.1988 which inter alia provides that any sum payable by Assessee by way of tax, duty, cess or fee, if payment is made after closing of accounting year but before date of filing of Return under Section 139(1), Assessee would be entitled to deduction on actual payment basis. This proviso did not include within its ambit, contributions under labour welfare statutes. By Finance Act, 1988, Second Proviso thus Second proviso was further amended by Finance Act, 1989 w.e.f. 01.04.1989. 31. Court held that Assessee/employer thus would be entitled to deduction only if contribution stands credited on or before due date given in the Act 1952 or Act 1948. Second proviso created difficulties, inasmuch as under Act, 1981, due date was after the date of filing of returns and thus industries made representations to the Ministry of Finance. Court, looking to the history of amendments held, it is evident that Section 43B, when enacted in 1984, commences with a non obstante clause. The underlying object being to disallow ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ributions i.e. employer and employee. Otherwise view taken by Gujrat High Court and followed by Kerala High Court, with great respect, we find expedient to dissent therewith." 32. Further we may rely on the coordinate Bench decision in the matter of R K P Company [2016] 71 taxmann.com 257 (Raipur - Trib.), which had succinctly laid down concept of Binding precedentin case of various conflicting high court decision as under : "7. As for Hon'ble Kerala High Court's decision in the case of Thomas George Muthoot (supra), undoubtedly, outside the jurisdiction of Hon'ble Kerala High Court and outside the jurisdiction of Hon'ble Delhi High Court- which has decided the issue in favour of the assessee, there are conflicting decisions on the issue of restrospectivity of second proviso to Section 40(a)(ia). It is thus evident that views of these two High Courts are in direct conflict with each other. Clearly, therefore, there is no meeting ground between these two judgments. The difficulty arises as to which of the Hon'ble non jurisdictional High Court is to be followed by us in the present situation. It will be wholly inappropriate for us to choose views of one of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case and looking to the nature of the provisions with which we are presently concerned, the view expressed by the Hon'ble Delhi High Court in the case of Ansal Landmark Township (P.) Ltd. (supra), which is in favour of assessee, is required to be followed by us. Revenue does not, therefore, derive any advantage from Hon'ble Kerala High Court's decision in the case of Thomas George Muthoot (supra)." 33. Further the Apex Court deprecated this practice of not following the settled legal proposition and unsettling the legal issues in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., AIR 1997 SC 2477, observing as under:- "When a position, in law, is well settled as a result of judicial pronouncement of the Court, it would amount to judicial impropriety to say the least, for the subordinate Courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate Courts in not applying the settled principles and in passing whimsical orders which necessarily ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Supreme court had held "14. Courts across the legal system - this Court not being an exception - are choked with litigation. Frivolous and groundless filings constitute a serious menace to the administration of justice. They consume time and clog the Productive resources which should be deployed in the handling of genuine causes are dissipated in attending to cases filed only to benefit from delay, by prolonging dead issues and pursuing worthless causes. No litigant can have a vested interest in delay. Unfortunately, as the present case exemplifies, the process of dispensing justice is misused by the unscrupulous to the detriment of the legitimate. The present case is an illustration of how a simple issue has occupied the time of the courts and of how successive applications have been filed to prolong the inevitable. The person in whose favour the balance of justice lies has in the process been left in the lurch by repeated attempts to revive a stale issue. This tendency can be curbed only if courts across the system adopt an institutional approach which penalizes such behavior. Liberal access to justice does not mean access to chaos and indiscipline. A strong message must be co....