TaxTMI 
TaxTMI 
2022 (5) TMI 824
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..../- being ESIC and EPF, being a business expenditure incurred for the purpose of business having been paid before the filing of the return of income, the same being an allowable business expenditure, the disallowance by the Assessing Officer, and upheld by the CIT(A)/NFAC be deleted. 2. The brief facts of the case are that the assessee filed its return of income declaring an income of Rs. 5,82,600/- on 10.10.2019. The Assessing Officer completed the assessment, assessing the income of the assessee at Rs. 7,45,830/-, disallowing a sum of Rs. 1,63,230/- by applying the provisions of section 36(1)(va) of the I.T. Act. 3. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), NFAC, vide his/her impugned order, confirmed the order of the Assessing Officer. The assessee is in further appeal before this Tribunal. 4. The Ld. Counsel for the assessee, at the outset, submitted that the issue involved relates to the addition sustained by Ld. CIT(A) of Rs. 1,63,230/- representing employees' shares towards contribution to ESIC & EPF, which the assessee had deposited beyond the due date mentioned in the provisions of t....
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....trusions Ltd., (2009) 319 ITR 306, 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 Commissioner of Income Tax vs. 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 Commissioner of Income Tax vs. Gujarat State Road Transport Corporation, (2014) 366 ITR 170. 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/. This amount of short fall was tr....
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.... employees 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 Gujarat High Court held that Section 43B would not be attracted in a case where dispute relate....
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....whether Tribunal was justified 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(va) of Act 1961." The Assessee's counsel relied on earlier judgment of Karnataka High Court in Commissioner of Income Tax vs. Spectrum Consultants P. Ltd., (2014) 2 ITROL 622 while counsel for Revenue attempted to pursue to take a different view following decision of Gujarat 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 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 ....
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....ributions', whether by employer or employee. 26. The question, whether benefit under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of Income Tax vs. 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 t....
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....e welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso 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, Rajasth....
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....nce Act, 2021, wherein Explanation 5 was inserted, which reads as under: "43B.................... ............................ Explanations-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applied." Although, on perusal of the above amendment by Finance Act, 2021, it transpires that the said explanation was inserted by way of removal of doubt to clarify the law as existed on the statute so far as employee contribution received by employer from employee which is to be deposited to the credit of employee with PF fund on or before the due date as provided in statute governing PF, to enable the employer to claim deduction u/s. 36(1)(va) of the 1961 Act read with Section 2(24)(x) of the Act, and no deduction shall be allowed by virtue of Section 43B in case of delayed deposit beyond the time stipulated for deposit under relevant statute governing PF by virtue of being hit by Section u/s. 36(1)(va) of the Act as it is stated i....
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....essment year 2021-22 and subsequent assessment years. We are presently concerned with ay: 2005-06. The relevant clause to Memorandum to Finance Bill, 2021 is reproduced hereunder: "Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head 'Profits and gains of business or profession'. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's acco....