TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 560
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..... 7,60,410/- which was processed U/s 143(1) of the IT Act and in terms of intimation dated 16.10.2019 issued by CPC, it made disallowance of Rs. 5,28,162/- towards employee's contribution towards ESI and PF. On appeal, the ld. CIT(A)/ NFAC has confirmed the disallowance made U/s 143(1) on account of assessee's failure to pay the employee's contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) of the Act. 4. Being aggrieved by the order issued U/s 154 of the IT Act, the assessee preferred an appeal before the ld. CIT(A). The assessee filed complete details of the entire payments i.e. employee's PF & ESI contribution paid before the due date of filing of return of income which are produced in CIT(A) order at pages 2 to 4. 5. In first appeal the assessee carried the matter before the CIT(A) who confirmed the disallowance made by AO by observing as under:- "8. I view of the aforesaid, it is amply clear that even prior to insertion of Explanation 2 in section 36(1)(va) and Explanation 5 in section 43B by the Finance Act, 2021 w.e.f. 01.04.2021, section 43B will not apply to employees contributions to PF, ESI etc as claimed by the appellant. In case contribu....
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....3. The only issue is that the addition of Rs. 5,28,160/-being the late payment of employees contribution of PF and ESI which were disallowed under section 36(1)(va) of the Act. c) The AR for the assessee requests that Ld. AO has grossly erred in deciding the debatable issue viz. disallowance made under section 36(1)(va) of the Act in 143(1)(a). Further, there are divergent views being expressed by various High Courts on late payment of PF & ESI. As against the decision in the case of Gujarat State Road Transport Corporation (supra), SLP filed by the assessee before the Hon'ble Apex Court was pending, therefore, the Ld. AOwas totally not correct in making the additions made in the assessment framed under section 143(1) of the Act, wherein debatable issues cannot be considered. d) The said intimation is in the form of calculation in tabulated columns running into nine pages. There are two main columns; one column description showed "as provided by Taxpayer in Return of Income" and another column showed "As computed under section 143(1)". There is no description in this intimation or explanation/note why such disallowance or addition made by the CPC in the 143(1) proceedings....
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....tion 143(1)(a) make it very clear that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Your honour, in the case of the assessee, no intimation was given to the assessee for making any adjustment or disallowance either in writing or in electronic mode. Thus, the CPC center has failed to follow the first proviso to section 143(1)(a) of the Act. f) Your honour can verify that in the intimation made under section 143(1), CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a). Therefore, your honour, the intimation issued under section 143(1) dated 16-10-2019 is against the first proviso to section 143(1)(a), and therefore, the entire 143(1) proceedings is invalid in law. 3. The above addition has been made by the Ld. A.O. on the basis of amendment in Sections 36(1)(va) as well as 43B vide Finance Act, 2021. The staled adjustment made in summary proceedings u/s 143(1) of 1961 Act is bad in law and fact as the scope given is restricted and limited scope of proceedings u/s 143(1).The A/R submits as u....
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.... a) of an item, which is inconsistent with another entry of the same or some other item in such return; b) in respect of which, information required to be .furnished under this act to substantiate such entry has not been solarnished; or c) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. 28.4. Further, it is clarified that above adjustments would be made only in the course of computerized processing without any human interface. In other words, the software would be designed to detect arithmetical inaccuracies and internal inconsistencies and make appropriate adjustments in the computation of the total income. For this purpose, the Department is in the process of establishing a system for Centralized Processing of Returns. To facilitate this, sub-sections (1A), (1B) and (IC) have been inserted in section 143 to provide that - a) the Board may make a scheme with a view to expeditiously determine the tax payable by, or refund due to, the assessee; b) the Central Government may issue a notification in the Official Gazette, directing that any of the prov....
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....he foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses of clause (a) are found, appropriate adjustments are to be made. On the other hand, the exercise of power under sub-section (2) of section 143, leading to the passing of an order sub-section (3) thereof, is to he undertaken, where it is considered necessary or expedient to ensure that the assessee: has not understated the income, or - has not computed excessive loss, or - has not under-paid the tax in any manner. The issuance of notice and consequent proceedings are premised on any of the aforesaid three postulates. In other words, the return filed by the, assessee itself calls for or requires a further probe and deeper consideration. The guiding principle is to ensure that the income is not understated or the loss is not overstated, or the tax is not under paid in any manner. Upon issuance of notice, the assessee is entitled to produce evidence in support of his case. After hearing the assessee and considering the evidence so produced, by an order in writing, assessment of total income or loss is to be made. [Para 121 The nature of exercise of power under sub-se....
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....TA 1540/De1/2020 order dated 30.06.2021. Further, relied the judicial pronouncement on limited & restricted scope of sec 143(1):Bombay high court 196 ITR 55; Calcutta High court 228 CTR 72) d) Thus on the above ground the A/R submits that if adjustment on account of employee contribution disallowance is made in intimation u/s 143(1) then same is bad in law and facts in light of above jurisprudence. b) Your honour, kindly notice in this factual backdrop that the legislature has not only incorporated necessary amendments in Sections 36(1)(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued a Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the foregoing legislative amendments have proposed employers' contribution/ disallowance u/s 43B as against employee's contribution u/s 36(1) (va) of the Act; respectively. Hence, your honour the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, and therefore the A.R request that the impugned disallowance is not sustainable in view of all these latest developments. c) Vide Finance Bill 2021, the Go....
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....ng the return of income. Section 143(1)(a)(iv) provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, then such return shall be processed and the total income or loss shall be computed after making the adjustments for disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. 20. (b) Details of contributions received from employees for various funds as referred to in section 36(1)(va): Serial number Nature of fund Sum received from employees Due date for payment The actual amount paid The actual date of payment to the concerned authorities f) Your honour, a cursory look at the above table shows that the auditor is required to report only the facts of the due date of the payment and the actual date of the payment. Nowhere the auditor is required to indicate the amount of disallowance of expenditure on the above counts. Therefore, when the CPC makes the adjustment by disallowing the late payment, then it can be said that the revenue is wrong in invoking the provision of section 143(1)(a)(iv) of the Income Tax Act on the fallacy of p....
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....tatutes, a decision of another High Court should be followed, though a judge may have a different view. vii. In State of Orissa v. M. D. Illyas [2006] 1 SCC 275 the Supreme Court has held that a decision is a precedent on its own facts and that for a judgment to be a precedent it must contain the three basic postulates. A finding of material facts, direct and inferential. An inferential finding of fact is the inference which the judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the individual effect of the above. viii. Having said that, let us observe whether the Doctrine of Judicial Discipline or the binding effect of a Judicial Precedent is discernible from the above judgments w.r.t the disallowance of employees' contribution to PF, ESIC etc. u/s 36(1)(va) and the allowance of the same u/s 43B. h) Your honour, the Explanation 5 was inserted by the Finance Act, 2021, with effect from 01.04.2021 and has not been made retrospectively so the law laid down by the Jurisdictional Hon'ble High Court will apply Hence, in view of the decision of the....
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....ewable Energy Corp. Ltd .- August 6, 2019 (Raj HC) Contribution towards provident fund - HELD THAT:- It is not in dispute that this Court in Commissioner of Income Tax vs. M/s. State Bank of Bikaner and Jaipur [2014) Rajasthan High Court] binds and covers the dispute against the revenue. However, the learned counsel for the revenue informs that the Special leave to Petition filed by the revenue against the aforesaid judgement is pending before the Supreme Court. Even though these questions with respect to interpretation of Section 43B of the Act were answered against the revenue, but they are subject to the final order of the Supreme Court on these questions. ii. Shailendra Garg, C/O Garment Craft India (P) Ltd. February 15, 2018 (Raj HC) Delayed payment of PF & ESI contribution- ITAT deleted the addition-held that :- As decided in State bank of Bikaner and Jaipur [2014(5) TMI 222- Rajasthan High Court] where the PF and/or EPF, CPC, GPF etc., if paid after the due date under respective Act but before filing of the return of income u/s 139(1), cannot be disallowed u/s 43B or u/s 36(1)(va) of the IT Act. iii. Other Raj HC decision: All in favour of the assessee 1. CIT ....
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....diture in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. 31. Section 43B falls in Part-V of the IT Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas Sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, Section 40 (which too starts with a non obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head "Profits and Gains of Business and Profession". Likewise, Section 40A(2) opens with a non-obstante clause and spells out what expenses and payments are not deductible in certain circumstances. Section 41 elaborates conditions which apply with respect to certain deductions which are otherwise allowed in respect of loss, expenditure or trading liability etc. If we consider this scheme, Sections 40- 43B, are concerned with and enact different conditions, that the tax a....
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....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 introduci....
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....d to in clause (b) unless such sum has actually been paid during the previous year on or before the due date. The due date for the purposes of this proviso shall be the due date as under Explanation to clause (va) of sub-section (1) of Section 36." 37. It is evident that the intent of the lawmakers was clear that sums referred to in clause (b) of Section 43B, i.e., "sum payable as an employer, by way of contribution" refers to the contribution by the employer. The reference to "due date" in the second proviso to Section 43B was to have the same meaning as provided in the explanation to Section 36(1)(va). Parliament therefore, through this amendment, sought to provide for identity in treatment of the two kinds of payments: those made as contributions, by the employers, and those amounts credited by the employers, into the provident fund account of employees, received from the latter, as their contribution. Both these contributions had to necessarily be made on or before the due date. 38. This court had occasion to consider the object of introducing Section 43B, in Allied Motors. The court held, after setting out extracts of the Budget speech of the Finance Minister, for 1983-8....
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....e treatment as delayed payment of taxes and interest, i.e. they should be allowed in the year of account. Since the objective of the provision is to ensure that a tax-payer does not avail of any statutory liability without actually making a payment for the same, we are of the view that these objectives would be served if the deduction for the statutory liability relating to labour are allowed in the year of payment. The complete disallowance of such payments is too harsh a punishment for delayed payments. Therefore, we recommend that the deduction for delayed payment of statutory liability relating to labour should be allowed in the year of payment like delayed taxes and interest." Based on the report, the Union introduced amendments to the IT Act, including an amendment to Section 43B; the memorandum explaining the provisions in the Finance Bill, 2003 in the matter of Section 43B. inter alia, reads thus: "The Bill also proposes to provide that in case of deduction of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees shall be allowed in computing the income of the....
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....employees constituted income. This is the reason why every assessee(s) was entitled to deduction even prior to 1-4- 1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer(s)] is maintaining his books on accrual system of accounting, even after collecting the contribution from his employee(s) and even without remitting the amount to the Regional Provident Fund Commissioner (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of accounts. The same situation arose prior to 1-4-1984, in the context of assessees collecting sales tax and other indirect taxes from their respective customers and claiming deduction only by making provision in their books without actually remitting the amount to the exchequer. To curb this practice, Section 43-B was inserted with effect from 1-4-1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and, under Section 43-B, it became mandatory for the assessee(s) to account for the aforestated....
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....the scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on 30-6- 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1-4- 1984 *** 22. It is important to note once again that, by the Finance Act, 2003, not only is the second proviso deleted but even the first proviso is sought to be amended by bringing about a uniformity in tax, duty, cess and fee on the one hand vis-à-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003 is retrospective in ....
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....formity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we 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 effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(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 n....
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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. 20 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 21 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 rule must be strictl....
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....State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as "Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]", for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legi....
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....ficance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass must....
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....cular 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 deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such 34 interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed." It has finally been held by Hon'ble Court that there is clear distinction between employer's contribution which is its primary liability under law [in terms ....