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2023 (4) TMI 560
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.....Y. 2018-19 on 30.10.2018 declaring total income of Rs. 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 contribut....
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....e intimation, the assessee filed an appeal before Your Honour vide acknowledgement no. 1674212958 on date 23.01.2023. 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....
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....h incorrect claim is apparent from any information in the return, etc. Thus, it is clear that a return can be processed u/s.143(1) by making adjustments on six types of adjustments only. The first proviso to section 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 a....
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....the return. 28.3. Further, the meaning of the term "an incorrect claim apparent _from any information in the return" has been defined by inserting an explanation in the said section. This term shall mean such claim on the basis ()fan entry, in the return:- 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 (....
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....ble is to he given and the net amount payable or to he refunded, is to he computed. The intimation to be generated under clause (d) is on the basis of such exercise and if any refund is due, the same has to be granted in terms of clause (e). Thus, at every stage in sub-section (1) the return submitted by the assessee forms the 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 i....
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....per the first proviso to section I43(1)(a) . Further, the NFAC order is also silent about the intimation to the assessee. Therefore, we find that the intimation issued under section 143(1) dated 19.10.2019 is against first proviso to section 143(I)(a), and therefore, the entire 143(1) proceedings is invalid in the bench ITAT decision in Maskat Technologies Pvt Ltd decision in ITA 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' con....
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....principle is requested to apply for interpretation of an amendment to section 43B of the Act. e) The addition has been made u/s 143(1)(a). Your honour kind attention is invited to the scope of addition under section 143(1)(a) i. Of late the CPC is making additions to the returned income of assessee u/s 143(1)(a)(iv) on account of late deposit of employee contribution to PF and ESI while processing 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 tha....
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....tatutory provision, it would be a wise judicial policy and practice not to take a different view, except under exceptional circumstances, and that too, by a speaking order. v. The decision of Jurisdictional High Court decision, even if not correct, is binding on the Revenue authorities within the State. vi. Though legally, the judgment of another High Court is not a binding precedent, judicial comity or judicial discipline is invoked by a court that in respect of interpretation of Central Statutes, 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, ....
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....en there is a decision of a High Court interpreting a statutory provision, it would be a wise judicial policy and practice not to take a different view, except under exceptional circumstances, and that too, by a speaking order. The decision of Jurisdictional High Court decision, even if not correct, is binding on the Revenue authorities within the State. k) Your honour, kind attention is invited to the following High Court decision in favour of deleting the addition made by the Ld. A.O. on the above ground :- i) Rajasthan Renewable 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 ....
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....n put to rest by Hon'ble Court in revenue's favor as under: - "30. The factual narration reveals two diametrically opposed views in regard to the interpretation of Section 36(1)(va) on the one hand and proviso to Section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament's endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure 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 ....
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....accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament 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&#....
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.... Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head "profits and gains of business or profession" it will be assessed under the head "income from other sources." 36. Significantly, the same Finance Act, 1987 also introduced provisos to Section 43B, through amendment (clause 10 of the Finance Bill). The memorandum explaining the Bill, pertinently states, in relation to second proviso to Section 43B that: "...The second proviso seeks to provide that no deduction shall be allowed in regard to the sum referred 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....
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....year. However, under the provisions payment of taxes and interest to State and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date of payment of the about related liability. Trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same 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 p....
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....ith incurring of a liability, can allow for a deduction." 43. This condition, i.e., of payment of actual amount on or before the due date to enable deduction, continued for 14 years. By the amendment of 2003, the second proviso was deleted. This court interpreted the law, in the light of these developments, in Alom Extrusions. The court considered the effect of omission of the second proviso, and observed as follows: "10. "Income" has been defined under Section 2(24) of the Act to include profits and gains. Under Section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund/superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for the welfare of such 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 withou....
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....t, 2003 applicable only with effect from 1-4-2004. *** 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting 25 the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4- 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4- 1988. 19. Secondly, it may be noted that, in Allied Motors (P) Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , 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 ca....
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....s the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. The court observed inter alia, that: "15. ...It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity 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 ....
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.... a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd. 1961 (2) SCR 189.)" 47. Likewise, this court underlined the rule, regarding interpretation of taxing statutes, in Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana. 18 Recently, in Union of India & Ors. vs. Exide Industries Limited & Ors, this court examined, and repelled a challenge to the constitutionality of Section 43B, especially the provision requiring actual payment, in respect of leave encashment benefit of employees. The court observations in this regard are relevant: *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 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 r....
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....victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ "265. Taxes not to be imposed save by authority of law.-No tax shall be levied or collected except by authority of law."] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. *** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346] and 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....
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....tion was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance 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....
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....the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular 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....