TaxTMI 
TaxTMI 
2022 (3) TMI 1535
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....ssly arbitrary, highly unjust, unwarranted, perverse, wrong, illegal and bad in law. 2- Because in any view, the above-impugned Disallowances were by the Ld. CIT(A) (NFAC) in summary and prejudiced manner, without even considering and refuting the Judgments including that of Jurisdictional Hon'ble "Allahabad High Court" cited in favour of the Appellant. The impugned Order of Ld. CIT(A), NFAC is perverse, in the light of M/s Sagun Foundry (P) Ltd. vs CIT (2017) 78 Taxmann 47 vide ITA No.41& 42/Agr/2021 of A.Y.2018-19 and A.Y. 2019-20 M/s Mahadev Cold Storage. vs. Assessing Officer, Circle-4(1)(2), Aligarh and ITA No.20& 2I/Agr/2021 of A.Y.2018-19 & 2019-20 Vinod Thanwerdas vs. Assessing Officer Ward-1(1)(5), Agra. 1) At the outset the Ld.AR for the assessee had submitted that the CIT(A) had wrongly concluded that the amended provision was retrospective in nature and therefore had wrongly denied the benefit of section 43B to the assessee. It was submitted that the amendment to the provision was creating a new liability and therefore it was not retrospective rather it was prospective nature he relied upon the decision of the coordinate bench in the matter of M/s Mahadev co....
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....tion 1 as so numbered, the following Explanation shall be inserted, namely: - Explanation 2.-For the removal of doubts, it is hereby clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;'." The finance Act, 2021 has also amended section 43, as under- "In section 438 of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely: "Explanation 5. - 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 applies." 4.3 Thus, the Finance Act, 2021, has amended section 36 of the Income-tax Act, relating to other deductions. Sub-section (1) of the said section provides for allowing of deductions provided for in the clauses thereof for computing the income referred to in section 28 of the said Act. 'Clause (va) of the said sub-section provides for allowance of deduction for any sum rece....
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....ssue. Hon'ble Supreme Court in Para 15 of the decision has quoted the following stated the position regarding retrospective operation of statutes as follows:- The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court. For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law or the meaning or effect of any statute. Such Acts are usually held to be retrospectives. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to be substa....
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....ct, 2021 applies to the issue in the instant appeal also. The amendment declares that provisions of section 43B does not apply and deemed to have never been applied for the purpose of determining the due date. Therefore, in view of the above discussions, the sum of Rs 1,85,482/- being the employee's contribution to the PF and ESI, not deposited by the appellant within the due date as per section 36((l)(va) of the I T Act, 1961, cannot be allowed and accordingly, this ground is dismissed." 3) it was submitted by the Ld.DR that the order passed by the CIT(A) is required to be upheld. The Ld DR had also filed the written submissions to the following effect:- A Distinction between statutory liability and contractual liability reasons for insertion of sec 438 vide Kedarnath Jute 82 ITR 363 Pope the King Match Factory 50 ITR 495 Mad high court affirmed by supreme court Kalinga Tubes ltd 218 ITR 164 Supreme court A statutory liability arises at the stage of obligation to pay, irrespective of the whether it is disputed .Thus an assessee following a mercantile system of accounting would be eligible for deduction simply on the accrual of the liability i.e. at the sta....
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....ch the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee alongwith the return. FIRST PROVISO AMENDED WEF 1-4-2004 FINANCE ACT 2003 WORDS IN PARENTHESES REMOVED Second proviso (deleted vide finance Act 2003 wef 10-4-2004) read as "Provided further, that no deduction shall. in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or be issue of cheque or draft or by any other mode on or before the due date as defined in the explanation below clause (va)of subsection (1) of section(36) Thus, prior to amendment 43B(b)referred to be paid as per to employers contribution to a provident nine time limit specified superannuation fund or gratuity fund for employees or any other employee welfare fund contribution as defined in the Act governing the relevant fund. Section 36(iv) any sum paid by the assessee as an employer by way of contribution to a recognised superannuation fund. Language of 36(iva) any sum paid by an assessee as an employer by way of contribution towards a pension scheme 36(v) any sum paid by the assessee as an employer....
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....nbsp; EMPLOYEES WELFARE FUND (this referred to employers payment of his contribution) PARA 8 OF THE SUPREME COURT, WITH RESPECT TO THE AMENDMENT IN PROVISO FIRST . THE TAX DUTY AND CESS AND FEE WAS EQUATED WITH THE EMPLOYERS CONTRIBUTION i.e. with respect sec 43B (b) not sec 36 (va). Further para 9 of ALOM EXTRUSIONS REFERS ONLY TO THE EXTENT OF SECOND PROVISO 43B(b). G. THUS LANGUAGE OF STATUTE AND SUPREME COURT REFERS TO THE REMOVAL OF ANOMALY ONLY IN RESPECT OF 43B(b) EMPLOYER'S CONTRIBUTION. H. FURTHER, Controversy Assessee's favour Sagun Foundries Allahabad High Court 145 DTR 0285 Rajasthan High Court said bank & banker and Jaipur 43B(b) u/s 36(va) ITAT is perverse should be 43B(b) read with time limits as u/s 36(va) 43B(b) to 36(iv) not 36(va) In Revenue's favour High Court 06.09.2018 Bharat Hot....
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.... AS THE DATE FROM WHICH THE STATUE IS INTENDED TO BE OPERATIVE. D. Para 10 - Planman HR Private Limited ITAT Delhi "Vinay Cement" SC SLP dismissed was in the context of 43B insertion distinguishable on facts. 4) 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 the hearing by both parties. At the outset, it may be relevant to mention here that recently in the matter of Mahadev Cold storage, the coordinate bench had the occasion to deal with the issue of disallowance under section 43B of the act and after elaborate examining the law on the subject, it was held that the disallowance under section 43B of the act is not permissible if the assessee had made the contribution before the due date of filing of the return of income. The same principle, continues to hold good for issue under consideration as the assessment years under consideration, are much prior to the year of amendment which was inserted in the Act by Finance Act 2021, which had provided the consequence of not depositing the amount within the time provided by the act resulting into the disallowance of th....
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....to have been applied for the purpose of determining the 'due date' under this clause' 18. We find that this amendment has been brought in the Act to provide certainty about the applicability of Section 43B in respect of belated payment of employees' contributions. In order to test whether the amendment brought in later is retrospective or not one has to apply the test as laid by the Hon'ble Supreme Court in the case of M/s Snowtex Investment Ltd. (supra) wherein the Hon'ble Supreme court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. and held that the intent of the Parliament/legislature need to be looked into for ascertaining whether the amendment should be retrospective or not. In Vatika Township Ltd. (supra) the Hon'ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislative intent; because it has to be borne in mind that Parliament/legislature is aware of three concepts before an amendment is brought in, which can be discerned from reading of the "Notes on Clauses" to the Bill which are (i) prospective amendment with effect from a fixed date; ....
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....we are of the view that the amendment brought out by Finance Act 2021 does not apply to the assessment year under consideration. As far as the reliance of Revenue on the decision of Vedvan Consultants Pvt. Ltd. (supra) is concerned, we find that the various division Benches of the Delhi & other Tribunal have held the delayed deposits of PF/ESIC Contributions to be allowable expenditure if the same are deposited with the appropriate authorities before filing of return of income by the assessee. Further, it is settled law that when two judgments are available giving different views, then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon'ble Supreme Court. We therefore, following the decision rendered by Hon'ble Apex Court in the case of M/s. Vegetable Products Ltd. (supra) and AIMIL Ltd. (supra), are of the view that no disallowance u/s 36(1)(va) of the Act is warranted in the present case. We therefore direct the AO to delete the addition. Thus the assessee's ground is allowed." 7) Similarly in the matter of Prowiz Mansystems Pvt. Ltd., and others in ITA no 818/Del/2021 vide order dated 28/2/2022 (114 appe....
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....e is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the assessee/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) r.w.s. 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). Accordingly, the writ petition fails and the same is dismissed. KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015 THE COMMISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED The distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities. Considering section 36(1)(va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to ded....
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....ot allowable u/s 36(1)(va). The relevant portion is as under: "7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of....
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....(1)(va) read with Section 43B, a simi lar question came up for consideration before Gujarat High Court in Commissioner of Income-Tax v. 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 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. 200506 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 ....
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....he 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 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. Gujarat High Court distinguished judgment of Commissioner of Income-Tax v. 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 h....
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....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 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 deposi....
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....cantile 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 practise and it resulted in discontinuing mercantile system of accounting with regard to 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. 27. 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 ....
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....t 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 and Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both contributions i.e. employer and employee. Otherwise view taken by Gujarat High Court and followed by Kerala High Court, with great respect, we find expedient to dissent therewith. " 11. Thus, we find that the Judgment of Hon'ble Allahabad High Court has duly reflected on the judgments of various Hon'ble Courts and taken a considered decision on this issue. 2. With regard to the predentary value in deciding the issue before us, we have gone through the following judgments: The Hon'ble Allahabad High Court in K. N. Agarwal v. CIT 189 ITR 769 held that, "Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing officer and since he acts in a quasi judicial capacity, the discipline of such functioning demands that he should follow the decision....
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....nality and conclusiveness of the judicial proceedings, the 'precedents' have a remarkable role in the formation of judicial opinions, judicial orders and dispensation of justice. The concept of "Stare decisis et non quieta movere", which translates as 'to stand by things decided and not disturb settled points'. The doctrine of stare decisis, or binding precedent, is the principle by which judges are bound by decisions of superior courts. The principal abet in predictability, uniformity and judicial fairness. 1. We have also given considerable thought to the words of the Hon'ble Judges of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd vs. Union of India 1985 AIR 1585 wherein it was held that, "To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter A.M.Y. at page 18: "a Judge ought to be wise enough to know that he is fallible therefore everyday to learn: great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead: and courageous enough to acknowledge ....
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....2 declaring income at Rs. 7,95,430. During the assessment proceedings, the Assessing Officer (AO) found that the assessee had deposited employers' contribution as well as employees' contribution towards provident fund and ESI after the due date, as prescribed under the relevant Act/Rules. Accordingly, he made addition of Rs. 42,58,574 being employees' contribution under section 36(1)(va) of the Act and Rs. 30,68,583 being employers' contribution under section 43B of the Act. Felt aggrieved by this assessment order, the assessee preferred appeal before the CIT(A) who decided the same vide orders dated 15-7-2005. Though the CIT(A) accepted the contention of the assessee that if the payment is made before the due date of filing of return, no disallowance could be made in view of the provisions of section 43B, as amended vide Finance Act, 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the CIT(A) for rectification of the mistake. After having satisfied that payment had, in fa....
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....urt Order of 26th June, 2006 in ITA No. 2/05 and ITA No. 56/03 and ITA No. 80/03 of the High Court of Guwahati, Assam and it is order dated 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under :- 'In the present case we are concerned with the law as it stood prior to the amendment of section 43B. In the circumstances the assessee was entitled to claim the benefit in section 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return. The special leave petition is dismissed." 29. Thus, we find that the Co-ordinate bench of ITAT and the Hon'ble Jurisdictional high Court of Delhi have relied on the judgment of Vinay Cements Ltd. (supra). 7. Further, the Hon'ble Jurisdictional High Court of Delhi in the case of PCIT Vs. Pro Interactive Services (India) Pvt. Ltd. in ITA 983/2018 dated 10.09.2018 while dismissing the appeal of the Revenue held that "the legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is ....
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....rationalization of various provisions, the issue of clause (24) of Section 2 sub-clause (x), Section 36(1) clause (va), Section 43B with regard to provisions of sub-Section (1) of Section 139 have been dealt at length. The gist is as under: "Rationalization 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. Subsection (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 empl....
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....e (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date under this clause; and (i) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. " [Clauses 8 and 9] 33. Thus, the matter has been finally decided and the controversy has been put to rest. 34. Having gone through the Orders of the Co-ordinate Bench of Tribunal al lowing the delayed payment pertaining to employees contribution, Orders of the Co-ordinate Bench of Tribunal disallowing the delayed payment pertaining to employees contribution, Judgments of various Hon'ble Courts disallowing the delayed payment, Judgments of....