TaxTMI 
TaxTMI 
2022 (3) TMI 1536
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....nt grounds, thereby enhancing the taxable income of the assessee to Rs.5,24,86,600/- with an additional tax demand of Rs.1,60,51,630/-. 3. Aggrieved by the order of AO, the assessee challenged the additions made by the AO by filing an appeal with the first Appellate Authority i.e CIT(A)-1, Bhubaneswar. In process, the Ld CIT(A) had observed the matter and sum-up the same with a minor relief to the assessee vide his order dated 16.06.2017. 4. Dissatisfied with the decision of Ld CIT(A), the assessee preferred an appeal before the ITAT and has raised the following grounds: 1. Learned Assessing officer has added share application money of M/s Mahabali Enclave Pvt. Ltd, without considering the ground reality and basic facts, even though all the transaction are genuine and from credit worthy parties and within the group, done through bank. Hence the addition is liable to quashed. 2. Learned Assessing officer has added delayed payment of statutory dues to the extent of Rs.1, 60, 35,364/- paid before filling of return, without considering the facts and circumstances of the assessee business. Hence the addition is liable to be quashed. 3. Learned Assessing ....
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....f the CIT(A) was as under: - 2.2 I have considered the facts of the case, the reasons given by the AO to make the addition u/s.68 and the written submission of the assessee. The assessee in its written submission has referred to the decisions in the cases of Lovely Exports (P) Ltd. and Stellar Investment Ltd. of the Hon'ble Apex Court and also certain other decisions of various High Courts which are mainly based on the above decisions of the Hon'ble Apex Court. Relying on these decisions, the assessee pleads that since the identity of the party, i.e. M/s. Mahabali Enclage (P) Ltd. has been established, there is no need to prove its creditworthiness and genuineness of the transaction. It may be mentioned here that by way of an amendment by the Finance Act, 2012, a new proviso, being proviso-1 has been inserted w.e.f. 1.4.2013 (AY 2013-14) to section 68 of the Act providing that in the case of a company not being a company in which the public are substantial interested, if there is a credit consisting of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to....
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....spitalities Pvt Ltd & UP Bone Mills India Ltd. Delhi HC v) Vijay power generators Ltd & Director of Income Tax, Delhi HC 6.3 In conclusion to submission on this ground the assessee had stated on para 2 of page number 7 of its paper book, as under: Moreover, assessee is not required to provide any material for creditworthiness of the investors and if they are bogus investors or their income is less than the amount invested then the remedy to the AO is to 'open the assessment of the respective investors and cannot add the credit in the as undisclosed income in any circumstances. In the present case also assessee has proved the identity of all the investors by copy of PAN card Xerox, Annual Report, and Bank statement of the party. Therefore, assessee has fulfilled its onus cast upon him to prove the identity of shareholders and genuineness. Therefore, it is prayed your honor to delete the addition made with regard to share application money based on the facts and laid down principles." 6.4 We have considered the rival contentions, after going through the submissions and relevant material placed before us, it is revealed in the instant case that M/s Mahabali....
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..../- 7.1 Item no ii) and iii) were not pressed by the assessee while the same were decided by CIT(A), hence the same disallowances, under the non-prosecution, are treated as accepted by the assessee and hence are decided in favour of the revenue by upholding the order of CIT(A) on this issue. 7.2 Regarding item i) late payment of EPF contribution for Rs. 1,26,76,279/-, CIT(A) has mentioned in his order that the EPF contribution consists of employee's contribution of Rs. 59,30,423/- and employer's contribution of Rs. 67,45,856/-. 7.3 For employer's contribution CIT(A) has told that "so far as employer's contribution is concerned, there being no evidence to show that the same was paid before the due date of filing of the return, the disallowance u/s 43B is justified." However, on perusal of the order of AO it is clearly evident from the table of payment (reproduced hereunder for ready reference) of EPF that all such payments are made along with employee's contribution before the due date for filing of income tax return. Therefore, employer's contribution of Rs.67,45,856/- admittedly paid before the date of filing of return is allowable u/s 43B of the Income Tax Act. Table s....
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.... actual date of payment is enough for considering deduction, if such date falls before date for filing return but in absence of any amendment made to section 36(1)(va), both contributions, viz., 'employees' and 'employers' cannot be brought under same scope and ambit of section 43B to claim deduction - Held, yes - Whether Circular No. 22/2015 dated 17-12-2015, issued in consequence of amendment made to section 43B, to inform settled position that if assessee deposits contribution before due date for furnishing return, no disallowance can be made under section 43B, specifically excludes extension of such scope to employee's contribution governed by section 36(1)(va) - Held, yes [Para 19] [In favour of revenue] ii) CIT Vs. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 (Gujarat): Section 43B, read with section 36(1)(va) of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed on actual payment (Employees contribution) - Whether where an employer has not credited sum received by it as employees' contribution to employees' account in relevant fund on or before due date as prescribed in Expla....
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....y the employer to the contributory fund. Such an understanding of Sec.43B is further exemplified by the phraseology used in the proviso, which reads thus: "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return." Further, in Explanation 1 to Sec.43B also, the phraseology used persuade us to think that Sec.43B can be applied to the contribution payable by the assessee as an employer, which reads thus: " x x x x x x x For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the ....
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....d proviso once again created further difficulties. In many of the companies, financial year ended on 31st March, which did not coincide with the accounting period of R.P.F.C. For example, in many case, the time to make contribution to R.P.F.C. ended after due date for filing of returns. Therefore, the industry once again made representation to the Ministry of Finance and, taking cognizance of this difficulty, the Parliament inserted one more amendment vide Finance Act, 2003, which, as stated above, came into force w.e.f. 1st April, 2004. In other words, after 1st April, 2004, two changes were made, namely, deletion of the second proviso and further amendment in the first proviso, quoted above. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to employees; provident fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force w.e.f. 1st April, 2004. x x x x x x x x x x x x x x x x" 22. Therefore, on a reading of the afore-extracted portion of the judgmen....
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....essee(s) if the contention of the Department is to be accepted that Finance Act, 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 IT 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 not be entitled to deduction under Sec.43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Sec.43B of the Act." According to us, it is thus clear that the decision rendered by the Apex Court in 'Alom Extrusions' (supra) did not consider the question involved in this case. 25. So also, i....
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....s were considering the question of remittance of the contributions received from the employee as well as the employer and held that the contributions received from the employee were also liable to be paid to the respective statutory authorities under the PF and ESI Act on or before the filing of return under Sec.139(1) was alone sufficient to be eligible for deduction. For the reasons stated, we are unable to subscribe to the views expressed by the High Courts in the decisions cited supra by the learned counsel for the assessee. That apart, we are reminded of the judgment of the Hon'ble Apex Court in 'Padma Sundara Rao and Others v. State of T.N. and Others' [(2002) 3 SCC 533] paragraph 9 which reads as follows: "It is also a settled proposition of law that Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said ....
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....the deduction of the amounts as provided under Sec.36(1)(va) only if the amounts so received from the employee was paid within the due date as provided under the relevant statute, we do not think that this is a case to which such a principle is applicable. iv) Pr.CIT Vs. M/s Suzlon Energy Ltd., (2020) 423 ITR 608 (Guj), wherein the Hon'ble High Court has held as under :- 7. Thus, the dictum as laid in the aforesaid decision is that Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act 1952 makes it obligatory for the employer before paying him his wages to deduct the employee's contribution along with the employer's own contribution as fixed by Government. The employer is further obliged to pay the same within fifteen days of the close of every month pay i.e. such contribution and administrative charges. The reference to fifteen days of the close of the month must be in relation to month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. This Court held that the expression "within fifteen days of the close of every month" therefore, must be interpreted....
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....entire amounts that were disallowed. The ITAT however granted complete relief. 8. Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT's decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns. 9. In view of this discussion, the Revenue's appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms....
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....on 36(1)(va) of the Act by inserting another explanation 2 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 (b) 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. 12. The language of newly proposed explanation 2 to section 36(1)(va) and explanation 5 to section 43B makes it clear that the amendment is retrospective. 13. The rational of the amendment was explained by the Memorandum to the Finance Bill, 2021 as below: "There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employer's of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfa....
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....y, 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. [Explanation 1].-For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.] [Explanation 2.-For the removal of doubts} it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause; "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee acc....
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....ground, it is prudent to refer to the amendment in Finance Bill 2021, the amendments are made in section 36 & 43B vide clause 8 & 9. In this regard attention is invited towards section 1(2)(a) of Finance Act, 2021 wherein it has specifically mentioned "(2) Save as otherwise provided in this Act-. (a) section 2 to 88 shall come into force on the first day of April 2021". Relating to the amendment by Finance Act 2021, Memorandum Explaining the Provisions of Finance Bill, 2021 says regarding amendment in section 43B and 36 that "These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. For the sake of clarity, we would like to reproduce the extracts of the memorandum Explaining the Provisions in Finance Bill, 2021, which read as under :- "Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfa....
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....not disputed the various decisions of Hon'ble High Courts including the decision of the jurisdictional Himachal Pradesh High Court but has referred to the amendment brought in by the Finance Act, 2021. It is a consistent position across various Benches of the Tribunal including Chandigarh Benches that the amendment which has been brought in by the Finance Act, 2021 shall apply w. e. f. assessment year 2021 - 22 and subsequent assessment years and the impugned assessment year being assessment year 2018- 19, the said amendment cannot be applied in the instant case. Therefore the addition made by way of adjustment while processing the return of income u/s 143 (1) of the Act, amounting to Rs. 11,99,710/- so made by the CPC towards the deposit of employees‟ contribution towards ESI and PF paid before the due date of filing of the return of income u/s 139 (1) of the Act, is hereby directed to be deleted. - Decided in favour of assessee. ii) Stirred Creative Advertising Pvt. Ltd. Vs DCIT (ITAT Bangalore), Appeal Number : ITA No. 594 & 595/Bang/2021, Date of Judgement/Order : 12/12/2021 HELD THAT:- We find no merit in the argument of the ld.DR since the explanation ....
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....Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee's appeal is allowed iv) Pachouli Wellness Clinic LLP Vs ITO (ITAT Delhi), Appeal Number : ITA No: 999/Del/2021, Date of Judgement/Order : 25/11/2021 HELD THAT:- As decided in PLANMAN HR (P) LTD., 48, COMMUNITY CENTRE, NARAINA INDUSTRIAL AREA, PHASE-I, NEW DELHI. [2021 - ITAT DELHI] Delayed payments of employee's contribution to Provident Fund/ESIC is allowable if it is deposited before the return is filed u/s 139(1). In view of the legal position on the issue and the order of the Hon'ble ITAT, Delhi in the appellant's own case [2017 - ITAT DELHI] the company is eligible for deduction made by the AO by invoking provisions of Section 36(1)(va) read with 2(24) (x) and 43B of the Act. The AO is, therefore, directed to delete the addition. - Decided in favour of assessee. v) Star Facilities Management Limited VS ITO (ITAT Delhi), Appeal Number : ITA No. 1755....
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....spective or retrospective in operation. We note that before this amendment has been inserted by Finance Bill, 2021, the Hon'ble Jurisdictional Calcutta High Court in the case of Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra) has held that the payment of employees‟ contribution if made by an assessee before the due date of filing of return of income u/s 139(1) of the Act, is allowable as a deduction. We note that by Finance Act, 2021, the provision of Section 36(1)(va) as well as Section 43B has been amended to this extend by inserting the Explanation 2 whereby it is clarified that the provision of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the due date under this clause. For ready reference, we reproduce the Explanation-2 to Section 36(1)(va) as under: "Section 36(1)(va) Explanation-2 - For the removal of doubts, it is hereby clarified that the provisions of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the „due date‟ under this clause‟ ....
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.... decision in M/s Vegetable Products (supra). In the light of the aforesaid decision and relying on the ratio of the Hon'ble Supreme Court in the case of Vatika Township Pvt. Ltd. (supra) and M/s Snowtex Investment Ltd. (supra) and also taking note of the binding decision of the Hon'ble Jurisdictional Calcutta High Court on this issue before us in Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra), we set aside the impugned order of Ld CIT(A) and direct the AO to allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s 139(1) of the Act. Therefore the appeal of assessee succeeds and so, it is allowed in favor of assessee. 7.11 Few more orders by the coordinate benches of the ITAT having same finding on this issue are as under:- i) Mavinahalli Shivananjappa Vijay Kumar Vs. DCIT, ITA Nos.596&597/Bang/2021, order dated 13/12/2021; ii) Shri Prakash Pai Kochikar Vs. ADIT, ITA No.479/Bang/2021, order dated 09/12/2021; iii) Eskay heat Transfers Pvt. Ltd. Vs. ADIT, ITA No.534/Bang/2021, o....
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....t claimed on payment of PF and ESI having been deposited on or before due date of filing of returns, same could not be disallowed under section 43B or under section 36(1)(va); SLP dismissed. 7.13 On perusal of the above judgments in favour of the assessee and other quoted by the Ld DR in contrast. Having two opposite opinions on the same issue, it is a moot question that which view should be appreciated. To reach on a judgment on the controversy under this ground in absence of a direct finding of the Apex Court after amendment in the provisions by Finance Bill 2021 or a judgment by the jurisdictional High Court, nonetheless having several judgments of non-jurisdictional High Courts and Benches of ITAT decided both against as well as in favour of the assessee, to decide the issue judiciously, this would be appropriate and it is well settled law originated from case laws mentioned in ensuing paras that if two views are possible in interpreting the provisions of law in taxation, the one favourable to the assessee has to be preferred. 7.14 In Sun Export Corporation, Bombay vs Collector of Customs (1997) 6 SCC 564 it was observed that "even assuming that there are two views possib....
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....emporary sheds constructed for labour hutment at site. This is purely allowable expenses. 100% depreciation of hutments and sheds for labour created at work sites are purely allowable in nature which the learned AO has erred in adding. Assssee's contractees have stringent conditions for labour safety dwelling place etc in the contract requisite itself. In this regard the assessee enclosed herewith the copies of work orders marked as annexure-I, where the contractee company stipulates space for construction of temporary sheds for its workmen." 1. The houses are constructed near work site for providing accommodation for a temporary period to people who are working at the work site. 2. The lands on which the labour hutments are situated are the property of the plant owner where the company had executed the work. 3. The work order against which the work was executed are awarded to the company for shorter period and also having condition of termination with 30 days notice. In the case of Shalivahana Constructions Ltd vs. DCIT Circle 3(1), (2007) 12 SOT 406(Hyd.).This was an appeal of assessee against revision order passed by CIT who disal....
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....g construction of the temporary hutments, however, if it is proved that such structures were constructed on temporary basis and were used for the purpose of business of the assessee, a deduction of expenditure will be allowable, if the same is revenue in nature or depreciation would be allowed if the same is capital in nature. 100% disallowance without disputing the actual incurrence of the expenditure which is used for the purpose of the business of the assessee is unwarranted and bad in law. Therefore, this Ground of appeal is directed to restore back to files of AO to reassess the same in light of actual facts and according to the intent of the legislature. 8.4 Thus, ground No.3 of appeal is allowed for statistical purposes. Ground 4 - Disallowance of Donation of Rs. 6,13,011/- 9. On this ground finding of CIT(A) is as under:- 5. Ground No.4 relates to disallowance of Rs.6,13,011/- on account of payment of donation. The AO has disallowed the entire claim on the ground that the assessee could not adduce any evidence to show that the expenditure was laid out solely for the purpose of its business. Of course, donation, as the nomenclature suggests, is gratuitous p....
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....s of the Bombay High Court in the case of Ferro Alloys Corporation Ltd. v. CIT [1992] 196 ITR 406 and the decision of the Calcutta High Court in the case of Martin and Harris Pvt. Ltd. v. CIT [1994] 73 Taxman 555. It was held in those cases that the interest paid under Section 201(1A) of the Act was not deductible as business expenditure under Section 37 of the Act. 14. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee. ii) Bharat Commerce & Industries Ltd vs The Commissioner Of Income Tax 230 ITR 733 Held that "We do not see any reason why any distinction can be made between such interest and interest paid under the Income Tax Act, 1961. Both payments do not hav....