TaxTMI 
TaxTMI 
2023 (9) TMI 1501
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....ts were under statutory audit. In fact, for the impugned assessment years, the assessee furnished tax audit reports in form 3CD. Be that as it may, while processing the returns filed by the assessee, the Centralized Processing Centre (CPC), having noticed that employees' contribution to PF and ESI were not deposited within the due date as prescribed under the PF and ESI Act, disallowed the deduction claimed by the assessee under section 36(1)(va) of the Act. The disallowances made in respective assessment years are to the tune of Rs. 10,97,693/- and Rs. 33,54,760/-. Contesting the disallowances, the assessee preferred appeals before the first appellate authority. However, relying upon the decision of Hon'ble Supreme Court in case of Checkmate Services (P) Ltd. vs. CIT (2022) 143 taxmann.com 178, the first appellate authority upheld the disallowances. Being aggrieved, the assessee is before us. 4. At the time of hearing, in addition to the submissions made orally, learned counsel appearing for the assessee has also furnished submissions in writing, which are as under : "Submission:- Adjustment cannot be made under section 143(1)(a)(iv) - as held by the CIT(A) ....
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....ture, the word 'or increase in income' is also brought into the statute. Thus, so far as AY under consideration is concerned, what can be adjusted under sub-clause (iv) is only disallowance of expenditure indicated in the audit report. 3. The employees contribution to PF/ ESI/ other welfare fund received by the employer is income of the employer by virtue of section 2(24)(x) of the Act which provides that income includes: "(24) "income" includes- .... "any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees" (emphasis supplied) 4. The deduction of the said income is provided in 'Section 36 - Other deductions' wherein section 36(1)(va)of the Act provides as under:- "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (va) any sum received by the assessee from any of his employees to ....
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....in dispute that assessee had remitted the employees, contribution to provident fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income under s. 139(1) of the Act. This fact of remittance made by the assessee with delay had been reported by the tax auditor in the tax audit report. The copy of the tax audit report is placed on record by the learned Authorised Representative before us together with its annexures. On perusal of the same, we find that the tax auditor had merely mentioned the due date for remittance of provident fund as per the Provident Fund Act and the actual date of payment made by the assessee. The tax auditor had not even contemplated to disallow the employees' contribution to provident fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. Hence, it is merely recording of facts and a mere statement made by the tax auditor in his audit report. The learned CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under s. 143(1) of the Act, apparently by applying the provision o....
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....his opinion cannot bind the auditee at all. In light, when one considers what has been reported to be ' due date ' in column 20(b) in respect of contributions received from employees for various funds as referred to in section 36(1)(va) and the fact that the expression ' due date ' has been defined under Explanation (now Explanation 1) to section 36(1)(va) provides that "For purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit 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", one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per Explanation to section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond due date in the tax audit report ....
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....That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 11. In a result, this appeal is allowed " In the following cases as well, the Mumbai Bench of ITAT relying on the above decisions held that adjustment on account of employees contribution to PF cannot be made under section 143(1)(a)(iv) of the Act:- DCIT Vs Maharashtra State Security Corporation reported in (2022) 196 ITD 653 (Mum) Coronation Cigar Co. And Ors. Vs. DCIT and Ors (2022) 196 ITD 498 (Mum) Mehra Eyetech Private Ltd. Vs. ACIT (2022) 197 ITD 124(Mum) Mehra Eyetech Private Ltd. Vs. ACIT (2022) 65 CCH 722 (Mum) KA Hospitality Private Ltd. Vs. ITO (2022) 65 CCH 724 (Mum) Jasbir Singh Kaberwal Vs. Assistant Director of Income Tax (2022) 197 ITD 299 (Mum) Della Adventure and Resorts Pvt. Ltd. Vs. National Faceless Appeal Centre (NFAC) (Mum) Ernst & Young Merchant Banking Services LLP Vs. ADIT, CPC ITA No. 2333/Mum/2022 dated 20 March 2023 Paris Elysees India Private Limited [TS-77-ITAT-2023(JPR)]- The Jaipur Bench of the ITAT held that adjustment on account of em....
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....ed CPC to take a different view that too by way of adjustment by processing the ROI under section 143(1) of the Act. Thus, the adjustment made by the CPC is beyond its scope and ambit of the provisions of the Act. 7. The Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 218 DTR 401 at para 50 of the order, relying on the decision of Commissioner. of Customs v. Dilip Kumar & Co 2018 (9) SCC 1, has held that (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 legislature's failure to express itself clearly." The Pune Bench of ITAT in the case of Cemetile Industries vs ITO (supra) has taken a view that adjustment of employees' contribution to PF/ ESI can be made under section 143(1)(a)(iv) of the Act. However, plethora of decision by the jurisdictional Mumbai ITAT, Delhi ITAT and Jaipur ITAT has held that adjustment of employees' contribution cannot be made under section 143(1)(a)(iv) of the Act. Basis the decision of the Hon'ble Supreme Court of India, it is subm....
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.... Dhabriya Polywood Limited vs. ADIT (2022) 192 ITD 0298 (JaipurTrib) Indian Geotechnical Services vs. ACIT (2021) 62 CCH 468 (DelTrib) NCC Limited vs ACIT (2021) 63 CCH 60 (Hyd-Trib) Thus, the said amendment is prospective in nature and cannot be read for the subject AY. Amount is allowable as a deduction as it is paid within the 'due date' under 'any Act' or 'otherwise' 9. It is also submitted that section 36(1) of the Act which provides for 'other deduction', states that deduction provided for in the specified clauses shall be allowed in respect of matters dealt with therein, in computing the income referred to in section 28. Clause (va) of said section reads as under:- "(va) 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. Explanation.-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'....
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....ith effect from 1st April, 1988. The Explanation to this clause is read very carefully. "Due date" has been explained stating that : means the date by which the assessee is required as an employer to credit contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise." Prior to the above clause was inserted to s. 36 giving statutory deductions of payment of tax under the provisions of the Act, s. 43B(b) was inserted by the Finance Act, 1983, which came into force with effect from 1st April, 1984. Therefore, again the provision of s. 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including s. 36(1) clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by the Finance Act, 1987, which came into effect from 1st April, 1988, the letters numbered as clause (a), or cl. (c) or cl. (d) or cl. (e) or cl. (....
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....her provisions of the Act. 52. When Parliament introduced s. 43B, what was on the statute book, was only employer's contribution [s. 36(1)(iv)]. At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting s. 36(1)(va) and simultaneously inserting the second proviso of s. 43B, its intention 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 s. 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. Sec. 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authori....
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....orne while interpreting the obligation of every assessee under s. 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non obstante clause has to be understood in the context of the entire provision of s. 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'....
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....lauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28'. 11. Section 37(1) of the Act being a 'General' section provides that Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". It is submitted that after treating the employees' contribution as income of the assessee, once it is paid or a liability is accrued for payment being an ascertained liability, the same is allowable as an expenditure under section 37 of the Act. 12. While section 37 provides that the expenditure should not be an expenditure of the nature described in section 30 to 36 of the Act, it is submitted that section 36 of the Act does not provide details on nature of expenditure, rather provides specific cases of deductions in computing the total income of the assessee. Further, section 36(1)(va) of the Act starts....
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....s also identical to the issue in the case of Nirakar Security & Consultancy Services Pvt Ltd.,(supra), on identical findings the issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard." ACIT Vs. Sunila Sahu MA No. 23/CTK/2022 (Arising out of ITA No. 07/CTK/2022) order dt. 13.01.2023 (Cuttack) (Trib.) The Hon'ble ITAT by following the decision of Nirakar Security & Consultancy Services Pvt Ltd vs ITO in ITA No. 98/CTK/2022 for AY 2016-17 order dated 17.10.2022, restored the issue to the file of AO to consider the allowability under section 37(1) of the Act on the payment of employees contribution to PF & ESI. In view of above, even if addition is confirmed under section 36(1)(va) in view of the decision of Hon'ble Supreme Court, amount paid by the assessee during the relevant AYs be directed to be allowed under section 37(1) of the Act." 5. We have given a thoughtful consideration to rival submissions and perused materials on record. We have also applied our mind to various decisions cited before us. 6. In so far as factual aspect of the issue is concerned, there is n....
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....meaning of expression "due date" by stating that it means the date, by which the assessee is required as an employer to credit employees' contribution to the employees' account in the relevant funds under any Act, Rule or Order or Notification issued thereunder. Section 2(24)(x) provides that 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 the Employees State Insurance Act, or any other fund for the welfare of such employees, has to be treated as income of the assessee. It is relevant to observe, both section 36(1)(va) and section 2(24)(x) co-exist in the statute w.e.f. 01.04.1988. 10. Thus, from the very inception of the provisions in the statute, the intention of the legislature, as could be gathered from the language used in the provisions, is quite clear that unless employees' contribution to certain funds such as PF or ESI are not remitted to the accounts of the concerned employees within the due date provided under the relevant Acts and Rules, such contribution has to be treated as the income of the assessee in terms of section 2(24)(x) of the Act. Thus, to that exte....
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....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'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 clause....
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....etion of second proviso to Section 43B, which mandated that unless 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 th....
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....ows: "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 strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretat....
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....and ESI Acts, not only the assessee would get no deduction under section 36(1)(va), but the amount in question has to be treated as assessee's income under section 2(24)(x) of the Act. To that extent, the issue stands squarely settled by the ratio laid down by Hon'ble Supreme Court in case of Checkmate Services (P) Ltd. (supra). 12. Now reverting back to the contention of the assessee that the adjustment made is not within the scope and ambit of section 143(1)(a)(iv) of the Act, it is necessary to look into the said provision, which reads as under : "143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or loss shall be computed after making the following adjustments, namely:- (i) ...... (ii) ...... (iii) ...... (iv) disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return" 13. As could be seen from the provision reproduced herein above, in its earlier form, the provision was lit....
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....pectively. Even, accepting assessee's aforesaid contention, as we have already discussed earlier in the order, section 36(1)(va) in its original form, sans the amendment, had no ambiguity, as it clearly provided that no deduction in respect of employees' contribution to PF and ESI can be granted unless such contribution is remitted within the due date prescribed under the relevant Acts. Therefore, retrospective or prospective application of the amendment to section 36(1)(va) would be of no help to the assessee. 17. Lastly, the assessee has made an alternative claim that the deduction can be allowed under section 37 of the Act. In this regard, we do not find any convincing reason to allow assessee's claim. The decisions cited by the assessee, in no way, advance its case. It is relevant to observe, though the assessee has cited a number of decisions to canvass its claim of deduction under section 36(1)(va) of the Act and has also made an attempt to persuade us to deviate from the decision of Hon'ble Supreme Court in case of Checkmate Services (P) Ltd. (supra), however, we are not impressed. Though, after the decision of Hon'ble Supreme Court in case of Checkmate Services (P) Ltd. ....