TaxTMI 
TaxTMI 
2024 (11) TMI 225
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....ed in confirming disallowance of Rs. 1256189/- on account of delayed payment of employee's contribution to ESIC made by the A.O invoking Sec.36(1)(va). The disallowance made by the Ld. CIT(A) is arbitrary, baseless and not justified. 3. I.d. CIT(A) erred in confirming disallowance of Rs. 352355/- on account of delayed payment of employee's contribution to any other fund made by the A.O invoking Sec.36(1)(va). The disallowance made by the Ld.CIT(A) is arbitrary, baseless and not justified. 4. Without prejudice to above grounds, Ld.CIT(A) erred in confirming the disallowance made by the A.O without appreciating the fact that the adjustment made by AO/CPC is not permissible u/s. 143(1). 5 The appellant reserves the right to add, alter, and omit all or any of the grounds of appeal with the permission of the Hon'ble ITAT." 2. Succinctly stated, the Centralized Processing Centre (CPC), Bengaluru while processing the return of income of the assessee had vide an intimation u/s. 143(1) of the Act disallowed his claim for deduction of delayed deposit of employees share of contribution towards ESIC and EPF of Rs. 1,41,16,990/-. 3. As is discernible....
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....eard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record as well as considered the judicial pronouncement that have been pressed into service by the Ld. DR to drive home his contentions. 9. Admittedly, it is a matter of fact borne from record that the Hon'ble Apex Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I, Civil Appeal No.2833 of 2016 dated 12.10.2022, while clarifying the position of law, had held that the delayed deposit of employee's share of contributions towards labour welfare funds, viz. Employee's Provident fund (EPF) and Employee's State Insurance (ESI) is liable to be disallowed as per the mandate of Section 36(1)(va) r.w.s. 2(24)(x) of the Act. Considering the law laid down by the Hon'ble Apex Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I (supra), we concur with the CIT(Appeals) that the disallowance of the assessee's claim for deduction of delayed deposit of employees share of contribution towards ESIC & EPF made by the CPC, Bengaluru u/s. 143(1) of the Act had, thereafter, rightly been upheld by the A.O vid....
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.... deductions, such as Sections 32- 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) - which defines various kinds of "income" - inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or oth....
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.... a statutory classification, under the IT Act, between the two. 35. It is instructive in this context to note that the Finance Act, 1987, introduced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill, 1987, presented to the Parliament, is extracted below: "Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees - 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. "Due date" means the date by which an employer is required to credit the contribution to the em....
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....ctivities of those tax- payers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that Section 43B was inserted." 39. Original Section 43B(b) enabled the assessee/employer to claim deduction towards contribution as an employer, "by way of contribution to any provident fund". The second proviso was substituted by Finance Act, 1989 with effect from 01.04.1989 and read as under: "...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 to by issue of a cheque or draft or by any other mode on or before the due date as defined in the explanation below Clause (va) of sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the same has been realised within 15 days from the due date." 40. The position in law remained unchanged for 14 years. The....
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....m is actually paid. In case the same is paid before the due date of filing the return of income for the previous year, the allowance will be made in the year in which the liability was incurred. These amendments will take effect from 1st April, 2004 and will accordingly apply in relation to the assessment year 2004-05 and subsequent years." 41. The Notes on Clauses inter alia, reads as follows: "It is also proposed to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years." 42. The rationale for introduction of Section 43B was explained by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi: 16 "19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non- obstante Clause contained in the beginning of the....
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....ution to welfare funds stood discontinued and, under Section 43-B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between 1-4-1984 and 1-4-1988, when Parliament amended Section 43-B and inserted the first proviso to Section 43-B. 11. By this first proviso, it was, inter alia, laid down, in the context of any sum payable by the assessee(s) by way of tax, duty, cess or fee, that if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of the return of income under Section 139(1) of the Act, the assessee(s) would be entitled to deduction under Section 43-B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To this effect, the first proviso stood introduced with effect from 1-4-1988. *** 15. 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 co....
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....s and fee on the one hand vis-à-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003 is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224 ITR 677] was delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003 will operate retrospectively with effect from 1- 4-1988 (when the first proviso stood inserted). 23. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such ....
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....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 Section 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 upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003". 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corpor....
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....l application. It declares that within the sphere allotted to it by the Parliament, it shall not be controlled or overridden by any other provision unless specifically provided for. Out of the allowable deductions, the legislature consciously earmarked certain deductions from time to time and included them in the ambit of Section 43B so as to subject such deductions to conditionality of actual payment. Such conditionality may have the inevitable effect of being different from the theme of mercantile system of accounting on accrual of liability basis qua the specific head of deduction covered therein and not to other heads. But that is a matter for the legislature and its wisdom in doing so. 22. The existence of Section 43B traces back to 1983 when the legislature conceptualised the idea of such a provision in the 1961 Act. Initially, the provision included deductions in respect of sum payable by Assessee by way of tax or duty or any sum payable by the employer by way of contribution to any provident fund or superannuation fund. It is noteworthy that the legislature explained the inclusion of these deductions by citing certain practices of evasion of statutory liabilities a....
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.... is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements 21 as follows: "23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be 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 b....
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....ench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing Commissioner of Income Tax v. Ace Multi Axes Systems Ltd., 2018 (2) SCC 158 Commissioner. of Customs v. Dilip Kumar & Co, 2018 (9) SCC 1. 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.'" 51. The analysis of the various jud....
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....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 with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to....
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....e 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, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisio....
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....herein the submission of the assessee has been mentioned in para 5 of the order the ITAT which is as under: "5. Shri Ravi Agrawal Ld. Authorized Representative (for short 'AR') for the assessee at the threshold of hearing of the appeal submitted that a delay of 690 days was involved in filing of the present appeal. Elaborating on the reasons leading to the aforesaid delay, It was submitted by the Ld. AR that the same had occasioned for the reason that the accountant of the assessee firm. viz. Shri Amitabh Paul had failed to bring to the notice of the partners of the assessee firm the order of the CIT (Appeals), dated 20.09.2021. The Ld. AR submitted that Shri Bhuvneshwar Prasad Sahu, partner of the assessee firm received the aforesaid order from his accountant only as on 08.10.2023. The Ld. AR submitted that Shri Amitabh Paul, accountant had admitted that though the order of the CIT(Appeals) was received by him way back but it had skipped from his mind to bring the same to the notice of the partners of the assessee firm. Carrying this contention further, the Ld. AR submitted that it was only when Shri Bhuwaneshwar Prasad Sahu (supra) had further brought the aforesa....
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....lean hands, therefore, now when in the present appeal the assessee appellant had failed to come forth with any good and sufficient reason that would justify condonation of the delay involved in preferring of the captioned appeal, the ITAT declined to condone the delay of 690 days, without adverting to the merits of the case and hence dismissed the captioned appeal of the assessee as barred by limitation. 13. As far as the issue involved pertaining to claiming of deduction under section 36 (1) (va) of the IT Act 1961 on delayed payment of employees share of contribution towards ESI/PF of Rs. 19,84,415, in the instant case is concerned is no more res integra. The Hon'ble Supreme Court has decided the legal issue on merits in the matter of Checkmate Services P. Ltd. v. Commissioner of Income Tax-1, {Civil Appeal No. 2833 of 2016, decided on 12.10.2022}, wherein at paragraphs 51 to 54, it was observed as under:- "51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. [2010] 321 ITR 508 (Delhi High Court); Commissioner of Income-Tax and another v. Sabari Enterprises [2008] 298 ITR 141 (Karnataka High Cou....
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....; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's contribution whi....
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....efore the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction." 14. Looking to the facts and circumstances of the case and law laid down by the Hon'ble Supreme Court in Checkmates Services (supra), the present appeal filed by the appellant is not only devoid of merits but also barred by limitation as provided under Section 253 of the Act. The learned ITAT has rightly dismissed the appeal of the assessee. We, therefore, are not persuaded to differ with the view taken by the ITAT and the reason assigned thereof. 15. Resultantly, the present appeal is dismissed as devoid of any merit and no substantial question of law arises in this appeal for consideration by this Court." (emphasis supplied by us) Accord....