AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 854
X X X X Extracts X X X X
X X X X Extracts X X X X
....me of Woodland. 3. On 30.11.2019 the appellant filed its return of income of Rs. 15,78,68,550/- electronically for assessment year 2019-20 under Section 139(1) of Act and same was selected for scrutiny by notice dated 17/12/2019 issued u/s 143(l)(a) of Act wherein adjustments to the tune of Rs. 4,14,22,293/- were proposed to be deducted from the income of the appellant by the APO, Centralized Processing Centre, Income Tax Department [The Assessment Officer (AO)] on account of payment of Provident Fund, Employer's State Insurance and Labour Welfare Fund to the extent of the disputed amount deposited beyond the due date of the relevant fund under the Act. 4. The appellant filed its reply on 16.01.2020 against the notice by giving reasons against the proposed adjustments/deductions. The appellant clarified that the said employees contribution deposited before filing of the ITR should have been admissible, even though the same was deposited after the due date as prescribed under the relevant acts. However, when the return was processed finally, an intimation notice/order dated 28.05.2020 was received under Section 143(1) of the Act, wherein the income of the appellant was enh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ither in allowing or in disallowing deductions, allowance or relief" 9. He has also referred to the judgment in C.I.T vs Amitabh Bachan Corporation Ltd - 261 ITR 45, where the Bombay High Court explained the narrow and limited nature of the power of the AO under Section 143(1)(a) as under :- "Whether an expenditure was on revenue account or capital account is required to be examined in the light of the totality of all facts for this purpose. Evidence would be required in the form of documents and accounts and also, it would require proper appreciation of the terms and conditions of the agreement between the assessee and the two actors. That, by merely looking at the balance-sheet and profit and loss account, one cannot infer the nature of the expenditure. That, such an exercise generally cannot be done by way of adjustments to the returns under Section 143(1)(a) of the Act. That, such a point cannot be deciphered by merely looking at the return, supported by balance sheet and profit and loss account. In the circumstances, the Tribunal was justified in coming to the conclusion that the Income-tax Officer was not right in disallowing the expenditure by way of adjustment u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." 12. Under section 43B as it stood prior to 01.04.2021, including for AY 2019-20, to which the present case relates, it was expressly laid down in the proviso to Section 43B(1) that there would be no disallowance if the payment was made before the due date for furnishing the return of income. It was this provision which applied to AY 2019-20 and not Explanation 5 which came into effect only on 1.4.2021 and which was not given any retrospective effect, even though it used the words; "For the removal of doubts" and "it is hereby clarified". According to him, this legal position has been clarified by the Supreme Court in CIT v. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 (SC) (Constitution Bench) and Sedco Forex International Inc v. C.I.T. [(2017) 399 ITR 1 SC]. 13. Though Checkmate Services (P) Ltd. dealt with an Assessment Year prior to the AY 2021-22, there was no argument, discussion or dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was made before the due date of filing of the ITR, thereby making the Appellant eligible for deduction under Section 36(l)(va) of the Act. Reliance in this regard was placed on the judgment of this Court in the case of PR Commissioner of Income Tax v. TV Today Network [ITA 227/2022]. c. The statutory mandate provided under second proviso to Section 36(1)(va) of the Act inserted by the Finance Act, 2021 was to be made applicable from 01.04.2021. The ITAT erred in observing that the applicability of this proviso was never discussed in the case of Checkmate Services Pvt. Ltd. (supra). Hence, the entire impugned order is not only without any basis but is also out of context in the present case. d. The decision of in Checkmate Services Pvt. Ltd. (supra) was rendered in the context of assessment framed under Section 143(3) of the Act and not Section 143(1) of the Act, thus, the same is not applicable to the facts of the instant case, as the same relates to assessment under Section 143(1) of the Act. The ITAT erred in ignoring the decision of P.R. Packaging Service v. CIT [ITA NO. 2376/Mum/2022] wherein the ITAT, Mumbai observed that the decision in Checkmate Services P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'ble ITAT failed to consider that in certain instances, the due date for the payments under the Provident Fund and the payments under the ESI Act fell on 15.08.2018, which was a national holiday on account of Independence Day. That the payments in the said instances were made on the very next day i.e. 16.08.2018, details of which are already annexed as Annexure P-6(colly) to the Appeal." 4. We are informed that this very issue arises for consideration in ITA 12/2023, titled PR. Commissioner of Income Tax v. Pepsico India Holdings Pvt. Ltd. 5. Accordingly, the prayer made in the application is allowed. 6. The amended appeal will now be taken on record." 20. Thus, this Court initially considered only one substantial question of law (National Holiday issue) based on the appellant's concession (Order dated 18.05.2023), and disposed of the appeal on 05.09.2023 following PCIT v. Pepsico India Holdings (ITA No. 12/2023) with the following observations: "3. Resultantly, the appeal is admitted, and the following question of law is framed for consideration by the Court. (i) Whether the Income Tax Appellate Tribunal [in short, "Tribunal"] mi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court was incorrect and they intend to argue the case before this Court. Considering the submissions made by the appellant and without commenting on the merits of the case, the Supreme Court vide order dated 08.01.2025 held: "5. We have considered the arguments advanced at the bar and also the submission made by the learned senior counsel for the appellant to the effect that the learned counsel, who appeared on behalf of the appellant before the High Court erroneously contended that two substantial questions of law were covered by the Judgment of this Court in Checkmate Services Pvt. Ltd. (supra) against the Assessee, but that is not so. 6. In the circumstances, we find that an opportunity must be given to the appellant herein to make submissions on those two substantial questions of law and for the purpose of reconsidering whether they were covered by the judgment of this Court in Checkmates Services Pvt. Ltd. (supra) against the Assessee or not. 7. For the aforesaid purpose, we have no option but to set aside the order dated 05.09.2023, although the said order has been accepted by both sides and there is no challenge to the same in the context of there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deposited beyond the date stipulated under the relevant Fund Act. 5. Though the quarrel is no more res integra, as it has been settled by the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd 143 Taxmann.com 178. But, before us, the decision of the co-ordinate bench at Mumbai has been placed in the case of PR Packaging Service in ITA No. 2376/MUM/2022 and it has been seriously argued that the co-ordinate bench has considered the decision of the Hon'ble Supreme Court and yet decided the quarrel in favour of the assessee and against the Revenue. 6. Another argument taken before us is that the disallowance made by the CPC Bengaluru while processing the return u/s 143(1) of the Act is beyond the scope of provisions of section 143(1(a) of the Act and, therefore, cannot be sustained. ........ 9. With our utmost respect to the findings of the co-ordinate bench [supra], we are of the considered view that the co-ordinate bench has ignored the binding ratio decidendi of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra]. It would be pertinent to refer to the most relevant observations of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t under paid the tax in any manner, 14. If any narrow interpretation is given to the decisions of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra], it would not only defeat the very purpose of the enactment of the provisions of section 143(1) of the Act but also defeat the very purpose of the Legislators and the decision of the Hon'ble Supreme Court would be made redundant because there would be discrimination and chaos, in as much as, those returns which are processed by the CPC would go free even if the employees' contribution is deposited after the due date and in some cases the employer may not even deposit the employees' contribution and those whose returns have been scrutinized and assessed u/s 143(3) of the Act would have to face the disallowance. 15. This can neither be the intention of the Legislators nor the decision of the Hon'ble Supreme Court has to be interpreted in such a way so as to create such discrimination amongst the tax payers. Such interpretation amounts to creation of class [tax payer] within the class [tax payer] meaning thereby that those tax payers who are assessed u/s 143(3) of the Act would have to fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urn has been made under section 139, or in response to a notice under sub-section (1) of Section 143, 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) Any arithmetical error in the return; (ii) An incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (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; (v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain income", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(supra) has decided the issue in favour of the appellant and the same was not appealed. Further, the Explanation to Section 36(1)(va) defines "due date" as per the respective labour law (EPF Act/ESI Act). The Payment of Wages and PF/ESI Rules specify exact calendar dates; there is no provision for extension if the date falls on a holiday. Section 10 applies where an act is required to be done within a prescribed "time" and the court/office is closed. In the present case, the deposit is to be made to the fund's account electronically, and no "office closure" prevented compliance. Electronic payments could have been made on or before the due date. The extension under Section 10 of General Clauses Act, 1897 cannot override the explicit statutory definition in Section 36(1)(va). 31. He has sought dismissal of the appeal. 32. Having heard the learned counsel for the parties, at the outset, we may state that this appeal was earlier disposed of by this Court on 05.09.2025 as observed in Paragraph 20 above. 33. The appellant thereafter has filed Civil Appeal No.294/2025 which was allowed by the Supreme Court vide order dated 08.01.2025 and the order dated 05.09.2024 was set aside ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arliament's endeavour in introducing Section 43-B (which opens with its non obstante clause) was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. xxxx xxxx xxxx 39. The significance of this is that Parliament treated contributions under Section 36(1)(v-a) 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 recognised provident fund". However, the phraseology of Section 36(1)(v-a) 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovision 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 interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, noncompliance with the same must result in cancelling the concession made in favour of the grantee, the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 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.' 62. The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it [Section 36(1)(v-a)] is, thus crucial. The former forms part of the employers' income, and the latter retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(v-a) are satisfied i.e. depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the em....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he impugned judgment [CIT v. Checkmate Services (P) Ltd., 2014 SCC OnLine Guj 12521]. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this Court does not find any reason to interfere with the impugned judgment [CIT v. Checkmate Services (P) Ltd., 2014 SCC OnLine Guj 12521]. The appeals are accordingly dismissed. [emphasis supplied] 38. From a reading of the judgment, the following becomes apparent: i. Employer's contributions under Section 36(1)(iv) and employees' contributions covered under Section 36(1)(va) read with Section2(24)(x) are fundamentally different in nature and must be treated separately. ii. Employees' contribution deducted from their salaries are deemed to be income under Section 2(24)(x) and are held in trust by the employer. The employers can claim deduction only if they deposit these amounts on or before the statutory due date under Section 36(1)(va). iii. The non-obstante clause in Section 43B cannot be applied to employees' contributions governed by Section 36(1)(va). iv. Alom Extrusions (supra) has been distinguished as the same has not conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees (employer's contribution) provided such sum - employer's contribution is actually paid by the assessee on or before the due date applicable in his case for furnishing 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 and the evidence of such payment is furnished by the assessee along with such return. It also further provided that no deduction shall, in respect of any sum referred to in clause (B) i.e. with respect to the employer's contribution, be allowed unless such sum is actually been paid in cash or by issue of cheque or draft or by any other mode on or before the due date as defined in explanation below clause (va) of sub-section (1) of section 36 and where such sum has been made otherwise that in cash, the sum has been realised within 15 days from the due date. By the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted and First Proviso to section 43B has also been amended which is reproduced hereinabove. Therefore, with respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s deleted, it cannot be said that section 36(1)(va) is also amended and/or explanation to section 36(1)(va) has been deleted and/or amended. It is also required to be noted at this stage that as per the definition of "income" as per section 2(24)(x), 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 the such employees is to be treated as income and on fulfilling the condition as mentioned under section 36(1) (va), the assessee shall be entitled to deduction with respect to such employees' contribution. Section 2(24)(x) refers to any sum received by the assessee from his employees as contribution and does not refer to employer's contribution. Under the circumstances and so long as and with respect to any sum received by the assessee from any of his employees to which provisions of sub-clause (x) of sub-section 24 of section 2 applies, assessee shall not be entitled to deduction of such sum in computing the income referred to in section 28 unless and until such sum is credited by the assessee to the employees' account in the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of second proviso to Section 43-B, 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. 52. A reading of the judgment in Alam Extrusions, would reveal that this Court, did not consider Sections 2(24)(x) and 36(1)(v-a). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. The Court observed inter alia, that: (SCC p. 496, paras 22-24)..." 43. The judgment of the Supreme Court in Checkmate Services (P) Ltd. (supra) in effect had conclusively interpreted the provision of Section 43B of the Act. 44. Insofar as the submission of Mr Ganesh that the AO under Section 143(1) of the Act could not have passed the order dated 28.05.2020 is concerned, it is to be noted that at the time when the AO proposed the deductions, the judgment of the Gujarat High Court in Gujarat State Road Transport C....