short overview: Employees’ contribution to EPF and ESIC deposited beyond the due date prescribed under section 36(1)(va) would not be eligible for deduction even if deposited before the due date of filing the return of income tax under section 139(1). Therefore appeal of Revenue was allowed.

Issue arose under consideration as to whether Tribunal was correct in law in holding that no disallowance could be made on account of assessee paying employees’ contribution to PF and ESI funds beyond the due dates prescribed under the respective Acts and as per section 36(va) read with section 2(24)(x).

it is hald: High Court in the case of Gujarat State Road Transport Corporation Ltd. [(2014) 366 ITR 170 (Guj) : 2014 TaxPub(DT) 1235 (Guj-HC)] and M/s. Checkmate Facility & Electronics Solutions (P) Ltd. v. DCIT [R/Tax Appeal No. 1256 of 2018, dt. 15-10-20418] held that employees’ contribution to EPF and ESIC deposited beyond the due date prescribed under section 36(1)(va) would not be eligible for deduction even if deposited before the due date of filing the return of income tax under section 139(1). Therefore appeal of Revenue was allowed.

Decision: Against the assessee.

Referred: CIT II v. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj) : 2014 TaxPub(DT) 1235 (Guj-HC), CIT v. Aimil Limited, Nirmala Swami, Spearhead Digital Studio, M/s. Net 4 India Ltd., Modipon Ltd., & M/s. Ekta Agro Industries Ltd., (2010) 321 ITR 508 (Delhi) : 2010 TaxPub(DT) 1231 (Del-HC), CIT v. Madaras Radiators & Pressings Ltd. (2003) 264 ITR 620 (Mad) : 2003 TaxPub(DT) 885 (Mad-HC).

 

IN THE MADRAS HIGH COURT

T.S. SIVAGNANAM & V. BHAVANI SUBBAROYAN, JJ.

Pr. CIT v. Orchid Pharma Ltd.

Tax Case Appeal Nos. 430 & 421 of 2019 & CMP. No. 13978 of 2019

8 July, 2019

Appellant by: R. Hemalatha, SSC for T.R. Senthilkumar, SSC

T.S. Sivagnanam, J.

We have heard Mrs. R. Hemalatha, learned Senior Standing Counsel appearing on behalf of Mr. T.R. Senthilkumar, learned Senior Standing Counsel for the appellant-Revenue. Considering the fact that the assessee was not represented before the Tribunal and that proceedings are pending against the assessee before the National Company Law Tribunal (NCLT), we have not issued notice to the respondent-assessee.

2. These appeals, filed by the Revenue under section 260A of the Income Tax Act, 1961 (for short, the Act), are directed against the common Order, dated 13-12-2018 in ITA Nos. 650 & 651/Chny/2018 on the file of the Income Tax Appellate Tribunal, Chennai ‘D’ Bench respectively for the assessment years 2013-14 and 2014-15.

3. The Revenue has filed these appeals by raising the following substantial question of law :–

“Whether the Tribunal is correct in law in holding that no disallowance could be made on account of the assessee paying employee’s contribution to PF and ESI funds beyond the due dates prescribed under the respective Acts and as per section 36(va) read with section 2(24)(x) of the Income Tax Act?”

4. The Revenue was unsuccessful before the Tribunal, which confirmed the order passed by the Commissioner (Appeals)-3, Chennai-34 (for short, the Commissioner (Appeals)) in so far as the disallowance under section 36(1)(va) of the Act.

5. We find from the common order passed by the Tribunal that none appeared for the assessee before the Tribunal. We are informed that the respondent–assessee is under liquidation and that proceedings are pending before the NCLT. Presumably, for such a reason, the respondent-assessee was not represented before the Tribunal. The Tribunal dismissed the appeals filed by the Revenue by taking note of the decision of this Court in the case of CIT v. M/s. Industrial Security & Intelligence India (P) Ltd. (TCA. Nos. 585 and 586 of 2015, dated 24-7-2015). We find that the grounds raised by the Revenue before the Tribunal were not considered and more particularly the following grounds :–

“2.1. The learned Commissioner (Appeals) is not justified in deleting the disallowance made under section 36(1)(va) relying on decisions of various Hon’ble High Courts, which held that all contributions to ESI/PF made within the due date under section 139(1) of the Income Tax Act is deductible under section 438(b) of the Income Tax Act, when the deduction on account of remittance of employee’s contribution to welfare funds is governed by section 36(1)(va) read with section 2(24)(x) of the Income Tax Act, wherein it is categorically stated that the employee’s contribution should be paid into their account within the due date allowed in the respective Acts viz. ESI Act and PF Act.

……..

2.5. The learned Commissioner (Appeals) ought to have appreciated that in the present case, the employee’s contribution of Rs. 15,79,41,125 towards Provident Fund (PF) and Rs. 1,32,96,164 towards Employee State Insurance (ESI) were not credited by the assessee as an employer to the respective employee’s account in the relevant funds on or before the due date under the PF Act and ESI Act as required in the Explanation to section 36(1)(va) of the Income Tax Act, as is evidenced from the form 3CD filed along with the return of income furnished by the assessee for the assessment year 2013-14.

2.6. The learned Commissioner (Appeals) ought to have appreciated the clarification given by the Central Board of Direct Taxes vide Circular No. 22 of 2015, dated 17-12-2015 wherein it was clarified that the deductions relating to employee’s contribution to welfare funds are governed by section 36(1)(va) of the Act.

2.7. The learned Commissioner (Appeals) ought to have taken cognizance to the decision of the Hon’ble Gujarat High Court in the case of CIT v. M/s. Gujarat State Road Transport Corporation Ltd. ((2014) 366 ITR 170 (Guj) : 2014 TaxPub(DT) 1235 (Guj-HC)), the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. M/s. Madras Radiators & Pressings Ltd. ((2003) 264 ITR 620 (Mad) : 2003 TaxPub(DT) 885 (Mad-HC)), the decision of the Hon’ble Kerala High Court in the case of CIT, Cochin v. M/s. Merchem Ltd. (reported in (2015) 378 ITR 443 (Ker) : 2015 TaxPub(DT) 3586 (Ker-HC)) and the decisions of the Hon’ble ITAT, Mumbai in the case of M/s. LKP Securities Ltd. (ITA No. 638/Mum/2012, dated 17-5-2013) wherein it was held that the employee’s contribution should be paid within the due date as provided in the related statutes to be allowed as deduction under section 36(1)(va) of the Act.

2.8. The learned Commissioner (Appeals) ought to have appreciated that the decision of the Hon’ble Supreme Court in the case of M/s. Rajasthan State Beverages Corporation Ltd. (2017) 84 taxmann.com 185 (SC) : 2017 TaxPub(DT) 3917 (SC) is only a dismissal in limine without discussion on merits of the case, of the SLP filed by the Revenue against the order of the Hon’ble Rajasthan High Court and as such cannot be taken as law settling the issue.”

6. In our considered view, there have been several other decisions rendered subsequently by other High Courts, which should be taken into consideration because any decision in this regard will have wide ramifications.

7. A Division Bench of the Kerala High Court in the case of CIT v. M/s. Merchem Ltd. (reported in (2015) 378 ITR 443 (Ker) : 2015 TaxPub(DT) 3586 (Ker-HC)) held in favour of the Revenue. Similarly, another Division Bench of the Kerala High Court in the case of Popular Vehicles & Services (P) Ltd. v. CIT, Ernakulam reported in (2018) 96 taxmann.com 13 (Ker) : 2018 TaxPub(DT) 4368 (Ker-HC) has recently taken note of all the earlier decisions including the decisions, which have been referred to by the Tribunal and the Commissioner (Appeals) and held in favour of the Revenue. Considering these facts, we are of the view that the matters should be remanded to the Commissioner (Appeals) for a fresh consideration. We propose to send the matters back to the Commissioner (Appeals) for the reason that the Commissioner (Appeals) did not give a reasoned finding on this aspect while deleting the addition of Rs. 15,79,41,125 on account of the delay in payment of provident fund and Rs. 1,32,96,164 in respect of the delayed payment of the employees state insurance. Hence, we deem it appropriate that the matters should be remanded to the Commissioner (Appeals) for a fresh consideration. The Commissioner (Appeals) should issue notice to the respondent-assessee and take a fresh decision in the matters after taking note of the legal principle laid in the various decisions rendered after the decision in the case of CIT v. Amil Limited (reported in (2010) 321 ITR 508 (Delhi) : 2010 TaxPub(DT) 1231 (Del-HC)).

8. Accordingly, the above tax case appeals are allowed and the common order passed by both the Commissioner (Appeals) as well as the Tribunal are set aside. The matters are remanded to the Commissioner (Appeals) for a fresh consideration. The substantial questions of law are left open. Consequently, the connected CMP is closed.