|No. – I.T.A No. 1091/Kol/2010|
|Dated – April 28, 2011|
Sri Mahavir Singh, Shri Akber Basha, JJ.
For the Appellant: Shri A. K. Pramanik
1. The only issue in this appeal of the revenue is against the order of CIT(A) deleting the addition made by the AO on account of employees’ contribution to ESI & PF by invoking the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act. For this revenue has raised the following two grounds:
2. The Ld. CIT(A) has erred in deleting the additions by wrongly invoking the provisions of section 43B since the employee’s contribution is not allowed under section 43B on payment basis but under section 36(1)(va) read with section 2(24)(x) and section 43B is attracted in case of employer contribution only.”
3. The brief facts are that the AO disallowed the ESI & PF payments by observing as under:
4. Before us, Ld. Sr. DR argued that the Coordinate Bench in the case of DCIT Vs. M/s. Ashika Stock Broking Ltd., ITA No.1255/K/2010, A.Y. 2007-08 dated 19.11.2010 has considered the issue of Employees’ Contribution towards ESI & PF and held the same in favour of the revenue. He argued that this Coordinate bench decision should be followed.
5. We have heard Ld. Sr. DR and gone through facts and circumstances of the case. We find from the order of CIT(A) that PF and ESI payments on account of Employees’ contribution were paid within the due dates of filing of return of relevant assessment year and further even the payments made within the grace period provided under respective Acts i.e. The Employee’s Provident Fund Act” & “The Employees State Insurance Act”. We find that the issue is squarely covered in favour of the assessee, as the payments of these contribution are made within the due date of filling of return of income as noted by CIT(A) in his appellate order, by the decision of Hon’ble Delhi High Court in the case of CIT v. P.M. Electronics Ltd. (2008) 220 CTR 635 (Del), wherein the issue has been discussed in para-4 as under:-
“4. On 27th Nov., 1998 the assessee had filed a return of income declaring a loss ofRs. 8,92,888. On 11th May, 1999 the return was processed under s. 143(1)(a) of the Act. The case of the assessee was selected for scrutiny. Accordingly, a notice dt. 27th Sept., 1999 under s. 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to provident fund payments made both on account of employer’s and employees’ share revealed that payments in the sum of Rs. 17,94,042 were late as per the provisions of s. 36(1)(va) r.w s. 2(24)(x) and s. 43B. Consequently, the AO disallowed the deduction and added a sum of Rs. 17,94,042 towards EPF contribution.”
And subsequently decide this issue in para-10 to 14 of Hon’ble Delhi High Court, which read as under:-
Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 19th Aug., 2008, passed in Tax Case (Appeal) No.1192/2008 [reported at (2008) 219 CTR (Mad.) 54 – Ed.] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in
Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors.Vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97: 119 STC 505 at p. 526 in para 40 and noted the following observations :
declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court. Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.”
11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was law declared by the Supreme Court under Art. 141 of the Constitution.
12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra).
14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed.”
letters numbered as clause (a), or clause (c) or clause (d) or clause (e) or clause (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of section 36(1) of the Incometax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under section 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the
Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under section 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessees as contended by learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us. Learned counsel Sri Parthasarathy and Dr. Krishna appearing for the respondents, also drew our attention to the deletion of the second proviso to section 43B of the Income-tax Act by the Finance Act, 2003, which provision has come into force, with effect from April 1, 2004. The reliance placed upon the decision of the apex court in Allied Motors P. Ltd. v. CIT  224 ITR 677 and also on the decision in General Finance Co. v. CIT (Asst.)  257 ITR 338 (SC) in respect of applicability of section 43B(b) and also omission of clause (a) or (c) or (d) or (e) or (f) referred to above occurred in the first proviso to section 43B, supports the case of the assessees and also relevant paragraphs extracted from Allied Motor’s case  224 ITR 677 and paragraph 59 referred to supra in this judgment from the Finance Bill with all fours supports the case of the assessee/ respondents.
Therefore, we have to answer the substantial question of law No. 1 framed by this court in these appeals at the instance of the Revenue against them, viz., in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative.” Even the Hon’ble Supreme Court in the case of Alom Extrusions Ltd. (supra) has clearly discussed the provisions of section 36(1)(va) and held as under:
7. In view of the above decisions of Hon’ble Apex Court in the case of Alom Extrusions Ltd. (supra), Vinay Cement (supra) and the decisions of Hon’ble Delhi High Court and Karnataka High Court, we allow the claim of the assessee and uphold the order of CIT(A) deleting the disallowance made on account of payment made for employees’ contribution to ESI and PF. This issue of the revenue’s appeal is dismissed.
8. In the result, the revenue appeal is dismissed.
9. Order is pronounced in the open court.
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