1. This appeal of the assessee is directed against the order dt. 21st July, 2005 passed by the CIT(A), New Delhi for asst. yr. 2001-02. The ground of appeal reads as under: That having regard to the facts and circumstances of the case, learned CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 1,23,587 on account of payment of PF and ESI Under Section 43B of the IT Act despite the fact that these payments were made within the financial year and in any case, was allowable as per law.
2. Briefly stated facts are that during the course of assessment proceedings the AO noticed that certain payments of PF and ESI had been deposited beyond the due dates. The details of such belated payments arc available at pp. 2 to 4 of the assessment order. The AO, on perusal of the said details observed that the payment of Rs. 6,10,794 out of Rs. 6,60,276 had been deposited late to Government account. It would be apparent from the said chart that even cheques have been deposited in the bank account well after due date. Therefore, the assessee was asked to explain as to why the payment deposited late into Government account be not disallowed Under Section 43B of the Act and added to the total income of the assessee. The assessee filed its reply to the said show-cause notice. The AO, however, did not find any merits in the said reply and observed that there was obligation on the part of the assessee to deposit the amount of EPF within due dates as defined in Explanation to Section 36(1)(va) of the Act. The due date for deposit of EPF is 15th of the following months. In the instant case, even cheques in most of the months have been deposited after the due date.
Since the assessee had defaulted in depositing the EPF in treasury by due date AO disallowed the claim of deduction Under Section 43B of the Act and added an amount of Rs. 6,10,794 to the income of the assessee.
For the same reason, the AO made a disallowance of Rs. 83,196 in respect of late payment of ESI Under Section 43B of the Act.
3. On appeal, before the CIT(A), the assessee has submitted that most of the payments were tendered through account payee cheques within the five days of grace period allowed and further that the payments were cleared within 15 days of the tender. Therefore, the deposits could not be considered to be belated or hit by the provisions of Section 43B. In any case, considering the decision of the Tribunal Delhi Bench in the case of Scientific Knits Processors (P) Ltd. in ITA No. 4983/Del/2004, it was argued that payments made before the due date for filing of the return should be considered as payments made within time and, therefore, fell outside the purview of Section 43B.4. The CIT(A) after having considered the submissions of the assessee has reduced the disallowance made Under Section 43B from Rs. 6,93,990 to Rs. 1,23,587 by observing as under: 2.2 I have considered the submissions, the facts of the case and the judicial precedents relied upon. From the chart showing the date of f deposit and the date of clearing of cheques it is seen that indeed most of the cheques were tendered within the grace period permitted.
Many of them were tendered before the due date itself. The 'due date' has been , defined as the date by which an assessee, is required as an employer to credit an 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. From a combined reading of Section 43B(b) and second proviso to this Section, it is quite clear that the contributions to any provident fund or any other fund for the welfare of employees are allowable only if the payments are made within the due date under the Act or the rule governing such contributions. In the case of PF deposits, the PF Act provides for payment by 15th of the following month. A further grace period of 5 days has been given by the CPFP vide Circular No. E-128(1) 60-III dt. 19th March, 1964, as modified by Circular No. E-11/128/14B/Amendment/73 dt. 24th Oct., 1973. Therefore, if an employer deposits the PF contribution by 20th of the following month, then the assessee would be entitled for deduction on that account. Therefore, in my opinion, payments tendered within the extended period of five days in respect of PF" would be considered as having been paid within time. However, from the details filed it is noticed that in respect of the PF and ESI payments for the months of August, 1999 and November, 2000, the payments have been tendered and the cheques have been cleared even beyond the grace period permitted. The details are as under:Month Extended Date of tendering Date of clearing Amount due date the cheque of chequeEPFAugust 20.9.2000 12.10.2000 19.10.200051,191November 21.12.2000 23.12.2000 30.12.200051,984August 20.9.2000 12.10.2000 19.10.20009.834November 21.12.2000 23.12.2000 30.12.200010,582 In my opinion, these payments aggregating to Rs. 1,23,587 have to be considered as belated payments hit by the provisions of Section 43B. Accordingly, the disallowance made by the AO stands reduced from Rs. 6,93,990 to Rs. 1,23,587.
5. Before us, the learned Counsel for the assessee has submitted that the omission of second proviso to Section 43B by the Finance Act, 2003 w.e.f. 1st April, 2004 has been held to be curative and, as such, retrospective in operation as held by the Special Bench of Tribunal, Chennai in the case of Kwality Milk Foods Ltd. v. Asstt. CIT (2006) 102 TTJ (Chennai)(SB) I : (2006) 100 ITD 199 (Chennai)(SB). Therefore, the entire payment of EPF and ESI made before the due date of filing the return Under Section 139 of the IT Act are allowable deductions. The learned Counsel has further pointed out that in the case of CIT v.George Williamson (Assam) Ltd. , it has been held that the contribution made towards provident fund, etc. after the close of the accounting period, but before the due date for filing of the return are entitled to relief Under Section 43B(b) of the IT Act, 1961. He has pointed out that an SLP filed against the said decision of Guwahati High Court dt. 26th June, 2006 in ITA Nos. 76, 56, 91, 80 and 84 of 2003 and 2 of 2005 dt. 26th Feb., 2006 (supra) has been dismissed by the Hon'ble Supreme Court vide order dt. 7th March, 2007. The plain copy of the order has been placed on record by the learned Counsel for the assessee. He has further pointed out that the similar view has been expressed by the Punjab & Haryana High Court in the case of CIT v.Avery Cycle Industries (P) Ltd. . The learned Counsel for the assessee, however, pointed out that there is a decision of Madras High Court in the case of CIT v. Synergy Fnancial Exchange Ltd. against the assessee. However, since there is divergence of opinion on this issue, the view which is in favour of the assessee may be followed keeping in view the decision of Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. .
6. On the other hand, the learned Departmental Representative has relied upon the order passed by the authorities below as well as the decision in the case of Synergy Financial Exchange Ltd. (supra).
7. We have heard the parties and perused the record of the case as well as the case law referred to above. In terms of the provisions of Section 4313 of the Act certain deductions are allowable only on actual payments. For the purpose of the present appeal, we are concerned only with the deduction claimed by the assessee towards payment of PF and ESI Under Section 43B of the Act. Section 43B(b) of the Act provides that any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other provident fund for the welfare of employee shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.
8. During the relevant assessment year i.e., asst. yr. 2001-02, the second proviso as then in force imposed a further condition 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 by issue of 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 sum has been realized within fifteen days from the due date.
9. The Explanation to Clause (va) of Sub-section (1) of Section 36 of the Act reads as follows: 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'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.
10. By the Finance Act, 2003, which came into force from 1st April, 2004, the second proviso to Section 43B was omitted the result being, the assessee is entitled to deduction of payment made towards provident fund, etc. when such payment is actually made by the assessee on or before the due date applicable for filing the return, irrespective of the fact that such payment is made on or before the due date by which the assessee is required to credit the contribution to the employee's account in the relevant fund under the relevant Act.
11. The issue as to whether the deletion of second proviso to Section 43B by the Finance Act, 2003 w.e.f. 1st April, 2004 should be given retrospective operation so as to make it applicable to the asst. yr.
1994-95 came for consideration in the case of CIT v. Synergy Financial Exchange Ltd. (supra). The Hon'ble High Court of Madras has inter alia held that it is not permissible in law to take a liberal view or lenient approach to give retrospective effect to the deletion of second proviso to Section 43B of the Act so as to apply it to earlier assessment years, particularly when there is no indication in the Finance Act, 2003, from the language used and from the object indicated that the legislature intended expressly or by implication that the second proviso to Section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship or any express provision in the statute that such deletion of the second proviso to Section 43B of the Act would have any retrospective effect. Nor it is possible to hold that without the aid of the subsequent Finance Act, 2003, by which the second proviso to Section 43B was omitted, the unamended provision of Section 43B would allow the deduction of payments to provident funds, etc., when such payment was made by the assessee on or before the due date applicable for filing return. There is no material to hold that the deletion is either clarificatory or declaratory or intended for the removal of doubts to give a consequential retrospective effect to the deletion so as to make it applicable to earlier assessment years.
12. It may be mentioned that in the ease of CIT v. Godaveri (Mannar) Sahakari Sakhar Karkhana Ltd. (2007) 212 CTR (Bom) 384, the Hon'ble Bombay High Court has held that the deletion of second proviso to Section 43B by Finance Act, 2003 w.e.f. 1st April, 2004 as prospective in nature and not retrospective in nature. The observation of the Hon'ble Court are as under: Held : When the two provisions were added Section 43B(b) was covered by the second proviso and the first proviso covered the other provisions. They were treated as two different classes. The Finance Act of 1987, therefore, treated Section 43B(b) as a distinct class from the other provisions. Noting certain hardships that were being occasioned by the operation of the second proviso, the Finance Act, 1989 substituted the second proviso. Parliament in its wisdom chose not to delete the second proviso but substituted the same by Finance Act of 1989 by noting the hardship that may be occasioned by the language of the second proviso as it stood. Parliament, therefore, intended that Section 4313(b) be treated as a class by itself distinct from the other Sub-sections. The Finance Bill of 2003 was basically based on the report of the Kelkar Committee and the need to simplify the tax laws. Kelkar Committee report recorded that trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes and interest, i.e., they should be allowed in the year of account. This was because even if the employees' dues towards contributory PF were paid but after the due date an employer was not entitled to deduction of the amounts either for that assessment year or any other assessment year. The notes on clauses and the memorandum explaining the provisions seek to give effect to these amendments from 1st April, 2004 and to apply in relation to the asst. yr. 2004-05. In the face of this material, which are normal aids to construction, it cannot be said that because the second proviso has been omitted by the Finance Act, 2003 Section 43B is also now covered by the first proviso. In interpreting statutory provisions, the Court also considers the mischief rule, namely what was the state of law before the Act or the amendment and what is the mischief that the Act or the amendment seeks to avoid. From the normal aids to construction it is clear that the only mischief that the amendment if and at all seeks to obviate is the need to eliminate the procedural complexities, reduce paper work, simplify tax administration and to enhance efficiency and also integrate such tax proposals as the system can at present absorb and acceptance of the representation made by trade and industry that they should not be denied the benefits of deductions on account of delayed payment of taxes and interest. The law as it stood earlier was that the employer's contribution to PF if not paid within the due date the employer was not entitled to deduction. Right from the introduction of Section 43B, apart from the amendment carried out by 1989, the law was that if the employer did not pay the contribution by the due date then it was not liable for deduction. This position has been remedied and the remedial measure made applicable from the asst. yr. 2004-05.
Having noted the history of the legislation, the Memorandum Explaining the Provision in the Finance Bill, 2003, the Notes on Clauses and the language of the amendment itself it is clear that the omission of the second proviso was not curative and consequently it cannot be said that the amendment is retrospective. Thus, the Tribunal was not right in law in direction to allow the claim in respect of delayed payment of PF, which has been paid upto the date of filing of return of income ignoring the fact that said amendment to the provisions of Section 43B was made w.e.f. 1st April, 2004 i.e., from asst. yr. 2004-05--CAT v. Synergy Financial Exchange Ltd. concurred with; CIT v. Sabari Enterprises (IT Appeal No. 1088 of 2006, dt. 3rd July, 2007 [reported at (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394--Ed.) by the Karnataka High Court) dissented from; Allied Motors (P) Ltd. v. CIT distinguished.
13. In the case of CIT v. George Williamson (Assam) Ltd. (supra) the Hon'ble High Court of Gauhati vide order dt. 26th June, 2006 has examined the issue of allowability of deduction of PF for asst. yr.
1992-93 in context of omission of the relevant words "referred" to in Clauses (a), (c), (d), (e) or (f), which were appearing in first proviso to Section 4313 before the amendment made by the Finance Act, 2003 w.e.f. 1st April, 2004 and not in context of omission of 2nd proviso to Section 4313 which was the relevant provision for allowability of deduction of PF contribution. Further, the Hon'ble High Court has followed its decision dt. 10th Jan., 1996 in the case of CIT v. Bharat Bamboo & Timber Suppliers which decision has been given in respect of claim of deduction of sales-tax and not in respect of provident fund. Similarly, the decision dt. 16th Feb., 2001 in the case of CIT v. Assam Tribune has been given following the decision in the case of Bharat Bamboo & limber Suppliers (supra). Thus, these decisions of Gauhati High Court have not been rendered in the context of second proviso to Section 43B of the Act, which is the relevant provision applicable to the allowability of PF deduction Under Section 43B of the Act. Nor the effect of omission of second proviso to Section 4313 has been considered by the Hon'ble Gauhati High Court. The decision in the case of CIT v. Avery Cycle Industries (P) Ltd. (supra) has also not been given in context of the second proviso and/or omission of second proviso to Section 4313 by Finance Act, 2003.
14. It may, however, be mentioned that an issue regarding allow ability of deduction of PF and ESI paid after the due date, but before the due date of filing the return for asst. yr. 2001-02 came up for consideration recently before the jurisdictional High Court of Delhi in the case of CIT v. Dharmendra Sharma (IT Appeal No. 644 of 2007) [reported as (2007) 213 CTR (Del) 609-Ed.]. The Hon'ble High Court vide its order dt. 28th Nov., 2007 has considered the decision of Gauhati High Court in the case of CIT v. George Williamson (Assam) Ltd. (supra) and the fact that the SLP filed against the decision of Gauhati High Court in the case of George Williamson (Assam) Ltd. (supra) has been dismissed by the Hon'ble Supreme Court vide order dt. 7th March, 2007 [reported as CIT v. Vinay Cement Ltd. (2007) 213 CTR (SC) 268-- Ed.] by observing that it was concerned with the law as it stood prior to the amendment of Section 43B of the Act. The assessee was entitled to claim the benefit provided Under Section 4313 of the Act for that period particularly in view of the fact that he had contributed to provident fund before filing the return. The Hon'ble High Court has, therefore, held that the decision of Supreme Court is fully applicable to the facts of the case and, as such, has dismissed the appeal of the Revenue.
15. We, therefore, keeping in view the decision of jurisdictional High Court of Delhi in the case of Dharmendra Sharma (supra) hold that the contribution towards PF and ESI though paid after the due date, but before the due date of filing the return are entitled for the deduction. Since the facts needs to be examined in the light of the above observations, we set aside the matter to the file of the AO for this limited purpose and to allow the claim of the assessee accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes only.