Case Details:

Mohangarh Engineers and Construction Company vs. DCIT, CPC, Bangalore

Appeal No.:

ITA No. 05/JODH/2021

Order pronounced by:

ITAT Jodhpur

Date of Order:

12-08-2021

Assessment Year:

2019-20

In Favour of:

Assessee

The assessee is a partnership firm deriving income from the execution of contract work. The CPC, Bangalore processed its return of income and passed an order u/s 143(1) by making an adjustment disallowing the deduction of Rs. 4,38,530/- in respect of employees’ contribution of ESI & PF u/s 36(1) (va) of the Income Tax Act. It was submitted that the payment made in respect of ESI/PF on or before the due date of filing of return and in light of the binding decision of Hon’ble Jurisdictional High Court, the CPC while processing the return u/s 143(1) should have allowed the deduction as claimed by the assessee. In support, reliance was placed on the following decisions:

• CIT vs. State Bank of Bikaner and Jaipur (2014) 363 ITR 70
• CIT vs. Jaipur Vidyut Vitran Nigam Ltd. (2014) 363 ITR 307
• CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 366 ITR 163

It was submitted that in the latest decision of Hon’ble Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd./ Rajasthan State Ganganagar Sugar Mills (2017) 250 Taxman 32 (Raj), the Hon’ble High Court has once again held that the employees’ contribution to the PF, ESI, etc. made within the due date of filing return u/s 139(1) shall be an allowable deduction. It was submitted that against the aforesaid decision of the Hon’ble Rajasthan High Court, the SLP filed by the department before the Hon’ble Supreme Court has been dismissed on 04-07-2017, and therefore, the decision of the Hon’ble Rajasthan High Court has attained finality.

It was submitted that the ld. CIT (A) has however sustained the disallowance made by the CPC while processing the return relying on the decisions of Hon’ble Delhi, Kerala, and Madras High Courts and ignoring the binding decisions of the Hon’ble Rajasthan High Court.

We may refer to the initial decision of Hon’ble Rajasthan High Court in the case of CIT vs. State Bank of Bikaner & Jaipur. In the said decision, the Hon’ble High Court held as under:

• “A conjoint reading of the proviso to Section 43B which was inserted by the Finance Act, 1987 made effective from 01/04/1988, the words numbered as clause (a), (c), (d), (e) and (f), are omitted from the above proviso and, furthermore the second proviso was removed by Finance Act, 2003 therefore, the deduction towards the employers’ contribution, if paid, prior to the due date of filing of return can be claimed by the assessee.
• In our view, the explanation appended to Section 36(1) (va) of the Act further envisage that the amount actually paid by the assessee on or before the due date admissible at the time of submitting return of income under section 139 of the Act in respect of the previous year can be claimed by the assessee for deduction out of their gross total income.
• It is also clear that Sec. 43B starts with a notwithstanding clause & would thus override section 36(1) (va) and if read in isolation Sec. 43B would become obsolete. Accordingly, the contention of counsel for the revenue is not tenable for there as on aforesaid that deductions out of the gross income for the payment of tax at the time of submission of return u/s 139 is permissible only if the statutory liability of payment of PF or other contribution referred to in clause (b) is paid within the due date under the respective enactments by the assesses and not under the due date of filing of return.
• Thus, we are of the view that where the PF and/or EPF, CPF, GPF, etc., if paid after the due date under respective Act but before the filing of return of income under section 139(1) cannot be disallowed under section 43B or under section 36(1) (va) of the IT Act.”

We further note that though the ld. CIT(A) has not disputed the various decisions of the Hon’ble Rajasthan High Court but has decided to follow the decisions rendered by the Hon’ble Delhi, Madras, Gujarat, and Kerala High Courts.  Given the divergent views taken by the various High Courts and in the instant case, the fact that the jurisdiction over the A.O. lies with the Hon’ble Rajasthan High Court, in our considered view, the ld. CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as the same is binding on all the appellate authorities as well as the A.O. under its jurisdiction in the State of Rajasthan.