Orissa H.C : No disallowance u/s 43B if EPF contribution deposited before due date of filing tax return u/s 139(1)

High Court Of Orissa

Sudhir Kumar Agarwala Vs. CIT

Assessment Year : 1998-99

Section : 43B

Dr. B.S. Chauhan, CJ. And B.N. Mahapatra, J.

IT Appeal No. 36 Of 2005

April 15, 2009


B.N. Mahapatra, J. :

This tax appeal under section 260A of the IT Act, 1961 (hereinafter referred to as the “IT Act”) has been filed raising the following questions of law :

“(A) Whether in the facts and circumstances of the case the learned Tribunal is justified in sustaining the additions made under section 43B of the Act, for delay in deposit of EPF contribution when the appellant has deposited the said contribution before due date of submission of returns under section 139(1) of the IT Act ?

(B) Whether the learned Tribunal is justified in sustaining the additions of capita] gain when in the facts and circumstances of the case the appellant has inherited the properties by virtue of a will and the said property was under the possession of his father for a period of 40 years and more ?

(C) Whether the additions made on account of capital gains is correct under the facts and circumstances of the case and the amounts determined ?”

2. The facts and circumstances giving rise to the present tax appeal is that the appellant is an income-tax assessee in the file of Respondent No. 3.The appellant owns a small scale industrial unit at Vedas, Rourkela. The IT return filed by him for the assessment year 1998-99 was subjected to scrutiny under section 143(3) of the IT Act. The AO completed the assessment vide his order dt. 16th March, 2001 making addition to the total income under different heads including addition on account of EPF contribution for Rs. 31,767 and short-term capital gain of Rs. 1,50,500.

Being aggrieved, the appellant filed first appeal. In the first appeal, the appellant got partial relief. Being dissatisfied with the order of the said first appellate authority, the appellant carried the matter before the Tribunal, Cuttack Bench, Cuttack. The learned Tribunal confirmed the addition made on account of late payment of PF dues in terms of section 43B of the IT Act and also sustained the addition of Rs. 1,50,500 made on account of short-term capital gain. Hence, this appeal.

3. Mr. J.M. Pattnaik, learned counsel appearing on behalf of the appellant submits that section 43B of the IT Act contemplates that certain deductions are to be allowed only on actual payment. It further provides that in the event the payment is made before submission of returns in terms of section 139(1) of the IT Act, the deduction shall also be allowed. The second proviso appended to the said section has been deleted w.e.f. 1st April, 2004 with the object that if the payment is made during the assessment year or before submission of returns under section 139(1) of the IT Act, such payments are to qualify for deduction.

In support of his contention, he relied on the decision of Hon’ble Supreme Court in Allied Motors (P.) Ltd. v. CIT [1997] 139 CTR (SC) 364 : [1997]224 ITR 677 (SC), and the Circular No. 7 of 2003 [ [2003] 184 CTR (St) 33]issued by the Central Board of Direct Taxes (in short, the ‘CBDT). However, the learned Tribunal has not considered the judgment of Hon’ble apex Court properly. The CBDT circular was also not taken into consideration by the learned Tribunal. He further contends that from the assessment order it clearly reveals that the PF has been paid during the financial year, which is also much before the time allowed under the statute for filing return under section 139(1) of the IT Act.

As it appears, the learned Tribunal has not discussed in its order as to why the decision of the Hon’ble Supreme Court in Allied Motors’s case (supra) is not in consonance with factual aspect involved in the assessee’s case. In Allied Motors’s case (supra), the Hon’ble apex Court held that section 43B of the IT Act, 1961, was inserted w.e.f. 1st April, 1984, to discourage taxpayers who did not discharge their statutory liability of payment of excise duty, employer’s contribution to PF, etc., for long periods of time, but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. After the insertion of section 43B, even if the assessee had regularly adopted the mercantile system of accounting, the amount of tax payable by the assessee could be deducted only in the year in which the sum was actually paid and not in the year in which the assessee incurred the liability to pay that tax. However, an assessee who had collected sales-tax in the last quarter of the accounting year and deposited it in the treasury within the statutory period falling in the next accounting year, was not entitled to claim any deduction for it. This was not intended by section 43B. To obviate this kind of unexpected outcome of section 43B, the first proviso was added in section 43B by the Finance Act of 1987. The proviso makes it clear that the section will not apply in relation to any sum which is actually paid by the assessee in the next accounting year, if it is paid on or before the due date for furnishing the return of income 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 the return. However, “any sum payable” in clause (a) of section 43B was open to the interpretation that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Explanation 2 was, therefore, added by the Finance Act, 1989, with retrospective effect from 1st April, 1984, for the purpose of removing any ambiguity about the term “any sum payable” under clause (a) of section 43B.

Section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. Explanation 2 being retrospective, the first proviso has also to be so construed. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments which were not intended to be prohibited from the category of permissible deductions. The first proviso to section 43B, therefore, has to be treated as retrospective.

The learned Tribunal has also not considered in its order the Circular No. 7 of 2003 issued by the learned CBDT.

In view of the above, without expressing any opinion on the merits of the case, we remit the matter back to the learned Tribunal to adjudicate this issue keeping in view the judgment of the Hon’ble Supreme Court in Allied Motors’s case (supra) and the Circular No. 7 of 2003 dt. 5th Sept., 2003.

4. The second and third questions relate to addition made on account of short-term capital gain. The learned Tribunal has upheld the said addition taking into consideration various factual aspects like the dates on which the land was purchased and sold and came to the conclusion that the land was in possession of the assessee for less than three years. On the basis of such a finding of facts the learned Tribunal held that it is a short-term capital asset and not long-term capital asset for which the claim of exemption under section 54EA was not admissible. Taking into consideration the detailed discussion and calculation made in pp. 4 and 5 of the assessment order and the finding of the CIT(A), the learned Tribunal, which is the final fact finding authority, has upheld the addition. These two questions being not substantial questions of law, warrant no interference by this Court.

With the above observation, the appeal is disposed of.

Dr. B.S. Chauhan, CJ. : I agree.

[Citation : 332 ITR 452]

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