FIL India Business & Research Services P. Ltd. Vs DC (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT) Delhi addressed the case of FIL India Business & Research Services Pvt. Ltd. concerning the delayed deposit of employees’ PF/ESIC contributions amounting to ₹1.71 crores. The Assessing Officer (AO) disallowed the amount under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, citing delays. Upon review, ITAT upheld a ₹1.71 lakh disallowance following the Supreme Court’s judgment in Checkmate Services Pvt. Ltd. for actual delays. However, regarding the remaining ₹1.69 crores, the Tribunal noted the taxpayer’s claim that payments were initially made within prescribed due dates but were reversed due to technical glitches on the EPFO portal. Bank statements showed sufficient funds and prompt re-deposits after reversals. The taxpayer also submitted correspondence with PF authorities about the portal issues. The ITAT highlighted CBDT Circular No. 261/1979, which deems payments valid on the date cheques are tendered if honored later, as a guiding principle applicable here. However, since these claims were not fully examined by lower authorities due to the absence of submitted evidence, ITAT remanded the matter to the AO for fresh evaluation. The AO is directed to verify the evidence and, if validated, delete the additions. The Tribunal partly allowed the appeal for statistical purposes, emphasizing that technical failures beyond the taxpayer’s control should not result in penal additions.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal filed by the Assessee is directed against the order of the Ld. Assistant Commissioner of Income Tax, Delhi, dated 29.04.2022  in DIN  And  Order  No. ITBA/AST/S/143(3)/2022-23/1042911888(1), relating to the A.Y. 2018-19 passed under section 143(3) read with Section 144C(13) of the I.T. Act, 1961.

2. Briefly stated facts of the case are that the assessee is a company stated to be engaged in provision of Software Development, ITES and Research development services to its AEs, wherein it acts as captive service provider. Assessee electronically filed its original return of income for A.Y. 2018-19 on 29.04.2022 declaring total income at Rs.94,69,38,530/-. The case was selected for scrutiny and accordingly notices u/s 143(2) & 142(1) were issued and served on the assessee. AO noticed that assessee had entered into International Transactions with its Associates Enterprises (AE). A reference was made by the AO to TPO u/s 92CA for determination of Arm’s Length Price in respect of International Transactions. TPO vide order passed u/s 92CA(3) dated 29.07.2021 proposed an adjustment of Rs.1,58,97,397/- to the International Transactions entered into by the assessee. Thereafter, a draft assessment order was passed u/s 144C of the Act vide order dated 22.09.2021 wherein the total assessable income was determined at Rs.97,99,20,622/-. As per as the provision of Section 144C(2) of the Act, assessee was granted a period of 30 days to either file its acceptance of the variation to the AO or to file its objection, if any, to such variation with the DRP and AO. Assessee filed its objection to the draft assessment order before DRP. DRP vide directions issued u/s 144C(5) of the Act dated 29.03.2022 directed the AO to complete the assessment as per the directions contained in the DRP order. AO thereafter, framed assessment u/s 143(3) r.w.s 144C(13) of the Act vide order dated 29.04.2022 determined the total income of Rs.96,40,23,225/-. Aggrieved by the order of AO, assessee is now before us and has raised the following grounds:

1. “On the facts and circumstances of the case and in law, the order passed by the Learned Assessing Officer (‘Ld. AO’) and upheld by the Hon’ble Dispute Resolution Panel (‘DRP’) is bad in law and erroneous.

2. On the facts and circumstances of the case and in law, the Ld. AO/ Ld. DRP erred in disallowing a sum of INR 17,084,695 pertaining to employees’ contribution to Provident Fund (‘PF’) and Labour Welfare Fund (‘LWF’) without appreciating the fact that the said amounts were duly deposited before the due date of filing the return under section 139(1) of the Act and thus eligible for deduction under section 36(1)(va) read with section 43B of the Act.

2.1  The Ld. AO/ Ld. DRP erred in not appreciating the fact that initially the PF payment aggregating to INR 15,948,640 (out of the total PF disallowance of INR 17,084,695) pertaining to the month of July 2017 was duly deposited by the Appellant within the due date specified under the PF Act and said amount got debited from the Appellant’s bank account as well on 11 August 2017. However, due to the technical glitches on Employee’s Provident Fund Organization’s (‘EPFO’) SBI bank portal, the said payment got reflected back post the due date of 15 August 2017-and the Appellant had to make that payment again.

2.2 The Ld. AO/ Ld. DRP erred in not appreciating the fact that the Appellant had made genuine attempts to deposit the contributions to PF within the due date specified under the PF regulations and the delay was only due to reasons beyond the Appellant’s control.

2.3 The Ld. AO/ Ld. DRP erred in concluding that the decisions relied upon by the Appellant in respect of the technical glitches are with regards to the delay in filing withholding tax returns without considering the principles drawn from the case laws.

2.4  The Ld. AO/ Ld. DRP erred in not appreciating the principle laid down by the Hon’ble jurisdictional High Court of Delhi in the case of Commissioner of Income-tax v. AIMIL Limited (321 ITR 508) and various other judicial precedents wherein it has been held that employees’ contribution to PF can be claimed as an expense in the year in which it is incurred if the actual payment is made before the due date of filing the ROI under section 139 of the Act, and thereby ignoring the principle of judicial discipline.

2.5 The Ld. AO/ Ld. DRP erred in incorrectly interpreting the clarification provided by the Central Board of Direct Taxes (‘CBDT’) vide Circular No. 22/2015 dated 17 December 2015.

2.6 The Ld. AO/ Ld. DRP erred in construing that the Explanations inserted in sections 36(1)(va) and 43B of the Act vide Finance Act, 2021 are clarificatory in nature and are applicable ‘ retrospectively.

3. The Ld. AO erred in denying the credit of buy back tax amounting to INR 18,356,916 deposited by the Appellant as per section 115QA of the Act vide challan dated 29 September 2017 and incorrectly levying a consequential interest of INR 10,096,304 under section 115QB of the Act.

4. The Ld. AO erred in ignoring the provisions of Income Computation Disclosure Standards (‘ICDS’) IV (Revenue recognition) while computing the tax payable on assessed income by making addition f of interest on refund of income tax amounting to INR 24,229,899 despite the fact that the same was not actually received during AY 2018-19 and hence not offered to tax by the Appellant.

5. The Ld. AO erred in not granting the credit of self-assessment tax amounting to INR 82,200,957, while computing the tax payable on assessed income, deposited by the Appellant with the Government treasury on 31 July 2020 pursuant to receipt of excess refund on processing of the original ITR in view of the modified ITR filed by the Company.

6. On the facts and circumstances of the case and in law, the Ld. AO/ Ld. DRP grossly erred in initiating penalty proceedings under section 270A of the Act.

The above grounds and sub-grounds are without prejudice to each other.

The Appellant craves leave to add, alter, amend, modify or withdraw all or any of the aforesaid grounds of appeal as may be considered necessary at any time before or at the time of hearing of the appeal.

The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case.”

3. Before us, at the outset, Learned AR submitted that Ground 1 is general in nature and requires no adjudication and Ground No.2 and its sub grounds are with respect to the addition of Rs.1,70,84,695/- being delayed deposit of employees’ contribution to Provident Fund (‘PF’) and Labour Welfare Fund (‘LWF’).

4. During the course of assessment proceedings and on perusal of Form 3CD, the Tax Audit Report, AO noticed that contribution aggregating to Rs.1,70,84,695/- received from Employees towards PF and any other welfare fund was deposited by the assessee beyond the prescribed due dates. The assessee was asked to explain as to why the employees’ contribution paid beyond the due dates not be disallowed. Before AO assessee inter alia submitted that due to technical glitches on the Employees Provident Fund Organizations (EPFO) online portal, the assessee could not deposit the employees’ contribution towards PF on the due dates and to support its contentions, assessee also filed copies of the letter addressed to the Commissioner, Employees Provident Fund Organization. The submissions of the assessee was not found acceptable to AO. AO thereafter, by invoking the provisions of Section 36(1)(va) r.w.s 2(24)(x) held that the delayed contribution of employees share of PF and other funds is not an allowable deduction. AO after placing reliance on the amendments made by Finance Bill, 2021, made the additions. When the matter was carried before the DRP, DRP upheld the action of AO. Consequent to the direction of DRP, AO made the addition. Aggrieved by the order of AO, assessee is now before us.

5. Before us, Learned AR reiterated the submissions made before AO and DRP and further pointed to the copy of the Challan of deposit of employees’ PF which is placed at page 1 of the paper book and from that, he pointed that the online Challan was generated on 10^th July 2017, the amount was paid through cheque and is reflected in the bank’s statement (copy of which is placed at page 3 of the paper book) but however due to the technical glitches at the end of the Provident Fund portal, the amount of deposit was reversed on July 15, 2017 but was finally paid on July 18, 2017. He pointed to the similar factual position with respect to the other month’s payments for which he pointed to the copy of the challan, bank statements which are placed at page 1 to 77 of the paper book. He thereafter, pointed to the copies of letter filed before the Employees Provident Fund Organization (‘EPFO’) intimating about the delay in deposit of dues due to technical glitches which is placed at page 75-82 of the paper book. He therefore, submitted that initially the amounts were duly deposited by the assessee within the due date specified under the PF Act and that amount had got debited from the assessee’s bank account before the due date but due to the technical glitches at the end of Employee’s Provident Fund Organization’s (‘EPFO’), the payments could not be processed and got reversed to the assessee’s bank which was beyond the control of the assessee. He submitted that since the delay cannot be attributed to the assessee, the assessee should not be penalized by making the additions. He thereafter pointed to the Circular No.261 dated August 8, 1979 issued by CBDT. He submitted that though the aforesaid circular is in the context of payment of Income-tax/TDS but the view expressed in the Circular should be applicable to the present facts also. He submitted that the circular states that the date of tender of cheque is to be treated as the date of payment of tax. He, relying on the aforesaid circular, submitted that since cheques issued by the assessee were not dishonoured and the amounts did not get debited to the assessee’s bank account due to the technical glitches at portal of PF, the payment relates back to the date of issue of the cheque. Learned AR fairly submitted that the assessee had not placed the challans, bank statements and correspondence to PF authorities before the AO & DRP as it was of the opinion that since the amounts were deposited before the filing of return of income, no disallowance was warranted in the light of the decision rendered in the case of AIMIL Ltd. (321 ITR 508). He submitted that due to change in circumstances on account of the decision of Hon’ble Apex Court, the additional evidences are submitted, which may be taken on record. He therefore, submitted that the addition on account of PF delayed be deleted. Learned AR thereafter fairly conceded that out of the total disallowance made by AO, with respect to the amount of Rs.1,71,351/- there was a delay on the part of the assessee in depositing the aforesaid employees’ contribution and therefore in view of the decision of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. and others vs. CIT & others (2022) 448 ITR 518 (SC) the amount of Rs.1,71,351/- be disallowed and the balance addition be deleted.

6. Learned DR on the other hand supported the order of lower authorities and objected to the additional evidences filed but however stated that if the additional evidences are admitted, the same be sent back to lower authorities for necessary verification.

7. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the addition made on account of the delayed deposit of Employees’ Contribution to PF and Labour Welfare Fund. AO had disallowed Rs.1,70,84,695/-, being delayed deposit of PF and other employees dues by invoking the provisions of Section 36(1)(va) r.w.s 2(24)(x) of the Act. Before us, it is the contention of the Learned AR that out of the total amount of Rs.1,70,84,695/-, there was delay in deposit of Rs.171,351/- and therefore the same needs to be disallowed in view of the Hon’ble Apex Court decision in the case of Checkmate Services P. Ltd. (supra). Considering the submissions of Learned AR and relying on the decision of Hon’ble Apex Court in the case of Checkmate (supra) to the extent of disallowance of Rs.1,71,351/-, the order of AO in disallowing the expenses is upheld.

8. As far as the addition of balance amount of Rs.1,69,13,344/- is concerned, before us, it is the contention of the assessee that it is the aggregate amount of deposits for various months. The amounts due for various months was deposited by the assessee within the due date specified under the PF regulations in each of the month but however due to the technical glitches on EPFO Portal, the deposits for the respective months could not be processed and got reversed which was beyond the control of the assessee. In support of the aforesaid contentions, Learned AR has pointed to the copy of the Bank Statement placed at the paper book which reflects that the amounts was initially deposited in the assessee’s bank account before the due date but subsequently the amounts were reversed and thereafter, have been again debited to the assessee’s bank account after the due date. The Bank statements which are placed in the paper book also reveal that on the initial dates when the cheques were presented for payment but were reversed, the bank balances were more than the amounts for which the cheques were issued meaning thereby that the cheques got reversed not due to the insufficiency of balance in the bank account. Assessee has also filed copies of the letter addressed to PF authorities wherein it had pointed out the glitches in their portal. We are therefore of the view that when the assessee had initially deposited the employees dues before the prescribed due dates but due to the glitches at the end of the respective authorities, the amounts were reversed by the bank, then the assessee cannot be penalized with the addition on account of delayed deposits. We however find that the documents evidencing the payment on due dates in the form of challans, bank statements, correspondence with PF authorities were not furnished by the assessee before the lower authorities and therefore there is no finding of the lower authorities on the aforesaid contentions by the AO. AO had on the basis of the final date of payment as reported in the Tax Audit Report proceeded to disallow the payment and made the additions. We further find that CBDT vide Circular No.261 dated 8^th Aug 1979 has held that if a cheque or draft tendered in payment of Government dues and accepted under the provisions of rule is honoured on presentation, the payment is deemed to have been made on the date on which it was handed over to the Government bankers. We note that though the aforesaid circular is with respect to date of receipt of cheque tendered for payment of direct taxes but however are of the view that the principle stated in the aforesaid circular will be applicable to the present facts also. Considering the totality of the aforesaid facts and more so the additional evidences which have been filed by the assessee before us, we are of the view that the issued needs to be reexamined at the end of the AO. We therefore, restore the issue back to the file of AO to decide the issue afresh after considering the submissions of the assessee. If after examination of the additional evidences and the assessee’s submissions, the assessee’s contentions of the initial deposits being made before the due date prescribed by PF authorities and contention of the payment being reversed on account of the glitches at the end of the EPFO is found correct, then the AO shall delete such additions. Thus the ground of assessee is partly allowed for statistical purposes.

9. Ground No.3 is with respect to the denial of the credit of buy back tax deposited by the assessee.

10. Before us, Learned AR submitted that during the year under consideration assessee had bought back few of its equity shares and assessee had deposited Buy Back Tax (BBT) amounting to Rs.1,83,56,916/- as per the provisions of section 115QA of the Act on 29^th Sep, 2017. He submitted that in the final assessment order the credit for Rs.1,83,56,916/- has not been granted to the assessee and consequently an interest amount of Rs.1,00,96,304/- on such amount of BBT has also been levied. He therefore, submitted that the assessee be granted the credit of BBT amounting to Rs.1,83,56,916/- and the consequential interest be deleted.

11. Learned DR did not factually controvert the submissions made by Learned AR but however submitted that the matter be restored back to the file of AO for necessary verification.

12. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the non-granting of credit of Buy Back tax (BBT) and consequent levy of interest on such BBT. It is the contention of the Learned AR that though the assessee has deposited the BBT amount but the credit was for the same has not been granted to the assessee and consequent interest on such BBT has also been charged to the assessee. Assessee has also placed on record the copy of challan to demonstrate the deposit being made. We find that the assessee has made an application u/s 115QA vide dated Sep 29, 2017 for necessary rectification but it is the contention of the assessee that the issue has not yet been resolved by the AO. Considering the aforesaid factual position, we direct the AO to process the aforesaid application on the issue at the earliest and decide the issue in accordance with law. The assessee is also directed to promptly furnish the necessary details called for by the AO to process the application. Thus the ground of assessee is allowed for statistical purposes.

13. Ground No.4 is with respect to the addition made on account of interest of refund of income tax amounting to Rs.2,42,29,899/-.

14. Before us, Learned AR submitted that during the year under consideration, assessee had accrued interest amounting to Rs.2,42,47,824/- on income tax refund on estimate basis. Since the amount was not received by the assessee during the year under consideration, the assessee had reduced the said amount from the income under the head “income from other sources”. He submitted that CBDT has issued certain Income Computation and Disclosure Standards (‘ICDS’), in exercise of the powers conferred by Section 145(2) of the Act which provides a framework for computation of taxable income of all assesses in relation to the income under heads “Profits and Gains under Business or Profession” and “Income from Other Sources”. He submitted that as per the recognition criteria laid down by this ICDS, interest on refund of Income-tax should be offered to tax by the assessee only on actual receipt basis. He submitted that the treatment followed by the assessee is in line with the treatment provided by ICDS. He submitted that since the interest on Income-tax refund was actually received by the assessee during the F.Y. 2020-21, it was offered to tax in F.Y. 2020-21 relevant to A.Y. 2021-22. In support of his aforesaid contentions, he pointed to the computation of income which is placed at page 104 to 107 of the paper book. He therefore, submitted that the same amount of interest has been taxed twice once in A.Y. 2018-19 on accrual basis and once in A.Y. 2021-22 on receipt basis. He submitted that assessee had also filed rectification application on the issue before the AO but the same is yet to be disposed by the AO. He therefore submitted that AO be directed to delete the addition made in the year under consideration as it has resulted into double addition.

15. Learned DR on the other hand did not controvert the factual submissions made by Learned AR but supported the order of lower authorities. He thereafter fairly submitted that the matter may be restored to the file of AO with necessary directions.

16. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the addition made on account of interest of refund of income tax amounting to Rs.2,42,29,899/-. It is the contention of the assessee that the amount has been offered to tax by assessee in the year under consideration on accrual basis and the same amount has also been offered to tax in A.Y. 2021-22 on receipt basis and therefore the same interest on refund is being taxed twice. It is also the contention of the assessee that the necessary rectification application made before the AO is yet to be disposed off by the AO. Before us, Revenue has not placed any material on record to controvert the aforesaid submissions made by assessee. Considering the aforesaid submissions of Learned AR, we are of the view that the income offered in the year under consideration on accrual basis be not considered as income as the same income has been offered to tax in the year 2021-22 and has also been received by the assessee in that year and taxed in that year. We, therefore, direct the AO to delete the addition of interest on refund being taxed twice. Thus the ground of assessee is allowed.

17. Ground No.5 is with respect to not granting credit of self assessment tax amounting to Rs.8,22,00,957/-.

18. Before us, it is the contention of the assessee that assessee had deposited Rs.8,22,00,957/- as self-assessment tax but its credit has not been granted to the assessee and for which assessee has also filed rectification application on 13.05.2022 but the same is yet to be disposed of by the AO. It is the prayer of the assessee that AO be directed to grant the credit of TDS. The aforesaid contentions of Learned AR has not been controverted by Learned DR.

19. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to not granting credit of self-assessment tax. It is the contention of the assessee that assessee had paid self assessment tax but its credit has not been granted while computing the tax payable and for which assessee has also made necessary application before AO which is yet to be disposed of by AO. Before us, Revenue has not pointed to any factual fallacy in the contentions of the Learned AR. Considering the submissions of the Learned AR, we hereby direct the AO to expeditiously process the request of rectification application filed by the assessee and pass necessary order in accordance with law. Thus the ground of assessee is allowed for statistical purposes.

20. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 17.01.2023