The Commissioner Of Income Taxpatiala v. M/S. Rai Agro Industries Ltd.sangrur

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 663 of 2005Date of decision: 30.11.2010 The Commissioner of Income TaxPatiala --- Appellant Versus M/s. Rai Agro Industries Ltd.Sangrur --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Nancy Kaushal, Standing Counselfor the appellant-Revenue. None for the assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the Revenue against theorder dated 14.7.2005, passed by the Income Tax Appellate TribunalChandigarh Bench ‘B’ Chandigarh (in short “the Tribunal”) in ITA No.571/CHANDI/2003, relating to the assessment year 1998-99. The following substantial question of law has beenclaimed for determination by this Court: “Whether on the facts and in the circumstances of thecase, the ITAT was right in law in deleting the additionmade on account of disclosure of the payment of ESIdeposited beyond the due date? The facts, in brief, necessary for adjudication, as narratedin the appeal are that the assessee filed return of income declaringloss of Rs. 2,83,85,603/- on 30.11.1998. Assessment under Section143(3) was completed on 17.11.2000 where an addition of a sum ofRs. 9,33,264/- was made on account of disallowance of the paymentof contribution towards Employees’ State Insurance depositedbeyond the due date. The Commissioner of Income Tax (Appeals),for short [“CIT(A)”] in the appeal carried by the assessee, vide orderdated 28.7.2003, reduced the addition/disallowance to Rs. 2,93,212/-thereby allowing the relief of Rs. 6,40,052/- under Section 43B of theAct. The assessee and the Revenue feeling aggrieved by the orderof the CIT(A) preferred separate appeals before the Tribunal. TheTribunal allowed the appeal of the assessee and deleted even theaddition of Rs. 2,93,212/-, confirmed by the CIT(A), whereas theappeal of the Revenue was dismissed vide order dated 14.7.2005.The Tribunal, while deleting the addition of Rs. 2,93,212/- held thatthe omission of second proviso and amendment of first proviso toSection 43B by Finance Act, 2003 whereby payment made by theemployer towards contribution to provident fund, Employees’ StateInsurance, gratuity, superannuation and other welfare funds wouldoperate retrospectively from 1.4.1988 onwards. Hence, this appealby the Revenue. We have heard learned counsel for the appellant andhave perused the record. The point for determination in this appeal is, whether theamendment made by Finance Act, 2003, effective from 1.4.2004whereby second proviso to Section 43B stands omitted would governthe earlier cases from 1.4.1988 also. It would be appropriate to delve into brief legislativehistory and the purpose of enacting the provisions of Section 43B ofthe Act before embarking on the adjudication of the controversyinvolved in the present appeal. Section 43B provides for disallowance of unpaid statutory We have heard learned counsel for the appellant andhave perused the record. The point for determination in this appeal is, whether theamendment made by Finance Act, 2003, effective from 1.4.2004whereby second proviso to Section 43B stands omitted would governthe earlier cases from 1.4.1988 also. It would be appropriate to delve into brief legislativehistory and the purpose of enacting the provisions of Section 43B ofthe Act before embarking on the adjudication of the controversyinvolved in the present appeal. Section 43B provides for disallowance of unpaid statutory liability. This Section was inserted by the Finance Act, 1983, witheffect from 1.4.1984. The purpose of this provision is to discouragethose assesses who failed to clear their statutory liability relating topayment of excise duly, employees’ contribution to provident fund etc.within time whereas they laid claim for deductions in respect thereoffrom their income on the plea that liability to pay these amounts hadoccurred during the relevant previous year. After the insertion ofSection 43B, the assessee was entitled to claim deduction onaccount of these payments only on actual payments even where theassessee had been following mercantile system of accountancy. Theprovision at that time comprised of only clauses (a) and (b) andExplanation which was later re-numbered as Explanation 1. The twoprovisos before the Explanation to the Section were incorporated byFinance Act, 1987 effective from Ist April, 1988. Finance Act, 1988amended clause (a) with effect from Ist April, 1989. The rigors ofclause (a) were lessened by first proviso which permitted the deduction of tax liability wherever it was established that it had beendischarged, though not during the previous year, but before the duedate for filing of return under Section 139(1) of the Act. However,second proviso which related to liabilities falling under clause (b) hadmore rigid conditions. The second proviso, which is relevant fordecision of this appeal, reads thus: “Provided further that no deduction shall, in respect ofany sum referred to in clause (b), be allowed unless suchsum has actually been paid during the previous year onor before the due date as defined in the Explanationbefore clause (va) of sub-section (1) of section 36.” The Finance Act, 2003 effective from 1.4.2004 made anamendment whereby second proviso to Section 43B of the Act wasomitted from the statute book. The issue relating to retrospective operation of omission of second proviso to Section 43B of the Act was considered by theSupreme Court in Commissioner of Income Tax v. AlomExtrusions Ltd. (2009) 319 ITR 306 (SC) wherein it was held that itis curative in nature and would apply retrospectively, with effect from,April 1, 1988. The relevant observations of the Supreme Court areas under: “We hold that the Finance Act, 2003, to the extentindicated above, is curative in nature, hence, it isretrospective and it would operate with effect from April 1,1988 (when the first proviso came to be inserted). For theabove reasons, we find no merit in this batch of civil appeals filed by the Department which are herebydismissed with no order as to costs.” In view of the above, the Tribunal was right in allowing theclaim of the assessee in respect of payments made for ESIcontributions and the same could not be disallowed under Section43B of the Act. The question of law is, thus, answered against theRevenue and in favour of the assessee. In view of the above, there is no merit in the appeal, thesame is dismissed. (AJAY KUMAR MITTAL) JUDGE November 30, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE