Commissioner of Income Tax vs Lakhani Footwear Ltd.

M.M. Kumar, J.—The revenue has approached this Court challenging order dated 27-3-2009 passed by the income tax Appellate Tribunal, Delhi Bench, New Delhi (for brevity ''the Tribunal'') in ITA No. 345/Delhi/2008 for the assessment year 1999-2000. The assessment in this case was completed u/s 143(3) of the income tax Act, 1961 (for brevity ''the Act'') on 12-10-2006 at an income of Rs. 91,60,010. The Assessing Officer had made addition of Rs. 11,61,641 on account of late deposit of employees'' contribution to the provident fund of Rs. 11,61,641 and Rs. 10,09,158 on account of late deposit of employer''s contribution to EPF and FPF besides other addition. On appeal against the assessment order dated 12-10-2006, the Commissioner of income tax (A) vide his order dated 26-11-2007 partially allowed the relief to the assessee-respondent. The CIT(A) held that since all the payments were made within the grace period the relief of Rs. 21,99,799 deserves to be granted. He placed reliance on the judgments of the Tribunal rendered in IT Appeal No. 2995 (Delhi) of 2006 in the case of Lakhani Rubber Udyog (P) Ltd. for the assessment year 2001-02 and IT Appeal No. 2443 (Delhi) of 2006 in the case of Laksons Shoes Co. (P.) Ltd. for the assessment year 2002-03.

On further appeal by the Revenue, the Tribunal upheld the order of the CIT(A) by observing that payments have been made within the grace period, the additions made by the Assessing Officer have been rightly deleted by the CIT(A). The Tribunal further held that the decision of the CIT(A) was rightly based on the earlier decisions of the Tribunal.

Feeling aggrieved, the revenue has approached this Court by claiming that the following questions of law would arise which are based on the judgment of the Bombay High Court rendered in the case of The Commissioner of Income Tax Vs. Pamwi Tissues Limited, .

Whether on the facts and in the circumstances of the case, the Ld. ITAT was rightly in law in confirming the order of the ld. CIT(A) in deleting the addition of Rs. 11,61,641 made by the Assessing Officer on account of late deposit of employees'' contribution to PF disregarding the fact that the payments were made beyond the due dates and were, therefore, not allowable u/s 36(1)(va) and were to be treated as Income u/s 2(24)(x) of the income tax Act, 1961, in contravention of the decision in the case of CIT v. Pamwi Tissues Ltd. [2008] 215 CTR 150 (Bom.)

Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs. 10,09,158 made by the Assessing Officer on account of late deposit of employer''s contribution to PF, EPF and FPF as without appreciating the fact that payments were not made by the assessee within the prescribed ''due date'' by which the assessee was required to make payments, in contravention of the decision in the case of CIT v. Pamwi Tissues Ltd. 215 CTR 150 (Bom.)?

The aforesaid judgement of the Bombay High Court fell for consideration of Hon''ble the Supreme Court in the case of Commissioner of Income Tax Kolkata-III Vs. Alom Extrusions Limited, and the view taken by the Bombay High Court was reversed. Hon''ble the Supreme Court has held that the omission of the 2nd proviso to section 43B of the Act by Finance Act 2003 operated retrospectively from 1-4-1988. The Hon''ble Supreme Court further held that before amendment of the 2nd proviso to section 43B of the Act, the assessee were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Fund Act which created further difficulties. On a representation made to the Finance Ministry, one more amendment was made by Finance Act No. 2003 which was to apply retrospectively with effect from 1-4-1988. The rationale of Hon''ble the Supreme Court is that when a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole. In order to achieve that object strict and literal construction should be avoided. As a sequel to the aforesaid discussion, the appeal fails and the questions of law are answered against the Revenue.