2022 (11) TMI 1363 - AT - Income Tax

Delayed Employees Contribution to PF / ESI u/s 43B r.w.s. 36(1)(va) as well as Sec.2(24)(x) - Adjustment u/s 143(1)(a)(iv) - CPC power of adjustment as Auditor had indicated the default in the Tax Audit Report - HELD THAT - The amendment made w.e.f. 01.04.2021 by insertion of words increase in income would have no impact on such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv). The impugned adjustment, would also fall u/s 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per statutory mandate the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. Purpose of the audit is to enable the revenue to make correct computation of assessee s income. A proper audit would inter-alia ensure that the claims for deduction are correctly made. Report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return. As contribution is first treated as income of the assessee and thereafter the deduction of the same has to be claimed by the assessee. Therefore the columns in the Profit Loss Account in the return of income has to be filled in this manner only i.e. the contribution is to be first added to the income of the assessee and thereafter the deduction of the same would be claimed by the assessee. In other words the assessee would first add the same to its income and thereafter it would claim deduction after crossing the hurdle of Sec.36(1)(va). Since the claim made by the assessee is inconsistent with the reporting made by Tax Auditor it was an incorrect claim which CPC has rightly disallowed. Another argument is that the debatable issues could not be subject matter of adjustment u/s 143(1). However so far as the revenue is concerned this issue is not debatable for the revenue. The revenue has always maintained a position that the claim is allowable to assessee only when the contribution is deposited as per the mandate of Sec.36(1)(va) otherwise not. Therefore it is incorrect to say that the issue is debatable one. The CHECKMATE SERVICES PVT LTD VS CIT-1 2022 (10) TMI 617 - SUPREME COURT held that allowability/treatment of delayed Employee PF Contribution payment to be taxable in hands of assessee under provisions of Income Tax Act. Decided against assessee.

Summary

Issues Involved:
1. Confirmation of disallowance of Employees' Contribution to PF/ESI in terms of Sec.43B r.w.s. 36(1)(va) and Sec.2(24)(x).
2. Delay in filing the appeal.
3. Scope and powers of CPC under Sec. 143(1) regarding adjustments based on Tax Audit Reports.
4. Applicability of the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT to the present case.

Issue-wise Detailed Analysis:

1. Confirmation of disallowance of Employees' Contribution to PF/ESI:
The primary issue in the appeals was the confirmation of disallowance of Employees' Contribution to PF/ESI under Sec. 43B r.w.s. 36(1)(va) and Sec. 2(24)(x). The Tribunal noted that while earlier decisions favored the assessee based on the Madras High Court ruling in CIT v. Industrial Security & Intelligence India (P.) Ltd., the Supreme Court's recent decision in Checkmate Services P. Ltd. vs. CIT altered the position. The Supreme Court clarified that there is a clear distinction between the employer's contribution (Sec. 36(1)(iv)) and the employee's contribution (Sec. 36(1)(va)). The latter is deemed income under Sec. 2(24)(x) and must be deposited on or before the due date specified in the relevant law to qualify for deduction. The Tribunal followed this ruling, holding that the disallowance of late payments of employees' contributions to PF/ESI stands in favor of the revenue.

2. Delay in filing the appeal:
The Tribunal noted a delay of one day in filing one of the appeals. Considering the minimal period of delay, the Tribunal condoned the delay and admitted the appeal for adjudication on merits.

3. Scope and powers of CPC under Sec. 143(1):
The Tribunal addressed the arguments regarding the limited scope of Sec. 143(1) and whether CPC could make adjustments based on Tax Audit Reports. The Tribunal held that the CPC's adjustments were valid under Sec. 143(1)(a)(ii) and (iv) as they were based on the information provided in the Tax Audit Reports, which the assessee is required to furnish. The Tribunal emphasized that the adjustments were not debatable issues for the revenue, as the law was clear that deductions for employees' contributions are only allowable if deposited within the due date specified under Sec. 36(1)(va).

4. Applicability of the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT:
The Tribunal held that the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT applies retrospectively, as it clarifies the legislative intent and the legal position since the inception of the relevant provisions. The Tribunal rejected the argument that the issue was debatable and could not be adjusted under Sec. 143(1), stating that the Supreme Court's decision has settled the law, making the revenue's position non-debatable.

Conclusion:
The Tribunal dismissed all the appeals, confirming the disallowance of employees' contributions to PF/ESI not deposited within the due date specified under Sec. 36(1)(va). The Tribunal's decision is based on the Supreme Court's ruling in Checkmate Services P. Ltd. vs. CIT, which clarified the distinction between employer's and employee's contributions and their respective conditions for deduction. The Tribunal also upheld the CPC's adjustments under Sec. 143(1), considering them within the scope of the provision.