2022 (6) TMI 439 - AT - Income Tax

Delayed deposit of employees contributions towards PF ESIC - payment beyond due dates prescribed in respective funds and paid before the due date of filing of return of income u/s. 139(1) - addition on a debatable and controversial issue - adjustments u/s. 143(1) - HELD THAT - In this present case before us the additions have been made by way of adjustments vide intimation u/s. 143(1) of Income Tax Act dated 23.03.2020. As on 23.03.2020 the aforesaid amendments to Section 36(1)(va) and Section 43B of Income Tax Act had not been enacted; but orders of Hon ble Delhi High Court (the jurisdictional High Court) in favour of assessee and against Revenue on this issue in aforesaid cases of CIT vs. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT ; and CIT vs. P.M. Electronics Ltd. 2008 (11) TMI 3 - DELHI HIGH COURT were available. Accordingly the aforesaid amount could not have been added to assessee s income as on 23.03.2020 in the light of these binding precedents of the Hon ble Delhi Court in favour of the assessee. Therefore we are of the view that the aforesaid adjustments made by Revenue on 23.03.2020 whereby the aforesaid amount was added to assessee s income were unfair unjust and bad in law. For this view we respectfully take support from the order of Agra Bench of ITAT in the case of Mahadev Cold Storage vs. Jurisdictional Assessing Officer 2021 (6) TMI 506 - ITAT AGRA Revenue should have given due consideration to the fact that the issue was highly debatable and controversial. As already discussed earlier adjustments u/s. 143(1) of Income Tax Act by way of intimation u/s. 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments u/s. 143(1) of Income Tax Act on 23.03.2020 on a debatable and controversial issue. We would like to make respectful mention of order of Jabalpur Bench of ITAT in the case of Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR in which similar view has been taken. Further it is also well settled that retrospective amendment cannot be invoked to make addition by way of adjustment and intimation u/s. 143(1) of Income Tax Act. This view was taken by the Hon ble Supreme Court in the case of CIT vs. Hindustan Electro Graphites Ltd. 2000 (3) TMI 2 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 54,73,401/- due to delayed deposit of employees' contributions towards PF & ESIC.
2. Retrospective or prospective application of amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021.
3. Scope of adjustments under Section 143(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 54,73,401/- due to delayed deposit of employees' contributions towards PF & ESIC:

The primary issue in this appeal is the addition of Rs. 54,73,401/- made by the Assessing Officer due to the delayed deposit of employees' contributions towards PF & ESIC. The payments were made after the specified date prescribed under the relevant laws but before the due date of filing the return of income under Section 139(1) of the Income Tax Act. The assessee contested this addition, arguing that the payments were made before the due date of filing the return and should not be added to the income. The Ld. CIT(A) confirmed the addition, leading to the present appeal.

2. Retrospective or prospective application of amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021:

The Ld. CIT(A) upheld the addition by considering the amendments to Section 36(1)(va) and Section 43B brought by the Finance Act, 2021, which inserted Explanation-2 and Explanation-5, respectively. The assessee argued that these amendments are prospective, as stated in the Memorandum Explaining the Provisions in the Finance Bill 2021, which indicated that the amendments would take effect from 1st April 2021 and apply to assessment year 2021-22 and subsequent years. The Tribunal noted that various ITAT decisions have held that these amendments are prospective and do not apply to periods before 01.04.2021.

3. Scope of adjustments under Section 143(1) of the Income Tax Act:

The Tribunal examined whether the addition of Rs. 54,73,401/- through adjustments under Section 143(1) was justified. It was observed that adjustments under Section 143(1) on debatable and controversial issues are beyond the scope of this section. The Tribunal cited several judicial precedents, including decisions from the Hon'ble Delhi High Court, which held that delayed payments of employees' contributions to PF & ESIC, made before the due date of filing the return, do not constitute income. Therefore, the Tribunal concluded that the adjustments made by the Revenue were unfair, unjust, and bad in law.

Conclusion:

The Tribunal concluded that:
- The fact that the payments were made after the stipulated date but before the due date of filing the return is not in dispute.
- The retrospective or prospective nature of the amendments is debatable and controversial.
- Adjustments under Section 143(1) on such issues are beyond the scope of the section.
- The Revenue erred in making the adjustments, and the Ld. CIT(A) erred in confirming the addition.

The Tribunal set aside the impugned appellate order dated 24.08.2021 of the Ld. CIT(A) and directed the Assessing Officer to delete the addition of Rs. 54,73,401/-. The Tribunal clarified that it did not express any view on whether the amendments are prospective or retrospective, as the issue was academic in nature given the decision.

Result:

The appeal of the assessee was partly allowed for statistical purposes. Order pronounced on 24.05.2022.