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2025 (5) TMI 289 - HC - Income TaxAO jurisdiction to pass a fresh order u/s 250/143(3) disregarding the CIT(A) order and relying on a subsequent Supreme Court judgement to confirm addition - Delay in depositing the Employees State Insurance ESI /Provident Fund PF u/s 36 (1) (va) - CIT(A) deleted addition - HELD THAT - There is no ambiguity in the order passed by the CIT(A) and it is crystal clear that the CIT(A) had allowed the petitioner s appeal in regard to disallowance towards EPF contribution. After the said appellate order the AO was required to recompute the demand and pass an order in compliance of the aforementioned appellate order. However under the guise of giving effect to the said order the AO has passed the impugned order holding that no change in the assessment is required in view of the subsequent judgment in M/s Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT AO has decided to review the order passed by the CIT(A) and passed a fresh order on the contentious issue that was settled in favour of the petitioner by the CIT(A). It is clear that the AO is not in agreement with the decision of the CIT(A) as according to him the Hon ble Supreme Court has taken a different view in another case. AO had no jurisdiction to disregard the appellate order in the manner as he had done. The jurisdiction of the AO is limited to give effect to the CIT(A) appellate order passed by the CIT(A). In the event the Revenue finds that the order passed by the CIT(A) is not acceptable the Revenue is required to avail its remedy of an appeal before ITAT. It would be debilitating to the Rule of law if the AO is permitted to sit as an appellate authority over the decision rendered by the appellate authority and review the appellate order passed by the CIT(A) instead of giving effect to it. Revenue submits that the petitioner has a statutory remedy of appeal. However since the impugned order has been passed without jurisdiction we are not persuaded to refrain from entertaining the present petition. Matter restored back to AO for fresh adjudication.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are: - Whether the Assessing Officer (AO) was justified in making an addition of Rs. 5,87,096/- under Section 36(1)(va) of the Income Tax Act, 1961, on account of delay in depositing the Employees' State Insurance (ESI)/Provident Fund (PF) contributions. - Whether the appellate order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the said addition on the ground that the employee's contribution was deposited before the due date of filing the income tax return, was correctly binding on the AO. - Whether the AO had jurisdiction to pass a fresh order under Section 250/143(3) of the Act, disregarding the CIT(A) order and relying on a subsequent Supreme Court judgment to maintain the addition. - The scope and limits of the AO's power in giving effect to appellate orders, particularly when the AO disagrees with the appellate authority's decision. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Addition under Section 36(1)(va) for Delay in Depositing ESI/PF Contributions Relevant Legal Framework and Precedents: Section 36(1)(va) of the Income Tax Act disallows deduction for any sum paid by the employer by way of contribution to any provident fund, superannuation fund, or any other fund for the welfare of employees, if such sum is not paid before the due date specified under the relevant enactments. Section 43B further clarifies that certain expenses are allowable only if actually paid on or before the due date of filing the return. Judicial precedents relevant to this issue include:
The Supreme Court and various High Courts have held that if the employee's contribution to PF/ESI is deposited before the due date of filing the income tax return, the amount cannot be disallowed under Section 36(1)(va) or Section 43B, even if there was a delay in deposit as per the relevant welfare enactments. Court's Interpretation and Reasoning: The CIT(A) relied on the above judicial precedents to hold that since the petitioner had deposited the employee's contribution of Rs. 5,87,096/- within the financial year and before the due date of filing the return under Section 139(1), the addition made by the AO was not sustainable. The CIT(A) emphasized that the statutory provisions allow for delayed deposit subject to payment of interest and penalties under the PF and ESI Acts, but for income tax purposes, the deduction is allowable if payment is made before filing the return. Key Evidence and Findings: The petitioner's undisputed fact was that the employee's contribution was deposited within the relevant financial year and before the due date of filing the return. The AO had made the addition solely on the ground of delay in deposit as per the PF/ESI statutes. Application of Law to Facts: Applying the judicial precedents and statutory provisions, the CIT(A) concluded that the addition was not warranted and deleted it accordingly. Treatment of Competing Arguments: The Revenue relied on a Circular issued by the CBDT (Circular No. 22/2015) to argue for disallowance. The CIT(A) held that the Circular cannot override judicial decisions and binding precedents. The petitioner's reliance on Supreme Court and High Court decisions was accepted. Conclusions: The addition under Section 36(1)(va) for delay in depositing employee's contribution to PF/ESI was rightly deleted by the CIT(A) as the payment was made before the due date of filing the return. Issue 2: Jurisdiction of the AO to Pass the Impugned Order under Section 250/143(3) to Review the CIT(A) Order Relevant Legal Framework: Section 250 of the Income Tax Act empowers the Commissioner (Appeals) to hear appeals against assessment orders and pass appropriate orders. Section 143(3) relates to assessment orders passed by the AO. Once the CIT(A) passes an appellate order, the AO is mandated to give effect to it by recomputing the demand accordingly. Court's Interpretation and Reasoning: The impugned order passed by the AO purported to give effect to the CIT(A) order but instead rejected the appellate decision by relying on a subsequent Supreme Court judgment in M/s Checkmate Services P. Ltd. v. CIT-I dated 12.10.2022. The AO held that the addition under Section 36(1)(va) could not be disallowed even if deposited before the due date of filing the return, contradicting the CIT(A) order. The Court held that the AO had no jurisdiction to review or overturn the appellate order passed by the CIT(A). The AO's role is limited to giving effect to the appellate order, not to re-examine or re-decide the issue. Key Evidence and Findings: The AO's impugned order explicitly states disagreement with the CIT(A) order and reliance on a later Supreme Court judgment. This constituted an attempt by the AO to sit in appeal over the appellate authority's decision. Application of Law to Facts: The Court observed that if the Revenue was dissatisfied with the CIT(A) order, the correct recourse was to file an appeal before the Income Tax Appellate Tribunal (ITAT), and not to pass a fresh order under the guise of giving effect. Treatment of Competing Arguments: The Revenue contended that the petitioner had a statutory remedy of appeal and that the impugned order was passed without jurisdiction. The Court agreed that the AO lacked jurisdiction and that the petitioner was entitled to challenge the impugned order. Conclusions: The AO's impugned order was set aside as it was passed without jurisdiction. The AO was directed to pass a fresh order strictly in compliance with the CIT(A) appellate order dated 27.08.2020. 3. SIGNIFICANT HOLDINGS "It is clear that the AO is not in agreement with the decision of the CIT(A) as according to him, the Hon'ble Supreme Court has taken a different view in another case." "It is apparent that the AO had no jurisdiction to disregard the appellate order in the manner as he had done. The jurisdiction of the AO is limited to give effect to the CIT(A) appellate order dated 27.08.2020 passed by the CIT(A). In the event the Revenue finds that the order passed by the CIT(A) is not acceptable, the Revenue is required to avail its remedy of an appeal before the learned Income Tax Appellate Tribunal [ITAT]. It would be debilitating to the Rule of law, if the AO is permitted to sit as an appellate authority over the decision rendered by the appellate authority and review the appellate order passed by the CIT(A) instead of giving effect to it." Core principles established include:
Final determinations:
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