2025 (7) TMI 1562 - AT - Income Tax

Addition on account of closing stock - non rejection of books of accounts - HELD THAT - It is seen that the AO persistently requested for details from the assessee regarding the closing stock. It is a matter of record that the assessee did not file the details correctly and promptly. While it is true that the assessee being a Private Limited Company would have got his accounts audited but it is a trite position of law that the Ld. AO is well within his rights to test the veracity of the accounts through his own examination. Even at the expenses of emphasizing this point we need to mention that the mere statement that audited accounts exists does not mean much until and unless such accounts have been verified and tested in case there is a requirement to do so by the Ld. AO. In this case there is no indication that the assessee presented the books of accounts or even the bills vouchers etc. underlying the same for any kind of examination by the Ld. AO. We are unable to be persuaded by the reasoning adopted by the Ld. CIT(A) in terms of deleting the addition merely on the ground that the books of accounts have not been rejected even when the details forming such books of accounts were not presented before the Ld. AO. Thus remand this matter back to the file of Ld. AO for examining the issue of closing stock in detail and thereby tallying the same with the books of accounts and only thereafter arriving at a just and reasonable conclusion. The assessee would do well to present the entire material in this regard for the Ld. AO to examine. To this extent we set aside the finding of Ld. CIT(A) in this regard in regard to the impugned addition on account of closing stock. Delayed deduction u/s 36(1)(va) for employee contributions to Provident Fund (PF) and Employee State Insurance (ESI) - HELD THAT - As it deserves to be held that the issue under consideration is no longer res integra. It is noticed that the Ld. AR had not filed a copy of the order in the case of M/s Southern Construction Company 2016 (8) TMI 1576 - JHARKHAND HIGH COURT but we have been able to locate the full text of the order. The text of this order which pre-dates the Checkmate Services case 2022 (10) TMI 617 - SUPREME COURT (LB) has been perused also. It is felt that the impugned issue is no longer res integra and very recently an order of the coordinate Bench of Patna ITAT in the case of SIS Cash Services Pvt. Ltd. 2025 (7) TMI 366 - ITAT PATNA has been passed where one of us was the author. CIT(A) has applied the law correctly in terms of denying relief to the assessee.

Summary

ISSUES:

Whether the deletion of addition on account of closing stock without rejection of books of accounts under section 145 of the Income Tax Act, 1961, was justified despite non-submission of specific project-wise details by the assessee.Whether the addition disallowing deduction under section 36(1)(va) of the Act for employee contributions to Provident Fund (PF) and Employee State Insurance (ESI) paid after the due date prescribed under the relevant statutes was valid.Whether the Supreme Court decision in Checkmate Services Pvt. Ltd. clarifies the applicability and retrospective effect of section 36(1)(va) vis-à-vis section 43B of the Income Tax Act regarding employee contributions.Whether delayed payment of employee contributions to PF and ESI, even if made before the due date of filing the return of income, qualifies for deduction under section 36(1)(va) or section 43B.Whether judicial decisions rendered subsequent to the date of assessment order can be applied retrospectively to rectify mistakes apparent from the record under the relevant provisions of the Income Tax Act.

RULINGS / HOLDINGS:

The deletion of the addition on account of closing stock by the Commissioner of Income Tax (Appeals) was set aside because the Assessing Officer had not been provided with specific details and supporting material such as bills and vouchers; hence, the matter was remanded for detailed examination and verification of closing stock with the books of accounts. The Court emphasized that "mere statement that audited accounts exists does not mean much until and unless such accounts have been verified and tested."The addition disallowing deduction under section 36(1)(va) for employee contributions paid after the due date prescribed under the PF and ESI Acts was upheld, following the Supreme Court's ruling in Checkmate Services Pvt. Ltd., which held that employee contributions must be deposited within the due dates specified under the relevant statutes for the deduction to be allowable.The Supreme Court decision in Checkmate Services Pvt. Ltd. is authoritative and clarifies that employee contributions to PF and ESI are governed exclusively by section 36(1)(va) of the Income Tax Act and not by section 43B. The Court held that this interpretation has retrospective effect, applying to past as well as future cases, as the Supreme Court's role is to interpret existing laws rather than create new ones.Delayed payment of employee contributions to PF and ESI, even if made before the due date of filing the return of income, does not qualify for deduction under section 36(1)(va) or section 43B if the payment was made after the due date prescribed under the respective statutes. This principle applies regardless of whether the assessment was made under section 143(1)(a) or section 143(3) of the Act.Judicial decisions of the jurisdictional High Court or Supreme Court, even if rendered subsequent to the date of the assessment order, constitute a "mistake apparent from the record" and can be applied retrospectively to rectify the assessment order under the relevant provisions. The Court reiterated that "the subsequent decisions of the jurisdictional High Court do not enact the law but declare the law as it always was."

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, specifically sections 142(1), 145, 36(1)(va), and 43B, and relied on authoritative judicial precedents, including the Supreme Court's decision in Checkmate Services Pvt. Ltd., to interpret the scope and applicability of deductions related to employee contributions.The principle of "lex specialis derogat legi generali" was invoked to explain that special provisions under section 36(1)(va) prevail over the general provisions of section 43B regarding employee contributions.The Court emphasized the settled legal position that Supreme Court decisions have retrospective effect, clarifying the true meaning of the law as it existed from the outset, and that subsequent judicial pronouncements can rectify mistakes apparent from the record under the Income Tax Act.The Court noted the necessity for the Assessing Officer to verify and examine books of accounts and underlying documents before making additions, underscoring the procedural safeguards in assessment proceedings.The Court rejected arguments based on the timing of judicial decisions relative to the assessment order date, holding that interpretation by the Supreme Court applies retrospectively and binds all authorities.The Court followed a consistent line of precedent from various High Courts and Tribunals, including the Patna ITAT and Gujarat High Court, which reinforce the principles of retrospective application of judicial decisions and the strict compliance requirements under section 36(1)(va).