TMI Blog2022 (5) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... ments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is indicative of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be disallowed under section 143(1). When the assessee was put to notice, by the Dy Commissioner of Income Tax, CPC, Bangalore (hereinafter referred to as the Assessing Officer- CPC ) in respect of the proposed adjustment under section 143(1) for this disallowance, the assessee objected to the adjustment so proposed. As evident from the uncontroverted facts set out in the Statement of Facts before the learned CIT(A), it was categorically pointed out by the assessee, through an online communication to the Assessing Officer CPC, that as held by the Hon ble jurisdictional High Court, the payments made after the due date under the respective statute but before filing the income tax return are also deductible in the computation of business income, and the adjustment in question, therefore, was unsustainable in law. It was thus contended that dehors the observations made by the tax auditor, what was reported as delayed payment in column 20(b) were delayed payments of contributions received from the employees for various funds, as referred to in Section 36(1)(va) vis- -vis the respective statute, but not vis- -vis the provisions of the Income Tax Act. The judicial precedents in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax return under section 139(1), even beyond the permissible time limit under the relevant statute under which payment is made, the payments so made are deductible in the computation of business income. The disallowance is thus unwarranted. While on this aspect of the matter, learned counsel has invited our attention to the judicial precedents holding so, and the fact that, even after noting the assessee s reliance on these binding judicial precedents- including by Hon ble jurisdictional High Court, learned CIT(A) has relied upon the decisions of the lower forums or by Hon ble non-jurisdictional High Courts. Such conduct, according to the learned counsel, is impermissible. Finally, his next plea is that the insertion of Explanations to Section 36(1)(va) and 43B, by the Finance Bill 2021, is prospective in nature, and, accordingly, so far as the period prior to 1st April 2021 is concerned, such a disallowance cannot come into play. Our attention is invited to a series of decisions of the coordinate benches holding so. It is thus submitted that for this reason also, the impugned adjustment under section 143(1) must stand deleted. Shri Chourasia, the learned Senior Departmental Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upon the reasoning adopted by the learned CIT(A) and the unambiguous scheme of the Act. Our attention is invited to the Explanatory Memorandum to the Finance Bill 2021, which categorically states that, under the heading Explanation added to Section 36(1)(va) , For the removal of doubts, it is clarified that the provisions of Section 43B shall not apply and shall never be deemed to have applied for the purpose of determining due date under this clause and, under the heading Explanation added to Section 43B of the Act , that For the removal of doubts, it is clarified that the provisions of this Section shall not apply, and shall be deemed to have never been applied to a sum received by the assessee from any of the employees to which the provisions of sub-clause (x) of clause 24 of Section 2 applies . The intent of the legislature is thus said to be unambiguous. Our attention is then invited to the words of the statute, and it is submitted that it cannot be open to us to disregard the specific words in the legislation itself which specifically uses the expression shall never be deemed to have been applied . It is suggested that while the amendment is to take effect from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his context that the connotations of the expression prima facie inadmissible came up for consideration before Hon ble Courts above. While the expression used in section 143(1)(a)(i) is materially similar inasmuch as its wordings are an incorrect claim, if such incorrect claim is apparent from any information in the return , there are two important things that one must bear in mind- (a) firstly, the expression an incorrect claim, if such incorrect claim is apparent from any information in the return is well defined in Explanation to Section 143(1), and; (b) secondly, and perhaps much more importantly, that is just one of the permissible types of adjustments, denying a deduction, under section 143(1)(a) which goes well beyond such adjustments and includes the cases such as (iii) disallowance of loss claimed, if the return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments rendered in the context of old Section 143(1)(a)- such as Hon ble jurisdictional High Court s judgment in the case of Khatau Junkar (supra). To that extent, we must uphold the plea of the learned Departmental Representative. 6. Coming to the mechanism of application of Section 143(1), we find that the first proviso to Section 143 (1) mandates that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode and, under the second proviso to Section 143(1), the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made . The scope of permissible adjustments under section 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Section 143(1), is indeed permissible. It is, however, important to take note of the fact that unlike the old scheme of prima faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is important to bear in mind the fact that intimation under section 143(1) is an appealable order, and when consideration of objections raised by the assessee is an integral part of the process of finalizing the intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the first appellate authority sits in judgment over correctness or otherwise of such a rejection of submissions. Whether the statute specifically provides for it or not, in our considered view, the need for disposal of objections by way of a speaking order has to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee, is performing a quasi-judicial function, and the soul of a quasijudicial decision making is in the reasoning for coming to the decision taken by the quasi-judicial officer. While on this aspect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves, be justifications enough for any disallowance of expenditure under the Act? As we deal with this question, we are alive to the fact section 143(1)(a)(iv) specifically an adjustment in respect of disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return . It does proceed on the basis that when a tax auditor indicates a disallowance in the tax audit report, for this indication alone, the expense must be disallowed while processing under section 143(1) by the CPC. It is nevertheless important to bear in mind the fact that a tax audit report is prepared by an independent professional. The fact that the tax auditor is appointed by the assessee himself does not dilute the independence of the tax auditor. The fact remains that the tax auditor is a third party, and his opinions cannot bind the auditee in any manner. As a matter of fact, no matter how highly placed an auditor is, and even within the Government mechanism and with respect to CAG audits, the audit observations are seldom taken an accepted position by the auditee- even when the auditor is appointed by the auditee himself. These are mere opinions and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the correct legal position, the tax audit report has to make way for the correct legal position. The reason is simple. Under Article 141 of the Constitution of India, the law laid down by the Hon ble Supreme Court unquestionably binds all of us, and the Hon ble Supreme Court has, in numerous cases- including, for example, in the case of East India Commercial Co. Ltd. v. Collector of Customs [1963] 3 SCR 338, speaking through Hon ble Justice Subba Rao observed, inter alia, as follows: Under article 215, every High Court shall be a Court of record and shall have all the powers of such a Court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all Courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in the present case, whether the CPC is within the jurisdiction of Hon ble Bombay High Court or not, as long as the regular Assessing Officer of the assessee and the assessee are located in the jurisdiction of Hon ble Bombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon ble Bombay High Court. In our considered view, it cannot be open to the Assessing Officer CPC to take a view contrary to the view taken by the Hon ble jurisdictional High Court- more so when his attention was specifically invited to the binding judicial precedents in this regard. For this reason also, the inputs in question in the tax audit report can not be reason enough to make the impugned disallowance. The assessee must succeed for this reason as well. 9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be due date in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression due date has been defined under Explanation (now Explanation 1) to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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