TMI Blog2022 (10) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... etics Pvt. Ltd. Vs. DCIT [ (2022) 137 taxmann.com 475 (Mum)] wherein the co-ordinate bench has, inter alia, observed as follows:- 2. The issue in appeal lies in a very narrow compass of common material facts. While processing the income tax return filed by the assessee, apparently, based on information contained in column 20(b) of the tax audit report under section 44AB(a), which was submitted online, there were certain delays in depositing the provident fund dues vis- -vis. 'the due date for (such) payments'. The sum total of such, as perceived by the tax auditor, delayed payments, aggregating to Rs. 4,24,634, were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports Ltd. [(2014) 368 ITR 749 (Bom)]. What is on record, in this case, is an audit report which is prepared by a third party, i.e. an independent tax auditor, and a lapse in the tax audit report, as indeed in this case, cannot be put against the assessee for the purpose of a disallowance under section 143(1). For this short reason alone, according to the learned counsel, the impugned adjustment must be deleted. The next plea is that it is a settled legal position, in the light of the binding judicial precedents from the Hon'ble jurisdictional High Court, that as long as the payments towards provident fund dues are made before the due date of filing of the income 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards the legal position regarding the deductibility of payments in question even when it is paid after the due date under the relevant statute but as long as the same is made before the due date of filing of income tax return, learned Departmental Representative submitted that there are decisions on both the sides, i.e. in favour of the assessee as also against the assessee, and that, in any event, this analysis is irrelevant when the income tax return itself points out that there are payments beyond the due date which are clearly inadmissible under the statutory provisions. As regards the amendment having prospective effect only, the learned Departmental Representative relies 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 'Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord and duly considered the facts of the case in the light of the applicable legal position. 5. In our considered view, it is quite evident, from a careful look at the related statutory provisions, that there is a material difference in the scheme of processing the income tax return under section 143(1)(a) as it stands now vis- -vis. as it stood at the point of time when Khatau Junkar judgment (supra) by Hon'ble jurisdictional High Court was delivered. That was the time when incorrect claims could be disallowed only when such a deduction was on the basis of information available in such return, accounts or documents is prima facie inadmissible [see Section 143(1)(a)(iii) as it then stood] and it was in this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return . The adjustments under clause (vi) above are no longer permissible after 1st April 2018. Clearly, thus, there is a significant paradigm shift in the processing of income tax returns under section 143(1), and the decisions rendered in the context of old Section 143(1)(a) cease to be relevant. Learned counsel thus derives no advantage from the judgments 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out application of mind and without setting out specific reasons for rejecting the same. Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of Section 143(1)(a) , and has not even struck off the portion inapplicable. To put a question to ourselves, can such casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications for a quasi-judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly is, can hardly meet any judicial approval when it is devoid of the cogent and specific reasons, and when it is in a standard template text format with clear indications that there has not been any application of mind as even the inapplicable portion of the template text, i.e. whether there was no response or whether the response is unacceptable, has not been removed from the reasons assigned for going ahead with the proposed adjustment under section 143(1). In any event, there is no dispute that the precise and proximate reasons for disallowance in all these cases admittedly are the inputs based on the tax audit report. The question then arises about the status and significance of the tax audit report. Can the observations in a tax audit report, by themselves, 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 repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations made in the tax audit report, in the light of the specific provisions of Section 143(1)(a)(iv), must prevail-more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While Section 143(1)(a)(iv) does provide for a disallowance based purely on the indication in the tax audit report, inasmuch as it permits disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return , and it is for the Hon'ble Constitutional Courts above to take a call on the vires of this provision, we are nevertheless required to interpret this provision in a manner to give it a sensible and workable interpretation. When the opinion expressed by the tax auditor is contrary to 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the objections of the assessee, against proposed adjustments under section 143(1), assumes critical importance in the processing of returns. It is also important to bear in mind the fact that what constitutes jurisdictional High Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, Rule 11(i) of the Central Processing of Returns Scheme 2011 states that Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer . Then situs of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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