TMI Blog2022 (12) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... has been shown in the audit report filed u/s 44 AB of the Act as not paid in respect of employees share of contribution of PF/ESI within due date stipulated in the respective Act and there is no error committed by the AO in making such disallowance. Accordingly, we direct the AO to make such disallowance disclosed by assessee in his report filed u/s 44AB of the Act column no.20(b) as well as referred in Annexure E and 26(A) Annexure G, if the assessee has made no suo motu disallowance by itself. Accordingly, direct the AO to limit the disallowance to that extent. - ITA No. 995/Bang/2022, 1079/Bang/2022 - - - Dated:- 28-12-2022 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For the Appellant : Shri S.V. Ravishankar, A.R., Shri Gireesha, A.R. For the Respondent : Shri Ganesh R. Gale, Standing Counsel ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: The appeal by the assessee in ITA No.995/Bang/2022 is directed against the order of CIT(A), NFAC, Delhi dated 23.09.2022 for the AY 2020-21 and the appeal by the assessee in ITA No.1079/Bang/2022 is directed against the order of CIT(A), NFAC, Delhi dated 15.12.2021 for the AY 2019-20 passed u/s 250 of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the AY 2020-21 was filed on 13.01.2021 declaring the total income as after setting off unabsorbed depreciation of earlier years Rs.3,00,211. ROI was processed on 03.11.2021 and intimation u/s.143(1) of the Act was issued. While processing ROI, AO has computed total income at Rs.13,48,410 as against returned income of Rs.Nil. Facts relating to Ground No.2 of appeal Additions to total income to the extent of Rs.13,48,410/- 2.1 During FY 2019-20, there were certain months where Employees' contribution to PF and ESIC were paid beyond the due dates prescribed under the respective Acts amounting Rs.13,48,410/-. Such payments were however made before filing the return of income. While computing the income u/s.143(1) of the Act, the AO has disallowed such belated payment of ESIC and PF which were otherwise admissible as a deductible expenditure. Aggrieved by the order passed by the learned ADIT, CPC, Bangalore, the assessee preferred this appeal before ld. CIT(A) who has confirmed the order of AO. Against this, once again, the assessee is before us on above grounds. 3. The ld. A.R. submitted that the AO cannot make disallowance towards Employees Contribution to Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in computing the total income in the return. 4. From the aforesaid provisions, it is very clear that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income. As stated supra, the tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, in our considered opinion, the said action of the Ld.CPC Bangalore in disallowing the employees contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum). The relevant portion of the decision is reproduced below:- 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 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empty formality or meaningless ritual that he can do so without application of mind and without setting out his 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(l)(a) , and has not even struck off the portion inapplicable. To put a question to ourselves, can casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications 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 when consideration of objections raised by the assessee is an integral part of the process of finalizing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 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(l)(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 indicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the tax audit report, in the light of the specific provisions of section 143(l)(a)(iv), must prevail- more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While section 143(l)(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 1962 taxmann.com 5. speaking throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments under section 143(1), assumes critical importance in the processing of returns, 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(1) 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 for 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law laid down by Hon'ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such adjustment was to be permissible in the scheme of section 143(1), whether the insertion of Explanation 2 to section 36(l)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to this assessment year 2021-22 are concerned, the provisions of section 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to income. When Parliament introduced the amendments in 1988-R9, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions especially second proviso to Section 438 - was introduced tc ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and, avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, isevident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) os income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43P which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst this observation the assessee filed writ petition before the Hon'ble Madras High Court and the writ petition has been dismissed by observing as under: - 7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act. 8.2 Respectfully following the above judgments, we reject the content ion raised by the assessee. 9. In the result, the appeal of the assessee is dismissed. 5. I heard the rival submissions an perused the materials available on record. The main contention of ld. AR is that the AO precluded from making any additions or disallowance u/s 143(1) of the Act other than the amount disclosed by asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e per se late deposit of the employees share beyond the due date under the respective Act and section 43B is of no assistance. 4. Before proceeding further, it would be apposite to take note of the relevant statutory provision in this regard. Section 2(24) provides that `income includes: `(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees . Thus, contribution by employees to the relevant funds becomes income of the employer. Instantly, there is no dispute as to the taxability of such income in the hands of the assessee. Once such an amount becomes income of the employer-assessee, then section 36(1)(va) comes into play for providing the deduction. This provision provides that: `(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. . The term `due date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share in the relevant funds before the due date u/s 139(1) of the Act. This position was earlier accepted by some of the Hon ble High Courts holding that the deduction is allowed even if the assessee deposits the employees share in the relevant funds before the date of filing of return u/s.139(1) of the Act. This was on the analogy of treating the employee s share as having the same character as that of the employer s share, becoming deductible u/s 36(1)(iv) read in the hue of section 43B(b). Recently, the Hon ble Supreme Court in Checkmate Services P. Ltd. Ors. VS. CIT Ors. (2022) 448 ITR 518 (SC) has threadbare considered this issue and drawn a distinction between the parameters for allowing deduction of employer s share and employees share in the relevant funds. It has been held that the contribution by the employees to the relevant funds is the employer s income u/s.2(24)(x), but the deduction for the same can be allowed only if such amount is deposited in the employee s account in the relevant fund before the date stipulated under the respective Acts. The hitherto view taken by some of the Hon ble High Courts in allowing deduction even where the amount was deposited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act. 5.5. Further, the coordinate bench of the Tribunal in MP No.117/Bang/2022 dated 30.11.2022 in the case of ACIT Vs. M/s. Sunrise Freight Movers Pvt. Ltd. wherein held as under: 5.6 Coming to the merit of the issues raised by the revenue in its miscellaneous petition, we not that Hon ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that nonconsideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows: Scope of the Power of Rectification 12. As stated above, in this case we are concerned with the application under section 254(2) of the 1961 Act. As stated above, the expression rectifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. 5.7. Article 141 of the Constitution of India provides that the law declared by Hon ble Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. 5.8 In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon ble Supreme Court in the case of Checkmate Services Pvt.Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Consequently, the appeal by the Assessee will stand dismissed. The order of the Tribunal will stand modified /rectified accordingly. 5.6. Being so, in my opinion, the disallowance could be made u/s 143(1) of the Act, which has been shown in the audit report filed u/s 44 AB of the Act as not paid in respect of employees share of contribution of PF/ESI within due date stipulated in the respective Act and there is no error committed by the AO in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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