TMI Blog2022 (5) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments 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). 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 does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yond the due dates specified under the respective PF ESI Acts. We find that this issue is no longer res integra in view of the recent decision of the Co-ordinate Bench of this Tribunal in the case of Kalpesh Synthetics Pvt. Ltd., vs. DCIT, CPC, Bangalore reported in 137 taxmann.com 475 dated 27/04/2022. For the sake of convenience, the entire order is reproduced hereunder:- By way of this appeal, the assessee-appellant has challenged the correctness of the order dated 31st March 2021, passed by the learned CIT(A) in the matter of the processing of income tax returns u/s. 143 (1) of the Income Tax Act, 1961(hereinafter referred to as 'the Act') for the assessment year 2018-19. Grievance of the assessee, as requiring our adjudication in this appeal, is that the learned CIT(A) was not justified in upholding the adjustment, made by the Centralized Processing Centre Bengaluru while processing income tax returns under section 143(1) based on certain inputs from the tax audit reports of the assessee in question, in respect of the disallowance of Rs 4,24,634 on account of delay in making the payment towards the employees' contribution for the provident fund, under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjustment(s) as mentioned below are being made to the total income as per provisions of Section 143(1)(a) . Leave aside giving reasons for not agreeing with the submissions of the assessee, no efforts were made even to strike out the inapplicable clause (i.e. whether the reply was not given or whether the reply was found unacceptable). The efforts to get the intimation under section 143(1) rectified under section 154 did not yield results either. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is aggrieved and is in appeal before us. 3. Learned counsel for the assessee, has a three-fold submission. His first plea is that in the light of law laid down by Hon'ble jurisdictional High Court, in the case of Khatau Junkar Ltd. v. K S Pathania [(1992) 196 ITR 55 (Bom)] the scope of prima facie disallowance under section 143(1) is inherently very limited and only such a disallowance can be made under this statutory provision as can be conclusively held to inadmissible based on material on record. It is submitted that a claim backed by the binding judicial precedents of Hon'ble jurisdictional High Court- as in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of time. It is submitted that the scope of expression 'an incorrect claim, if such claim is apparent from any information in the return' appearing in Section 143(1)(a) is now statutorily defined under Explanation to Section 143(1) and it means a claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. It is submitted that when the audit report itself points out the delay in payment of provident fund dues, the claim of deduction for provident fund dues, to that extent, is inconsistent with another entry, i.e. by way of the tax audit report input, and that, in any event, any disallowance of expenditure in question is indicated in the audit report but not taken into account in computing the total income in the return. He submits that the Assessing Officer CPC cannot be faul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s urged to confirm the impugned adjustments and decline to interfere in the matter. In a brief rejoinder, it is submitted that the tax auditor is an independent professional and, even though the tax auditor is appointed by the assessee, the views of the assessee need not be the same as that of the tax auditor and that a statement by the tax auditor cannot be binding on the assessee. It is submitted that in any event the tax auditors in question had subsequently revised the tax audit report and corrected the due dates of payment. It is also reiterated that the settled legal position, as binding on the Assessing Officer CPC in view of the situs of the jurisdictional Assessing Officer and in view of the judgment of Hon'ble jurisdictional High Court, is that the payments made beyond the due date under the relevant statute but before the due date of filing of the income tax return under section 139(1) cannot attract the disallowance for the reason of delay. Once again learned counsel has referred to and relied upon the decisions of the coordinate benches holding that the insertion of Explanations to Section 36(1)(va) and 43B, by the Finance Bill 2021, is prospective in nature, and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing the total income in the return . So far as the first point is concerned, it must be noted that the expression incorrect claim apparent from any information in the return , for the purpose of Section 143(1)(a), is further defined, under Explanation to Section 143(1), and it means that a claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. On the second point, it is useful to bear in mind the fact that the scheme of Section 143(1)(a) thus permits the processing of the income tax return in the manner that the total income or loss of the assessee is computed after making the adjustments for (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 'such adjustments' [as proposed under section 143(1)], in writing or by electronic mode, and the response received from the assessee, if any to be considered before making any adjustment makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter- one way or the other, and such disposal of objections is a quasi-judicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi-judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon'ble Justice Chandrachud, Hon'ble Supreme Court has made the following observations: .. Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations since what we have encountered in this case is no longer an isolated aberration. This has become a recurring phenomenon. How judges communicate in their judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary 7. These observations of Their Lordships apply equally, and in fact with much greater vigour, to the quasi-judicial functionaries as well. Viewed thus, reasons in a quasi-judicial order constitute the soul of the quasi-judicial decision. A quasijudicial order, without g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant- more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon'ble Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer 8. When the law enacted by the legislature has been construed in a particular manner by the Hon'ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon'ble High Court to read it in any other manner than as read by the Hon'ble jurisdictional High Court. The views expressed by the tax auditor, in such a situation, cannot be reason enough to disregard the binding views of the Hon'ble jurisdictional High Court. To that extent, the provisions of Section 143(1)(a)(iv) must be read down. What essentially follows is that the adjustments under section 143(1)(a) in respect of disallowance of expenditure indicated in the audit report but not taken into account in computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise , one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee's contribution to welfare funds are governed by Section 36(l)(va) of the Act. It is stated that the said disallowances are clearly covered by Section 36(1)(va) of the Income tax Act, 1961. 1.1 With reference to payment of employees dues to ESIC/PF dues, it is pertinent to note that the EPF MP Act 1952 speaks of two types of contributions, namely -the Employer's share, and -the Employee's share. As a precautionary measure under the Income Tax Act, Section 2(24)(x) makes the employees' share as a deemed income in the hands of the employer; however, the employer gets a deduction from its taxable income when it transmits over the employees' shares to the respective Funds within the due date under respective act. Thus, in order to curb any tendency on the part of the employers to delay the deposit of the employees' contributions retained by them, such contributions are taxed if these are deposited after the 'due date' of payment. 1.2 Here it is also necessary to refer to the Finance Minister's Budget speech while introducing the Finance Bill, 1987 wherein the object of the introduction of the sections 36(l)(va), 56(2)(ic) and 57( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents are clarificatory and applicable even retrospectively. The relevant paragraphs are Para 14, 15,16 17. 2.2 Also, Hon'ble ITAT, Delhi in the order of Vedvan Consultants Pvt Ltd Vs DCIT in ITA no 1312/Del/2020 dated 26/08/2021 has held in Para 12 of the order that these amendments are retrospective. 3. Therefore, it is humbly prayed that the additions made by the Assessing Officer rejecting the claim of deduction towards employee's contribution deposited in PF/ESIC account after the due date under the respective Act may be upheld. 3.2. We find that the amendment has been brought in the statute only from A.Y.2021-22 and onwards which is very clear from Explanatory Memorandum of Finance Act, 2021 issued by the CBDT. Hence, we hold that the amendment brought in Section 36(1)(va) of the Act is to be construed only as prospective in operation and cannot be applicable for the year under consideration. Reliance in this regard is also placed on the decision of Chennai Tribunal in the case of Adyar Ananda Bhavan Sweets India Pvt. Ltd., vs. ACIT reported in 134 taxmann.com 56. We find that the law prevailing prior to A.Y.2021-22 would rule the field and the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
