TMI Blog2023 (11) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of M/s. Ganapati Motors[ 2017 (4) TMI 1613 - CHHATTISGARH HIGH COURT] had held that in a case where the assessee had not charged VAT to its profit and loss account, then, despite the fact that the liability may still be unpaid it could not have been added u/s. 43B of the Act as the same was not claimed as a deduction in the books of accounts. Thus no addition can be made of an assessee s unpaid VAT tax liability that was not charged to the profit and loss account, there is substance in the claim of the Ld. AR that based on the same analogy there was no justification for the A.O to have made an addition u/s. 43B of the amount of service tax payable as the same was not charged to the latters profit and loss account. Thus no means could have been dubbed as an incorrect claim and brought within the realm of the adjustments contemplated in clause (a) of Section 143(1) Appeal of assessee allowed. - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri R.B Doshi, CA For the Revenue : Shri Satya Prakash Sharma, Sr. DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return specified as 139(1) of the Income-tax Act, 1961 by invoking provision of section 36(1)(va). Rs. 40,74,593/- Disallowance out of employees contribution to Employee State Insurance Corporation (ESIC) paid after the due date specified in the Employment State Insurance Act 1948-but before the due date of filing return specified u/s 139(1) of the Income-tax Act, 1961 by invoking provision of section 36(1)(va). Rs. 3,41,636/- Disallowance out of Service Tax payable before the due dates specified in the relevant Acts and before the due date of filing return specified u/s 139(1) of the Income-tax Act, 1961 by invoking provision of section 43B(a) Rs. 7,66,013/- 3. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. The CIT(Appeals) drawing support from the judgment of the Hon ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT (SC) 143 taxmann.com 178 (SC) approved the view taken by the A.O and upheld the disallowances by observing, as under: 1. The appellant has not filed reply to hearing-notice. I have gone t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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.] 5.4. A plain reading of above sections makes it clear that when employee's contribution inter-alia to PF or ESIC is not paid within the limitation-dates, prescribed in those Acts, it will be treated as income of the assessee for that year. Further, explanation 2 to section 36(1)(va) of the Act, inserted by the Finance Act, 2021 with effect from 01.04.2021 removes any doubts with respect to 'due date' regarding applicability of provisions of section 43B of the Act. However, the assessee has cited various judgments of Hon'ble Tribunals wherein it has been held that explanation will apply to assessment year 2021-22 and subsequent assessment years. In para 6 of the decision of the Hon'ble ITAT, Jaipur bench, in the case of Dhabriya Polywood Vs. ADIT, CPC Bengaluru 192 ITD 298 dated 15.09.2021, it has been held that; 6. In the instant case, admittedly and undisputedly, the employees' contribution to ESI and PF collected by the assessee from its employees' contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 taxman 64 (Mag.)[2014] 366 ITR 163 and Nipso Polyfabriks (supra) would reveal that in all these cases, the high courts principally relied upon omission of second proviso to Section 43B (b). No doubt many of these decisions also dealt with section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrucions. As noticed previously, Alom Extrusions did not consider the fact of the introduction of section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee s contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity under law- in terms of section 36(1)(iv), and its liability to deposit amounts received by it (section 36(1)(va)) is, thus crucial. The former forms part of the employers income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e. depositing such amount received or deducted from the employee before the due date. In other words, there is a marked distinction between the nature and character of the two amounts- the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees income and held in trust by the employer. This market distinction has to be borne while interpreting the obligation of every assessee under section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non- obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee s income unless the condition that it is deposited on or before the due date, is corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to credit an employee s contribution to the employee's account in the relevant fund by rule, order or notification issued there under or under any Standing order, award, contact of service or otherwise. Further, it is also pertinent to mention that the decision of Hon'ble Supreme Court cited above is for assessment years prior to 2021-22 and, therefore, is applicable to the case of the appellant and there remains no need to going to the debate whether the explanation (2) inserted below section36(1)(va) of the income tax act, 1961 is applicable in this case or not. In the present case the appellant has not deposited amount of Rs. 51,82,042/- in the PF and ES! Fund within due date. With regard to the ground no.1 - which challenges the AO s power to make adjustment in a debatable issue in view of divergent decisions of Courts- it is misconceived as the controversy has been settled in view of decision of Hon'ble Supreme Court in the case of in Civil Appeal no. 2833 of 2016 in the case of Checkmate Services Pvt Ltd. The claim made by the appellant in its return of income for deduction u/s 36(1)(va) of the Act is an incorrect claim and it can be adjusted in view of provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was allowable as a deduction u/s. 43B of the Act; or the same was liable to be disallowed as per mandate of Section 36(1)(va) r.w.s. 2(24)(x) of the Act, therefore, the same could not have been summarily disallowed by the CPC, Bengaluru while processing the return of income of the assessee u/s. 143(1) of the Act. In support of his aforesaid contention, the Ld. AR had relied on the order of the ITAT, SMC Bench, Raipur in the case of Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur, ITA No.04/RPR/2023 dated 11.05.2023 and also that of Division Bench in the case of Gurmeet Singh Hora Vs. ACIT, CPC, Bengaluru, ITA No.45/RPR/2023 dated 03.08.2023. 8. As regards the disallowance u/s. 43B(a) of the Act on account of delayed deposit of service tax of Rs. 7,66,013/- by the assessee, i.e., beyond the due date applicable in his case for furnishing of return of income under sub-section (1) of Section 139 of the Act for the year under consideration, the Ld. AR submitted that the same comprises of opening balance of Rs. 7,06,473/-, while for, only an amount of Rs. 59,540/- pertained to the year in question i.e. A.Y.2018-19. Carrying his contention further, the Ld. AR submitted that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: (A) Delayed deposit of the employees share of contributions towards EPF/ESIC u/s. 36(1)(va) of the Act : Rs. 44,16,229/- 13. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not the delayed deposit by the assessee of the employee s share of contributions towards ESI/EPF could have been summarily disallowed by the AO prior to the judgment of the Hon ble Apex Court in the case of Checkmate Services P. Ltd. Vs. CIT (SC) 143 taxmann.com 178 (SC) while processing his return of income vide an intimation u/s. 143(1)(a) of the Act dated 13.12.2019. As stated by the Ld. AR and, rightly so, the aforesaid issue had been looked into by the ITAT, SMC, Raipur in the case of Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur, ITA No.04/RPR/2023 dated 11.05.2023 and that of Division Bench in the case of Gurmeet Singh Hora Vs. ACIT, CPC, Bengaluru, ITA No.45/RPR/2023 dated 03.08.2023. The Tribunal while deliberating at length on the aforesaid issue had after drawing support from the orders of the ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (2022) 137 taxmann.com 475 (Mumbai) and P.R. Packaging Service Vs. ACIT (2023) 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the auditor could not have made an addition of the same to the assessee s returned income u/s. 143(1)(a) of the Act. Our attention was drawn by the Ld. AR to Sr. No.20(b) of the audit report in Form 3CD. Carrying his argument further, it was submitted by the Ld. AR, that, even otherwise, on the date when the return of income of the assessee was processed u/s. 143(1) of the Act, i.e. on 21.02.2020, the issue as to whether or not the delayed deposits of the employee s share of contributions towards labour welfare funds, which were though deposited by the assessee-employer beyond the due date prescribed under the relevant Acts but before the due date of filing of the return of income under sub-section (1) of Section 139 of the Act, could be held as the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, was highly debatable, therefore, the same clearly fell beyond the realm of a prima-facie adjustment under section 143(1) of the Act. The ld. A.R in order to buttress his aforesaid contention had drawn support from the following judicial pronouncements: (i) CIT Vs. M/s. Alom Extrusions Ltd. (2009) 185 Taxman 416 (SC) (ii) CIT Vs. Vinay Cement Ltd. (2007) 213 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Admittedly, the issue as to whether or not, the delayed deposits of employees share of contribution towards labour welfare funds, i.e. ESI and EPF by the assessee-employer were liable to be held as the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, as was the view of the department; or the same were saved by the provisions of Section 43B of the Act, i.e to the extent such deposits were made not later than the due date of filing of the return of income of the assessee as prescribed under sub-section (1) of Section 139 of the Act, was a highly debatable and had finally only recently been settled by the judgment of the Hon ble Apex Court in the case of Checkmate Services (P) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC). On the date on which the return of income of the assessee was processed by the A.O u/s. 143(1) of the Act, i.e. on 21.02.2020, the aforesaid issue, as observed by us hereinabove, was highly debatable. Apart from that, we find substance in the claim of the Ld. AR that the assessee s auditor in his audit report in Form 3CD r.w.s. 6G(2), as per the statutorily required, had only furnished the details of the contributions towards employee s shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while summarily processing its return of income u/s. 143(1)(a) of the Act, observing as under: 4. We have heard the rival contentions, perused the material on record 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s specific reasons for doing so. Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asijudicial order, as a rejection of the objections against the proposed adjustments under section 143(1) inherently 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1), does seem incongruous. Learned Departmental Representative s contentions in this regard that the 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s above . That is where the quasi-judicial exercise of dealing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 the 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 is 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 an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. As the facts and issues involved in the present appeal remains the same as were there before the ITAT, SMC Bench, Raipur in the aforesaid case i.e. Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur (supra) and before the Division Bench in the case of Gurmeet Singh Hora Vs. ACIT, CPC, Bengaluru, ITA No.45/RPR/2023 dated 03.08.2023, therefore, we respectfully follow the same. Accordingly, we set-aside the order of the CIT(Appeals) and vacate the addition of Rs. 44,16,229/- made by the A.O. (B) Disallowance u/s. 43B(a) of the Act of the amount of service tax paid beyond the due date prescribed for filing of return of income u/s. 139(1) of the Act : Rs. 7,66,013/- 15. Controversy involved in the present appeal has two facets, viz. (i) that as to whether or not the lower authorities were justified in law and the facts of the case in making/sustaining the addition towards service tax liability of Rs. 7,66,013/- which was not paid by the assessee on or before due date for furnishing of his return of income for the year under consideration u/s. 139(1) of the Act, despite the fact that the assessee who was accounting for his sales/turnover by following an exclusive me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The First Appellate Authority also noticed that it is an undisputed fact that the Appellant did not charge VAT to the Profit and Loss account. It was therefore noted by the First Appellate Authority that in such circumstances, the liability may still be unpaid, but it cannot be disallowed being not claimed as deduction in the Books of Accounts. 4. With the aforesaid fact situation, we are unable to hold that the Tribunal was in error in law in dismissing the revenue's appeal making a reference to the decisions referred to by it. 5. The decision of the Apex Court in Chowringhee Sales Bureau (P) Ltd. Vs. CIT, AIR 1973 SC 376 = (1973) 87 ITR 542, dealt with a case where the contents of the Profit and Loss account apparently showed that though the assessee had attempted to show that there is a separate account for tax collected, the collection would have been only of a composite amount. The transaction dealt with in Chowringhee's case (supra) related to auction and the nature of the income derived by an auctioneer in the process of auction. In contradistinction thereto, are the decisions of the High Court of Delhi in Commissioner of Income Tax v. Noble Hewitt (India) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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