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TMI Blog2024 (1) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee reserves the right to add, urge, alter or withdraw any ground/grounds at the time or before the date of hearing." 2. Succinctly stated, the assessee company had filed its return of income for A.Y. 2018-19 declaring an income of Rs. 84,31,610/-. Assessee's claim for deduction of delayed deposit of employees share of contribution towards ESI/PF of Rs. 24,72,236/- was disallowed by the CPC, Bengaluru vide intimation issued u/s. 143(1) of the Act dated 16.10.2019. 3. Thereafter, the assessee filed an application u/s. 154 of the Act, which, however, was rejected by the CPC, Bengaluru vide its impugned order dated 28.11.2019. 4. The assessee assailed the order passed by the CPC, Bengaluru u/s. 154 of the Act dated 28.11.2019 before the CIT(Appeals) but without success. For the sake of clarity the relevant observations of the CIT(Appeals) are culled out as under: "7. The grounds of appeal raised by the appellant have been carefully examined and it is observed that the grounds are related to the disallowance of the employee's share of contributions towards PF u/s. 36(1)(va) & delayed payment for service tax to the tune of Rs. 47,125/- u/s. 43B of the IT Act. 7.1 Durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PF and claimed in the written submissions that such sums have been remitted before the due date of filing of the return and hence, are allowable as deduction. The appellant has also relied on several judicial pronouncements in this regard. However, these decisions have been rendered prior to the Hon'ble Supreme Court settling this matter finally with the decisions quoted in the subsequent paragraphs. 7.4 This issue has been settled with the decision of the Hon'ble Supreme court in the following cases a. Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 1781[2023] 290 Taxman 19 /(2022) 448 ITR 518. b. Principal Commissioner of Income-tax Vs Strides Arcolab Ltd [2023] 147 taxmann.com 202 (SC). 7.5 While drawing a difference between the Employers' contribution u/s 43B and the Employee's contribution u/s 36(1)(va), the Hon'ble Apex Court of- India has observed the following: "When Parliament introduced section 438, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, payments were a necessary pre-condition for allowing the expenditure. [Para 52] ■ The distinction between an employer's contribution which is its primary liability under law - in terms of section 36(1)(iv), and its liability to deposit amounts received by it or deducted 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 on or 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 marked distinction has to be borne while interpreting the obligation of every assessee under section 43B. [Para 53] ■ The reasoning in the impugned judgment that the non obstante clause would not in any manner dilute or over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not absolve assessee employer from its liability to deposit employees' contribution on or before due date as prescribed under section 36(1)(va) as a condition for deduction". 9. In light of the above judicial pronouncements and the facts and circumstance of the case, I am of the opinion that the grounds of appeal raised by the appellant do not stand and accordingly are dismissed." 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 7. Before proceeding any further, we may herein observe that as held by the Hon'ble High Court of Chhattisgarh in the case of Bhuneshwar Prasad Sahu Vs. DCIT, CPC, TAXC No. 201 of 2023 dated 15.12.2023 that an assessee remains well within his right to assail the disallowance of his claim for deduction of the delayed deposit of employees share of contribution towards ESI/PF by filing an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee's share of contribution towards labour welfare fund could have been made in the hands pf the assessee company while processing of its return of income u/s. 143(1)(a) of the Act. The Tribunal while concluding as hereinabove had observed as under: "6. I have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 7. Controversy involved in the present appeal lies in a narrow compass, i.e as to whether or not the delayed deposit of the employee's share of contributions towards ESI & EPF by the assessee-employer, could have summarily been held by the A.O, as the assessee's income under Section 36(1)(va) r.w.s 2(24)(x) of the Act while processing his return of income u/s. 143(1) of the Act,.? 8. As is discernable from the records, it transpires that the assessee's chartered accountant in his audit report filed in "Form 3CD" r.w.r 6G(2) of the Income Tax Rules, 1962, had at Sr.No.20(b) of the said report furnished details of the delayed deposits by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 185(SC) (iv) CIT Vs. State Bank of Bikaner & Jaipur (2014) 43 taxmann.com 411 (Rajasthan) (v) Sagun Foundry Pvt. Ltd. Vs. CIT (Kanpur) (2017) 78 taxmann.com 47 (Allahabad) (vi) CIT Vs. Aimil Limited (2010) 188 TaXMAN 265 (Delhi) It was submitted by the Ld. AR, that now when the department on the one hand was of the view that the delayed deposit of the employee's share of contributions towards ESI & EPF were to be disallowed u/s. 36(1)(va) r.w.s. 2(24)(x); while for the courts on the other hand had accepted the assessee's claim that such delayed deposits which were made by the assessee not later than the "due date" of filing of its return of income under sub section (1) of Section 139 of the Act were saved by the provisions of Section 43B of the Act, therefore, the said delayed deposits could not have been summarily held by the A.O as the income of the assessee u/s. 143(1) of the Act. Ld. A.R in support of his aforesaid contention had relied on the orders of the ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (2022) 137 taxmann.com 475 (Mumbai) and that of P.R Packaging Service Vs. ACIT (2023) 148 taxmann.com 153 (Mumbai). It was averred by the Ld. AR, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the same as the income of the assessee. 13. On a conjoint perusal of the aforesaid facts, viz. (i). the issue as to whether the delayed deposit of employees share of contribution towards labour welfare funds, i.e. ESI and EPF by the assesseeemployer 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 (ii). that the assessee's chartered account had only furnished the details of such delayed deposits in column 20(b) of his audit report in Form 3CD and had not offered the same as disallowance; I am of the considered view, that there could have been no justification for the A.O at the time of processing the return of income of the assessee u/s. 143(1) of the Act on 21.02.2020 to have summarily held such delayed deposit of the employees share of contributions towards labour welfare funds i.e ESI & EPF by the assessee-employer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under subsection (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". 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 facie adjustments' under section 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation 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 adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed 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 the matter, we may usefully refer to the observations made by the Hon'ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi and Ors., [2021] 4 SCC 516. While 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at best these opinions flag the issues which are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon'ble Courts 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 expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, 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 start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate Courts can equally do so, for there is no specific provision, just 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 confor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 36(1)(va) provides that "For the purposes of this clause, 'due date' means the date 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 11. In a result, this appeal is allowed." 14. Also, I find that a similar view had been taken by the ITAT, Mumbai in the case of P.R Packaging Service Vs. ACIT (supra). In the aforesaid case, the Tribunal after drawing support from its earlier order in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), had, further observed, that as in the subsequent judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT (supra) assessment was framed u/s. 143(3) of the Act and not u/s. 143(1)(a) of the Act, therefore, the same would not assist the case of the departme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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