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TMI Blog2024 (1) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... C) was not justified in confirming the disallowance of employees' contribution to PF and ESI u/s 36(1)(va) of the Act of Rs. 26,05,843/- without following the decision of the Mumbai ITAT in the case of P R Packaging Services Vs ACIT in ITA No. 2376/Mum/2022 cited before it, which was binding on it being a quasi-judicial authority subordinate to the ITAT in the judicial hierarchy in violating Article 141 of the Constitution of India. 3. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds or ground of appeal either before or at the time of appeal hearing." 3. Brief facts of the case are that assessee is a partnership firm engaged in the business of food products. Return was filed on 31.01.2020 reporting total income at Rs. 22,27,820/- which was processed by Centralized Processing Centre (CPC), Income Tax Department, Bengaluru u/s. 143(1) of the Act vide intimation dated 06.03.2020 at the total income of Rs. 48,36,130/- after making an addition of Rs. 26,05,843/- towards late deposit of employees' contribution to Provident Fund and Employees State Insurance (PF & ESI). From the tax audit report uploaded by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). * The significance of this is that Parliament treated contributions under Section 36(1)(va) from those under Section 36(1)(iv). The latter (hereinafter, "employers' contribution") is described as "sum paid by the assessee as an employer by way of contribution towards a recognized provident fund". However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that "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 essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter 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" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;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 terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the nonobstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction." 5. Contention raised by the Ld. Counsel for the assessee that disallowance made towards delayed deposit of PF & ESI is a debatable issue and hence, not a permissible adjustment which can be made under the provisions of sec. 143(1) while processing the return of the assessee by CPC, Bengaluruh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann.Com 396 (Calcutta High Court) was holding field which held that such employees' contribution, if deposited within due date of filing ITR (which in the instant case of appellant was 15.02.2021) is not to be disallowed u/s. 36(1)(va) of the Act. a) CIT Vs. Hindustan Electrographite Ltd. (2000) 243 ITR 48 (SC) (2000) 109 Taxman 342 (SC) b) Modern Fibotex India Ltd. Vs. DCIT (1995) 212 ITR 496 (Cal) c) SamtelColor Ltd. Vs. UOI (2002) 258 ITR 1 (Del) (2002) 125 Taxman 1002 (Delhi) d) ITO Vs. Gujarat Power Corpn. Ltd. (2002) 254 ITR 217 (Gujarat) (2002) 122 Taxman 367 (Gujarat) e) CIT Vs. Vijayshree Ltd. (2014) 43 taxmann.com 396 (Calcutta High Court) 6. Admittedly, the issue on merits has been set at rest by the recent decision of the Hon'ble Supreme Court in bunch of appeals with the lead case in 'Checkmate Services Pvt. Ltd vs. CIT' in Civil Appeal No. 2833 of 2016 dated 12.10.2022. Earlier, there were divergent opinions of various High Courts. The High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi were of the view that if the employer's as well as employee's contribution to PF/ESI is deposited before the due date of filing of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deposit of employees' contribution would be such as prescribed u/s 36(1)(va) of the Act. 7. Now the contention raised by the ld. counsel for the assessee is that before the decision of the Hon'ble Supreme Court in the case of 'Checkmate Services (P) Ltd. vs. CIT' (supra), the judgement of the jurisdictional Calcutta High Court in CIT vs. Vijayshree Ltd. (supra) was holding field which held that employees' contribution if deposited within the due date of filing of ITR is not to be disallowed u/s 36(1)(va) of the Act. Therefore, the Assessing Officer was not justified in making adjustment u/s 143(1)(a) of the Act. Before proceeding further, it will be relevant to mention here that under section 43B(b) of the Income Tax Act, the following amount is allowable as deduction if paid by the assessee before due date of furnishing of return u/s 139(1) of the Act. "43B(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees" It has to be noted here that under the statutory provisions of section 43B(b) of the Income Tax Act, the due date being the last date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be applied retrospectively w.e.f. 01.04.1988. It was not brought to knowledge of the Hon'ble High Court that the provisions of section 43B do not prescribe the due date of deposit of employees' contribution, rather, the same refers to only the employer's contribution. There is no discussion in the said decision of the Hon'ble Calcutta High Court that the provisions of section 43B would also include employees' contribution along with employer's contribution. However, since the hon'ble High Court in the concluding para mentioned Employees' contribution, while holding about the retrospective application of section 43B of the Act, therefore, it was taken that the aforesaid decision of Calcutta High Court in the case of CIT vs. Vijayshree Ltd. (supra) was applicable on Employees' contribution also. 8. However, as observed above, the issue has been settled by the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. (supra) wherein the Hon'ble Supreme Court has dealt with the law/provisions as applicable prior to the amendment brought by Finance Act 2021 w.e.f. 01.04.21. 9. It has been held time and again that law declared by a court will have retrospective e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequences, if such an interpretation given by the hon'ble High Court is reversed or modified by the Apex Court of the country. So far as the reliance of the ld. counsel on the decision of the Hon'ble Supreme Court in the case of 'CIT vs. Hindustan Electrographite Ltd.' (supra) is concerned, I find that the said decision is not applicable to the facts and circumstances of the present case. The said decision deals with the retrospective amendment of the statutory provision, and not relating to the interpretation of the provisions already existing in the Statute. The facts of the said case were that the assessee had received during the prevision year relevant to assessment year 1988-89 certain amount by way of cash compensatory support. It did not include this income in its return which was filed on 29.12.1989. the Assessing Officer treated cash compensatory support receipt as additional income u/s 143(1A) in view of insertion of clause (iiib) to section 28 by the Finance Act, 1990 with retrospective effect from 1.4.1967 and levied tax at higher rate and also charged interest u/s 234. The Hon'ble Supreme Court in the aforesaid facts and circumstances held that in view of the law on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT (2023) 37 NYPTTJ 165 (Jd) c) Paris Elysees India Private Limited Vs. DCIT Order dated 20.02.2023 in ITA No. 357/JPR/2022 11. The contention as canvassed by the ld. counsel is that the Assessing Officer could have disallowed the aforesaid employees' contribution to ESI/PF being deposited after the due date under the relevant statute, only in an assessment carried out u/s 143(3) of the Act. That the Assessing Officer did not have any power or jurisdiction to disallow the aforesaid amount while processing the return u/s 143(1)(a) of the Act. The ld. Counsel for the assessee, in this respect, has relied upon the recent decision of the Coordinate Mumbai Bench of the Tribunal in the case of 'M/s P R Packaging Service vs. ACIT' in ITA No. 2376/Mum/2022 order dated 07.12.2022, wherein, the Coordinate Bench of the Tribunal has held that as per the provisions of section 143(1)(a)(iv) of the Act, the Assessing Officer while processing the return u/s 143(1) of the Act could have made the disallowance of expenditure if, the same was indicated in the audit report but not taken into account in computing the total income in the return. The Coordinate Bench of the Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of Provident Fund as per the Provident Fund Act and the actual date of payment made by the assessee. The Tax Auditor had not even contemplated to disallow the employees' contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. Hence, it is merely recording of facts and a mere statement made by the Tax Auditor in his audit report. The Ld.CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. For the sake of convenience, the relevant provisions is reproduced hereunder:- "143(1) Where a return has been made under section 139, or in response to a notice under sub section (1) of section 142, such return shall be processed in the following manner, namely:- (a) The total income or loss shall be computed after making the following adjustments, namely:- (iv) disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return." 4. From the aforesaid provisions, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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:] ... Explanation.-For the purposes of this sub-section,- (a) "an incorrect claim apparent from any information in the return" shall mean 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;" A perusal of clause (iv) to section 143(1)(a) of the Act would show that it provides for disallowance of expenditure indicated in the audit report, but not taken into account in computing the total income in the return. 13. As per the prescribed form 3CD, the following information is required to be given by the auditor: "20.(b) Details of contributions received from employees for various funds as referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver or the gross receipts, as the case may be, of an assessee carrying on business exceeds the prescribed threshold, it has been made mandatory for him to get his books of account audited. The object is to get a clear picture of the assessee's accounts so as to enable the Income Tax authorities to assess true and correct income of the assessee. The information furnished by the auditor in the prescribed form enable the Assessing Officer/CPC to make the required adjustments into the returned income of the assessee. I note that under clause 20B of the prescribed form, the auditor is supposed to furnish the information in respect of nature of fund, sum receipts from employee, due date for payment, the actual amount paid and the actual date of payment to the concerned authorities. This information is available to the CPC/Assessing Officer for processing the return of the assessee and this information itself indicates the allowance or disallowance which is required to be made while processing the return of the assessee. The auditor is not required in the prescribed form to specifically mention as to the what disallowance or to say as to what amount of disallowance is required to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered by the Assessing Officer/CPC in the light of the relevant statutory provisions as well as relevant laws and if such information is suggestive of any adjustment of disallowance, the Assessing Officer will make such disallowance after giving opportunity to the assessee to rebut the same. 18. Identical view has been taken by the Coordinate Ranchi Bench of the Tribunal in the case of Nepal Chandra Dey vs. ACIT in ITA No. 63/Ran/2022 order dated 15.05.23 (The said decision also authored by the undersigned Judicial Member). 19. I have come across of the another decision of the Coordinate 'Chennai Bench' of the Tribunal passed in bunch of appeals with the title case of "M/s Electrical India vs. ADIT, CPC" in ITA No. 789/Chny/2022 and Ors vide order dated 04.11.2022, wherein, on the identical issue as to the jurisdiction of the Assessing Officer/CPC to make adjustment while processing the return u/s 143(1) of the Act in respect of late deposit of employees' contribution by the employer to the ESI/PF fund, the Coordinate bench after deliberating in length upon the respective contentions of the ld. representatives of the parties has upheld the adjustment made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv). 8. The impugned adjustment, in our opinion, would also fall u/s 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per statutory mandate, the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. The purpose of the audit is to enable the revenue to make correct computation of assessee's income. A proper audit would, inter-alia, ensure that the claims for deduction are correctly made. The report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return. As noted earlier, the contribution is first treated as income of the assessee and thereafter, the deduction of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tamilnadu Magnesite Ltd. vs DCIT (303 ITR 71) held that where the amount was inadmissible in view of Sec. 43B which overrides section 36(1) of the Act, the revenue was well within its power to make a prima facie adjustment in the computation of taxable total income while processing return of income under Section 143(1)(a) of the Act. The aforesaid decision supports our view. 12. The decision of Hon'ble High Court of Bombay in Bajaj Auto Finance Ltd. vs. CIT (93 Taxmann.com 63) as referred before us deals with case of debatable issue and hence distinguishable. The case law of Chandigarh Tribunal in Lanjani Co-operative Agri Service Society Ltd. vs DCIT (ITA No. 332/Chd/2021 dated 30.08.2022) relates with adjustment u/s 143(1)(a)(v) which is not the case here. The case law of Visakhapatnam Tribunal in S.V. Engineering Constructions India (P.) Ltd. vs DCIT (ITA No. 130/Viz/2021 dated 23.09.2021) relies on another decision of Tribunal in Andhra Trade Development Corp. Ltd. (ITA No. 434/Viz/2019 dated 05.05.2021) which deal with set-off of losses. In this decision, the bench also dealt with the merits of the case by following earlier view which has now been revers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner 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. That, hence, the views expressed by the tax auditor in such a situation, cannot be the reason enough to disregard the binding views of the Jurisdictional High Court. The Coordinate bench, therefore, goes on to read down provisions to section 143(1)(a)(iv) and to hold that "what essentially follows is 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 income in the return" is to be read as, for example, subject to the rider "except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above". 22. The crux of the entire decision of the Tribunal in the case of 'Kalpesh Synthetics Pvt. Ltd. vs. DCIT' (supra) is that even when the factual information given in the audit report indicates the disallowance u/s 36(1)(va), however, that is subject to the law laid down by the courts and if the Jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nath Deka Vs. ACIT (supra) which in turn has considered the decision by Coordinate Bench of ITAT Kolkata in the case of Siddhi Vinayaka Graphics Pvt. Ltd. (supra) and does not need any further elaboration by us. 6.1. Also, ld. Counsel placed reliance on the decision of Coordinate Bench of ITAT, Raipur in the case of Pradeep Kumar Dhurve Vs. DCIT in ITA No. 302/RPR/2023 dated 23.11.2023 to assert the claim that disallowance towards delayed deposit of PF & ESI is not a permissible adjustment u/s. 143(1) of the Act. The issue dealt by ITAT Raipur Bench also has already been dealt by the Coordinate Bench of ITAT, Kolkata and Guwahati in the cases of Harendra Nath Deka Vs. ACIT (supra) and Siddhi Vinayaka Graphics Pvt. Ltd. (supra) respectively. The decision by ITAT Kolkata Bench carries a force of binding nature for its applicability on the assessee in the present case, there being no material change in the facts and the applicable law. Accordingly, following the above referred decisions, we sustain the addition so made and dismiss the grounds raised by the assessee in this respect. 7. In the result, appeal of the assessee is dismissed. Order is pronounced in the open court on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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