2022 (12) TMI 1384 - AT - Income Tax

Tribunal limits disallowance to unpaid employee contributions, partly allows appeals.

The Tribunal partially allowed the appeal, directing the Assessing Officer to limit the disallowance to the extent of employees' contributions not paid ... Assessment u/s 143(1) - additions or disallowance u/s 143(1) of the Act other than the amount disclosed by assessee in audit report filed u/s 44AB - Employees' contribution to PF and ESIC were paid beyond the due dates - 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 assessee in audit report filed u/s 44AB - HELD THAT:- The disallowance made by the AO is to be restricted to the expenditure of ESI & PF not paid within the due date of relevant provisions of the Act. The assessee has been listed these details in the Annexure E to tax audit report filed u/s 44AB of the Act along with return of income. Being so, find no merit in the arguments of assessee’s counsel that AO cannot make disallowance u/s 143(1) of the Act with regard to belated payment of employees’ ESI & PF contribution within due date of respective Act and as held by the coordinate bench in the case of Cemetile Industries [2022 (12) TMI 354 - ITAT PUNE] 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 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. Issues Involved:1. Validity of the order passed by CIT(A) under section 250 of the Income-tax Act.2. Liability of the appellant to be assessed to total income against the returned income.3. Disallowance under section 36(1)(va) of the Act.4. Prospective application of the amendment to section 36(1)(va).5. Legality of the intimation issued under section 143(1) of the Act.6. Remittance of PF & ESI contributions before the due date of filing the return of income.7. Recalculation of interest under section 244A of the Act.Detailed Analysis:1. Validity of the Order Passed by CIT(A) Under Section 250 of the Income-tax Act:The appellant challenged the order passed by the CIT(A), NFAC, Delhi, asserting that it was opposed to law, weight of evidence, probabilities, facts, and circumstances of the appellant's case.2. Liability of the Appellant to be Assessed to Total Income Against the Returned Income:The appellant denied liability to be assessed to a total income of Rs. 13,48,407/- as against the returned income of NIL. The appellant argued that the disallowance of Rs. 13,48,407/- under section 36(1)(va) was unwarranted as the contributions were remitted before the due date of filing the return of income stipulated under section 139(1) of the Act.3. Disallowance Under Section 36(1)(va) of the Act:The main contention was that the AO disallowed employees' contributions to PF and ESIC paid beyond the due dates prescribed under the respective Acts but before the due date of filing the return of income. The appellant relied on the Tribunal Mumbai Bench's judgment in the case of P.R. Packaging Services, which held that such disallowance while processing the return under section 143(1) is against the provisions of the Act.4. Prospective Application of the Amendment to Section 36(1)(va):The appellant argued that the amendment to section 36(1)(va) was prospective from AY 2022-23 and that the disallowance should have been deleted in full for the assessment years in question.5. Legality of the Intimation Issued Under Section 143(1) of the Act:The appellant contended that the intimation issued by the AO under section 143(1) was bad in law as the adjustment made was beyond the scope of the Act. The Tribunal noted that the adjustments under section 143(1)(a) must fit the description under section 143(1)(a)(i) to (v) and must be an interactive and cerebral process, considering the objections raised by the assessee.6. Remittance of PF & ESI Contributions Before the Due Date of Filing the Return of Income:The appellant argued that PF and ESI contributions were remitted before the due date of filing the return of income under section 139(1), and thus, no disallowance was warranted. The Tribunal, however, referred to the Supreme Court's decision in Checkmate Services Pvt Ltd vs CIT, which held that employees' contributions must be deposited within the due date prescribed under the respective Acts, and section 43B does not apply to employees' contributions.7. Recalculation of Interest Under Section 244A of the Act:The appellant sought recomputation of interest under section 244A on the refund due after deleting the disallowance amounting to Rs. 13,48,407/-. The Tribunal directed the AO to delete the addition made in respect of employees' contribution to Provident Fund in the facts and circumstances of the instant case, thus allowing grounds 1 to 3 raised by the assessee.Separate Judgments Delivered:The Tribunal referred to various judgments, including the case of Cemetile Industries and Automac Diesels, which upheld the disallowance of employees' contributions not deposited within the stipulated date as per the respective Acts. The Tribunal also considered the recent decision of the Hon'ble Supreme Court in Checkmate Services Pvt Ltd vs CIT, which clarified the distinction between employer's and employees' contributions and upheld the requirement for timely deposit of employees' contributions.Conclusion:The Tribunal allowed the appeal in part, directing the AO to limit the disallowance to the extent of employees' contributions not paid within the due date of the respective Acts. The appeals were partly allowed for statistical purposes.