2022 (5) TMI 1579 - AT - Income Tax

Assessee's Appeal Allowed, Adjustment Under Section 143(1) Deleted. Pre-Amendment Law Applies.

M/s. Rich Products & Solutions Pvt. Ltd. (Earlier known as Rich Graviss Products Pvt. Ltd.,) Versus Deputy Commissioner of Income Tax, CPC, Bangalore

M/s. Rich Products & Solutions Pvt. Ltd. (Earlier known as Rich Graviss Products Pvt. Ltd.,) Versus Deputy Commissioner of Income Tax, CPC, Bangalore - TMI Issues Involved:1. Whether the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) remitted after the due date prescribed under respective Acts but before the due date of filing income tax returns under Section 139(1) of the Income Tax Act, 1961, can be subject to adjustment under Section 143(1)(a) by the Central Processing Centre (CPC).Issue-wise Detailed Analysis:1. Legality of Adjustments under Section 143(1)(a):The core issue was whether the employees' contribution to PF and ESI, remitted after the due date under respective Acts but before the due date of filing returns under Section 139(1), could be adjusted under Section 143(1)(a). The Tribunal noted that the assessee had remitted the contributions before the due date of filing returns but beyond the due date under the respective Acts. The Tribunal referred to the case of Kalpesh Synthetics Pvt. Ltd. vs. DCIT, CPC, Bangalore, where it was held that such contributions are deductible if paid before the due date of filing returns, despite being late under the respective Acts.2. Judicial Precedents and Binding Nature:The Tribunal highlighted that the issue is no longer res integra due to the binding judicial precedents from the Hon'ble jurisdictional High Court, which permit such deductions. The Tribunal cited the judgments of the Bombay High Court in CIT v. Hindustan Organic Chemicals Limited and CIT v. Ghatge Patil Transports Ltd., which support the deduction if contributions are paid before the due date of filing returns under Section 139(1).3. Scope of Prima Facie Adjustments under Section 143(1):The Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) is limited. The Tribunal noted that the adjustments under Section 143(1)(a) must be based on clear and undisputed facts. The Tribunal found that the CPC's adjustment was not sustainable as it did not consider the binding judicial precedents.4. Prospective Nature of Amendments by Finance Bill 2021:The Tribunal discussed the amendments to Sections 36(1)(va) and 43B by the Finance Bill 2021, which are prospective and applicable from AY 2021-22 onwards. The Tribunal held that these amendments do not apply to the assessment year under consideration (AY 2019-20).5. Requirement of Speaking Order for Disposal of Objections:The Tribunal criticized the CPC for not providing specific reasons for rejecting the assessee's objections. The Tribunal held that the disposal of objections is a quasi-judicial function requiring a speaking order. The Tribunal found that the CPC's use of a standard template without specific reasons was inadequate.6. Status and Significance of Tax Audit Report:The Tribunal noted that the tax audit report is prepared by an independent professional and does not bind the assessee. The Tribunal held that the observations in the tax audit report cannot be the sole basis for disallowance under Section 143(1)(a)(iv), especially when contrary to binding judicial precedents.Conclusion:The Tribunal concluded that the impugned adjustment under Section 143(1) was vitiated in law and deleted the same. The Tribunal allowed the appeal of the assessee, emphasizing that the law prevailing prior to the amendments by the Finance Bill 2021 would rule the field for the assessment year under consideration. The Tribunal's decision was based on the binding judicial precedents and the requirement for a speaking order in disposing of objections.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced on 19/05/2022.