2021 (6) TMI 506 - AT - Income Tax

Tribunal Upholds Assessee's Appeal, NFAC Bound by High Court Precedent

M/s Mahadev Cold Storage, Vinod Thanwerdas Sainani Versus Jurisdictional Assessing Officer, Circle-4 (1) (2), Aligarh.

The tribunal allowed the appeals of the assessee, holding that the National Faceless Appeal Centre (NFAC) is bound by the jurisdictional High Court ... Appellate order as passed by National Faceless Appeal Centre - NFAC - appeal against an order passed by the National Faceless Appeal Centre - allowability of claim under section 43B - adjustments u/s 143(1)(a) by disallowing the contribution received from employees towards ESI and EPF - claim denied due to conflicting decision of a non-Jurisdictional High Court - Correct ITAT Jurisdiction over the jurisdictional Assessing Office - NFAC chooses to dismiss the appeal of the assesse by following the non jurisdictional decision - HELD THAT:- Though, centralized NFAC, had been created by the notification by the Central Board Of Direct Taxes however it should be ensured ,that whenever any appellate order is passed by NFAC as per notification either by of draft order, or by way of review the draft order or Final Appellate Order, than Decision of jurisdictional High Court, having the jurisdiction over the assessing officer should be followed and applied by the NFAC. Merely because there is some conflicting decision of a non-Jurisdictional High Court, the relief should not be refused to the assessee. As per the Notification Clause C an appeal against an order passed by the National Faceless Appeal Centre under the said Scheme shall lie before the Income-tax Appellate Tribunal having jurisdiction over the jurisdictional Assessing Officer. As per Section 260 A of the Income Tax Act, the appeal against the ITAT, order shall lie to The High Court and the High court had been defined under section 269 High Court' means- (i) In relation to any State, the High Court for that State . Thus appeal against the tribunal ( Agra in present case )shall lie to the Hon’ble Allahabad High Court and therefore the decision rendered by Hon’ble High court is not only binding on the Tribunal but also on NFAC, ( though sitting in Delhi ) which is deciding the lis pertaining to Agra ITAT Jurisdiction (AllahabadHC Jurisdiction). The purpose of setting up of the centralized NFAC, is to ensure efficiency, transparency and accountability. We have noted down the various stages of finalization of the final appellate order, however as pointed out by us, despite the binding decision of the jurisdictional High Court and tribunal, the centralizedNFAC have chooses to contemptuously ignore the binding precedent of Jurisdictional High Court and have applied the non-jurisdictional High Court decision to deprive the assessee from the benefit of the judicial High Court decision. A good intentioned and well thought notification issued by the Board for NFAC, is not yielding the desired result on account of incorrect application of law.As notified by the board in the notification it would be using the artificial intelligence and data analytic for the smooth functioning of NFAC, in our view this should be used in all aspects. Further we expect the Board to take appropriate remedial measures at the earliest forrecalling such kind of orders, by issuing comprehensive guidelines for NFAC and give relief to the honest assessee . In the light of the above said discussion,Judgments of SC and HCs,We hold that NFAC, is bound by the binding decision of the Jurisdictional Allahabad High Court, as the assessing officer is situated, within the territorial and subjective jurisdiction of High court . Hence, we allow the appeal of the assessee by respectfully following the decision of jurisdictional High Court in the matter of Sagun Foundry (P) Ltd.[2016 (12) TMI 1479 - ALLAHABAD HIGH COURT] Issues Involved:1. Disallowance of employee contributions towards ESI and EPF under Section 36(1)(va) of the Income Tax Act, 1961.2. Jurisdictional precedence and applicability of High Court decisions.3. Functioning and procedural adherence of the National Faceless Appeal Centre (NFAC).Issue-wise Detailed Analysis:1. Disallowance of Employee Contributions towards ESI and EPF:The primary issue in all four appeals is the disallowance of employee contributions towards ESI and EPF under Section 36(1)(va) of the Income Tax Act, 1961. The assessee contended that these contributions, although deposited after the due date prescribed under the respective statutes, were made before the due date for filing the income tax return under Section 139(1). The assessee argued that such payments should be allowed as deductions under Section 43B of the Income Tax Act, which allows deductions if payments are made before the due date of filing the return. The assessee relied on the jurisdictional High Court decision in Sagun Foundry (P) Ltd. vs CIT, which supports this view.2. Jurisdictional Precedence and Applicability of High Court Decisions:The NFAC, in its decision, relied on the Gujarat High Court ruling in the case of State Road Transport Corporation, which held that if an employer has not credited the sum received as an employee's contribution to the relevant fund on or before the due date as prescribed in the Explanation to Section 36(1)(va), the deduction is not allowable, even if the deposit is made before the due date prescribed under Section 43B. The assessee argued that the NFAC should have followed the jurisdictional Allahabad High Court decision in Sagun Foundry (P) Ltd. vs CIT, which allows such deductions if payments are made before the due date under Section 139(1). The tribunal emphasized that the NFAC should have adhered to the jurisdictional High Court's binding decision, as per the doctrine of precedent, which mandates that the decisions of the jurisdictional High Court are binding on authorities within its jurisdiction.3. Functioning and Procedural Adherence of the NFAC:The tribunal criticized the NFAC for not following the binding precedent set by the jurisdictional High Court and instead relying on a non-jurisdictional High Court decision. The tribunal highlighted that the NFAC's approach was against the scheme of the notification issued by the Central Board of Direct Taxes (CBDT) for creating the centralized NFAC and the settled principle of precedent. The tribunal pointed out that the NFAC should ensure that decisions of the jurisdictional High Court are followed and applied, especially when there are conflicting decisions from non-jurisdictional High Courts. The tribunal emphasized the importance of predictability and transparency in the justice delivery system and the need for the NFAC to adhere to binding precedents to avoid unnecessary litigation and harassment of taxpayers.Decision:The tribunal allowed the appeals of the assessee by following the jurisdictional High Court decision in Sagun Foundry (P) Ltd. vs CIT. The tribunal held that the NFAC is bound by the binding decision of the jurisdictional Allahabad High Court, as the assessing officer is situated within the territorial jurisdiction of the High Court. The tribunal emphasized the need for the NFAC to follow the decisions of the jurisdictional High Court to ensure consistency, transparency, efficiency, and accountability in its functioning. The tribunal also called for introspection by the CBDT to ensure that the NFAC adheres to binding precedents and avoids frivolous litigation.