2021 (8) TMI 714 - AT - Income Tax

Appeal allowed, late deposit disallowance deleted. Follow High Court decisions for timely contributions.

The appeal was allowed, and the disallowance of Rs. 1,61,099/- for late deposit of employee contributions was deleted. The Tribunal emphasized that ... Allowability of employee contributions to PF/ESI if deposited before due date of filing return - disallowance under Section 36(1)(va) read with Section 43B - processing of return under Section 143(1) - binding precedent of the jurisdictional High CourtAllowability of employee contributions to PF/ESI if deposited before due date of filing return - disallowance under Section 36(1)(va) read with Section 43B - binding precedent of the jurisdictional High Court - Whether amounts collected from employees as contribution to PF/ESI, deposited after the statutory due date but before the due date of filing the return under section 139(1), can be disallowed under Section 36(1)(va) read with Section 43B. - HELD THAT: - The Tribunal examined the audit report and found that the employees' contributions were deposited before the due date of filing the return u/s 139(1). In light of a series of decisions of the Hon'ble Rajasthan High Court, starting from CIT v. State Bank of Bikaner & Jaipur and followed by subsequent Rajasthan High Court decisions, it was held that contributions paid after the statutory due date but before filing the return cannot be disallowed under Section 43B read with Section 36(1)(va). The Tribunal noted diverging views of other High Courts relied upon by the CIT(A) but emphasised that the jurisdictional High Court's rulings are binding on the assessing authority and appellate bodies dealing with assessments within that territorial jurisdiction. Applying the binding Rajasthan High Court precedent to the facts (undisputed deposits before the return filing due date), the Tribunal concluded that the adjustment made by CPC in the processing of the return was not sustainable and directed deletion of the addition. [Paras 12, 13, 14, 15, 16]Addition of Rs. 1,61,099/- by way of adjustment in processing the return is deleted; the contributions are allowable as deduction since deposited before the due date of filing the return.Final Conclusion: The appeal is allowed and the disallowance made in processing the return is deleted in view of the binding decisions of the jurisdictional Rajasthan High Court; consequential relief follows. Issues Involved:1. Whether the order passed by the CIT(A) is against the principles of natural justice.2. Whether the disallowance under section 36(1)(va) is permissible while processing the return under section 143(1) of the Income Tax Act, 1961.3. Whether the CIT(A) erred in law by sustaining the disallowance made by the AO for Rs. 1,61,099/- for late deposit of employee contributions to welfare funds.Issue-wise Detailed Analysis:1. Principles of Natural Justice:The appellant argued that the CIT(A)'s order was against the principles of natural justice as it was passed without considering the submissions given by the appellant in the online account of the Web portal of the department. This ground was not elaborated further in the judgment, suggesting that the main focus was on the substantive legal issues rather than procedural fairness.2. Disallowance Under Section 36(1)(va) While Processing Return Under Section 143(1):The appellant contended that the disallowance under section 36(1)(va) is a highly debatable issue and thus should not be adjusted while processing the return under section 143(1). It was submitted that section 143(1)(a) allows for certain types of adjustments, such as arithmetical errors or incorrect claims apparent from the return. However, the appellant argued that the disallowance of employee contributions deposited late but before the due date of filing the return is not an apparent error and is supported by judicial pronouncements, making it a debatable issue. Therefore, such an adjustment is not permissible under section 143(1).3. Sustaining the Disallowance of Rs. 1,61,099/- for Late Deposit of Employee Contributions:The appellant argued that the CIT(A) erred in sustaining the disallowance made by the AO for Rs. 1,61,099/-, which was collected from employees towards welfare funds but deposited later than the scheduled dates as per the PF Act, although deposited before the due date of filing the return under section 139(1). The appellant cited the binding judgment of the Rajasthan High Court in the case of CIT vs. SBBJ (363 ITR 70), which allows such deductions if the contributions are deposited before the due date of filing the return. The CIT(A) relied on judgments from the Madras, Gujarat, and Kerala High Courts, which were not binding on the jurisdictional authorities in Rajasthan.Tribunal's Findings:The Tribunal noted that the assessee had deposited the employee contributions towards ESI and PF well before the due date of filing the return of income under section 139(1). The Tribunal referred to the series of decisions by the Rajasthan High Court, including CIT vs. State Bank of Bikaner & Jaipur, which held that contributions deposited before the due date of filing the return cannot be disallowed under section 43B read with section 36(1)(va).The Tribunal emphasized that the CIT(A) should have followed the binding decisions of the Rajasthan High Court, which have consistently held that such contributions are allowable if deposited before the due date of filing the return. The Tribunal directed the deletion of the addition of Rs. 1,61,099/- made by the CPC while processing the return, as it was not in accordance with the binding jurisdictional High Court decisions.Conclusion:The appeal was allowed, and the disallowance of Rs. 1,61,099/- was deleted. The Tribunal held that the CIT(A) should have adhered to the binding jurisdictional High Court decisions, which allow deductions for employee contributions deposited before the due date of filing the return. The other ground of appeal regarding the adjustment while processing the return became academic and was not adjudicated.