Tax Tribunal Orders Deletion of EPF/ESIC Disallowance, Emphasizes Taxpayer Rights

The Tribunal allowed the appeals, directing the Assessing Officer to delete the addition/disallowance of EPF/ESIC payments made before filing the return of income. The Tribunal emphasized that tax authorities should not unjustly benefit at the taxpayer's expense and instructed rectifications in line with legal precedents. The decision highlighted that contributions made before the due date of filing returns cannot be disallowed, citing various judicial precedents. The appeals were allowed for statistical purposes, and the matters were remanded to the Assessing Officer for appropriate rectification.

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Issues Involved:
1. Adjustment of EPF/ESIC payments made beyond the due date but before filing of the return of income.
2. Rejection of rectification applications under Section 154 of the Income Tax Act.
3. Legal precedents and their applicability to the present case.

Detailed Analysis:

Adjustment of EPF/ESIC Payments:
The primary issue in these appeals revolves around the adjustment made by the Centralized Processing Center (CPC), Bangalore, in respect of EPF/ESIC payments that were deposited beyond the due date but before the filing of the return of income. For the assessment year 2018-19, the assessee declared an income of Rs. 4,54,500, which was processed and assessed at Rs. 8,63,200 due to the adjustment. Similarly, for the assessment year 2019-20, the declared income was Rs. 7,31,450, and it was assessed at Rs. 8,44,938 after making an adjustment of Rs. 1,13,490. The Tribunal noted that the contributions were made before the filing of the return under Section 139(1) of the Act.

Rejection of Rectification Applications:
The assessee filed rectification applications under Section 154 of the Income Tax Act against the intimation under Section 143(1), which were subsequently rejected. The appeals against these rejections were also dismissed by the National Faceless Appeal Centre (NFAC). The Tribunal acknowledged that while the assessee did not file appeals against the 143(1) intimations, the rectification applications were a legitimate attempt to seek relief.

Legal Precedents:
The Tribunal considered various judicial precedents to determine the legality of the adjustments. The assessee's counsel cited several decisions from different ITAT benches, including the ITAT Jodhpur Bench in the cases of Mohangarh Engineers and Construction Company, Pali Urban Cooperative Bank Ltd., and U & T Tractor Spares Pvt. Ltd., and decisions from ITAT Kolkata and Hyderabad Benches.

1. ITAT Kolkata Bench in Harendra Nath Biswas vs. DCIT:
The Tribunal noted that the Explanation 5 inserted by the Finance Act, 2021, effective from 01.04.2021, does not apply retrospectively. The Tribunal relied on the decision of the Calcutta High Court in Vijayshree Ltd., which held that contributions made before the filing of the return of income could not be disallowed.

2. ITAT Hyderabad Bench in Salzgitter Hydraulics Pvt. Ltd. vs. ITO:
The Tribunal observed that the amendments in Sections 36(va) and 43B by the Finance Act, 2021, apply prospectively from 01.04.2021. Therefore, disallowances for contributions made before the due date of filing the return of income were deemed unsustainable.

3. ITAT Jodhpur Bench in Mohangarh Engineers and Construction Company vs. CPC:
The Tribunal reiterated that contributions made before the due date of filing the return of income under Section 139(1) cannot be disallowed under Section 43B read with Section 36(1)(va), in line with the decisions of the Rajasthan High Court.

Tribunal's Conclusion:
The Tribunal concluded that although the assessee did not file appeals against the 143(1) intimations, the tax authorities should not unjustly benefit at the cost of the taxpayer. The Tribunal restored the issue to the file of the Assessing Officer with a direction to delete the addition/disallowance after considering the settled judicial positions. The Tribunal emphasized that the assessee should only be taxed on the amount legally imposable and directed the Assessing Officer to make suitable rectifications.

Final Decision:
The appeals were allowed for statistical purposes, and the issues were restored to the Assessing Officer for appropriate rectification in line with the judicial precedents.

Order pronounced on 31.01.2022.

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