2022 (4) TMI 390 - AT - Income Tax

Tribunal Upholds Disallowance of Late Provident Fund & ESI Contributions

The Tribunal upheld the disallowance of employees' contributions to provident fund and ESI for late deposits, aligning with the Gujarat High Court's ... Disallowance of employees contribution to provident fund and ESI u/s 36 (1)(va) - HELD THAT:- We have to follow the judgment of the Hon`ble Jurisdictional High Court of Gujarat in the case of Gujarat State Road Transport Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT].The mere fact, that further appeal (SLP) has been filed, before the Hon`ble Supreme Court against the judgment of Hon`ble Gujarat High Court, in no way, means that Gujarat High Court`s decision under consideration is not operational and effective. Unless and until the decision of Gujarat High Court is reversed by Hon`ble Supreme Court, the same has to be given due effect. Thus, judicial discipline demands that order of the Hon`ble Gujarat High Court should be followed by the Surat Income Tax Appellate Tribunal in [2022 (4) TMI 330 - ITAT SURAT] We have already noted that against the order of the Hon'ble Gujarat High Court, in the case of Gujarat State Road Transport Corporation (supra), the SLP has been filed by the assessee, which has not been adjudicated yet therefore we are of the view that the issue may be remitted back to the file of the Ld. CIT(A) to decide the matter after taking into account the judgment of the Hon'ble Supreme Court as and when will be passed by the Hon'ble Supreme Court. Therefore these appeals at this stage are dismissed. However, if the Supreme Court reverses the judgment in the case of the Hon`ble Gujarat High Court in the case of CIT vs. GSRTC [Supra], it would be open for the assessees to revive these appeals by filing an application for such purpose within three months from the date of the judgment. Appeals filed by the assessee, are allowed for statistical purposes. Issues Involved:1. Disallowance of employees' contribution to provident fund and ESI under section 36(1)(va) of the Income Tax Act, 1961.2. Allowance of less credit on account of tax deducted at source.3. Appropriateness of adjustments made under section 143(1) of the Income Tax Act, 1961.Detailed Analysis:Disallowance of Employees' Contribution to Provident Fund and ESI:The core issue across all ten appeals revolves around the disallowance of employees' contributions to provident fund and ESI due to late deposits beyond the stipulated time under section 36(1)(va) of the Income Tax Act, 1961. The Assessing Officer (AO) added an amount of Rs. 11,83,960/- for late deposit under section 143(1) of the Act. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition, emphasizing that adjustments can be made based on the audit report indicating late deposits. The CIT(A) cited the amendments made through the Finance Act 2021 as clarificatory, empowering the AO to disallow such expenditures while processing returns under section 143(1)(a)(iv) of the Act.Allowance of Less Credit on Account of Tax Deducted at Source:The second issue raised by the assessee pertains to the allowance of less credit on account of tax deducted at source (TDS) amounting to Rs. 56,492/-. The AO's order under section 143(1) of the Act allowed less TDS credit, which the assessee contested. However, this issue was not elaborately discussed in the judgment, indicating that the primary focus remained on the disallowance of employees' contributions to provident fund and ESI.Appropriateness of Adjustments Made Under Section 143(1):The third issue concerns whether the adjustments made under section 143(1) of the Act were appropriate, given that the issue of employees' contributions to provident fund and ESI is debatable. The assessee argued that such adjustments should only address arithmetical or apparent mistakes in the return of income. The Learned Counsel for the assessee contended that details in the tax audit report are for disclosure purposes only and should not form the basis for additions. Various judgments were cited to support this argument, emphasizing that the amendments to section 36(1)(va) are prospective and not applicable to preceding years.Judicial Precedents and Tribunal's Decision:The Tribunal noted that the issue of employees' contributions to provident fund and ESI is indeed debatable. However, it emphasized that the judgment of the Hon'ble jurisdictional Gujarat High Court in the case of State Road Transport Corporation (GSRTC) is binding. The High Court held that no deduction is admissible if the contributions are not deposited within the due date specified in the respective PF and ESI Acts. The Tribunal also referenced the pending Special Leave Petition (SLP) before the Hon'ble Supreme Court against the Gujarat High Court's judgment.Conclusion and Directions:Given the binding nature of the Gujarat High Court's judgment, the Tribunal dismissed the appeals but provided a mechanism for revival. If the Supreme Court reverses the Gujarat High Court's decision, the assessees are allowed to revive their appeals within three months from the date of the Supreme Court's judgment. The Tribunal directed the CIT(A) to adjudicate the issue based on the Supreme Court's final decision.Summary:The Tribunal upheld the disallowance of employees' contributions to provident fund and ESI for late deposits, in line with the Gujarat High Court's judgment. It acknowledged the debatable nature of the issue but emphasized judicial discipline in following the jurisdictional High Court's ruling. The Tribunal provided a pathway for the assessees to revive their appeals if the Supreme Court overturns the Gujarat High Court's decision. The appeals were allowed for statistical purposes, pending the Supreme Court's final judgment.