2022 (4) TMI 1276 - AT - Income Tax

Tribunal rules in favor of taxpayer on Provident Fund & ESI contributions adjustment

Swift Securitas P. Ltd. Versus Dy. Commissioner of Income Tax, CPC, Bangalore

The Tribunal held that adjustments made under Section 143(1) of the Income Tax Act regarding employees' contributions to Provident Fund and ESI were ... Delayed employees contribution towards Provident fund & Employees State Insurance Corp. - adjustments u/s 143(1) - payments made by the assessee [payments made after stipulated dates prescribed under relevant laws governing provident fund and ESI, but before due date of filing of return prescribed u/s 139(1) - HELD THAT:- We are of the view that the aforesaid adjustments made by Revenue on 31.10.2019, whereby the aforesaid amount was added to assessee’s income, were unfair, unjust, and bad in law. For this view, we respectfully take support from the order of Agra Bench of ITAT, in the case of Mahadev Cold Storage vs. Jurisdictional Assessing Officer [2021 (6) TMI 506 - ITAT AGRA] At the very least, Revenue should have given due consideration to the fact that the issue was highly debatable and controversial. As already discussed earlier, adjustments u/s 143(1) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act, on debatable and controversial issues, is beyond the scope of section 143(1) of Income Tax Act. Revenue was clearly in error, in making the aforesaid adjustments u/s 143(1) of Income Tax Act on 31.10.2019 on a debatable and controversial issue. We would like to make respectful mention of order of Jabalpur Bench of ITAT in the case of Nikhil Mohine vs. DCIT [2021 (11) TMI 927 - ITAT JABALPUR] in which similar view has been taken. It is also well settled that retrospective amendment cannot be invoked to make addition by way of adjustment and intimation u/s 143(1) of Income Tax Act. This view was taken by the Hon’ble Supreme Court in the case of CIT vs. Hindustan Electro Graphites Ltd [2000 (3) TMI 2 - SUPREME COURT] in which the view of Hon’ble Kolkata High Court in the case of Modern Fibotex India Ltd. & Anr.[1994 (3) TMI 17 - CALCUTTA HIGH COURT] was approved. We are of the view that the aforesaid additions by way of adjustment and intimation u/s 143(1) of Income Tax Act, were beyond the scope of Section 143(1) of Income Tax Act; and further, that the Ld. CIT(A) erred in law in confirming the aforesaid addition on a debatable and controversial issue. - Decided in favour of assessee. Issues Involved:1. Justification of the adjustment made by CPC under Section 143(1) of the Income Tax Act regarding employees' contributions to Provident Fund and ESI.2. Applicability of the amendment brought in by Finance Act 2021 to Section 36(1)(va) of the Income Tax Act.3. Validity of the adjustment made under Section 143(1) without providing proper opportunity and in disregard to principles of natural justice.Issue-Wise Detailed Analysis:1. Justification of the Adjustment Made by CPC under Section 143(1):The core issue in this appeal is the addition of Rs. 1,71,75,434 made under Section 36(1)(va) of the Income Tax Act, concerning employees' contributions to ESI and Provident Fund. The payments were deposited by the assessee after the specified date but before the due date for filing the return under Section 139(1). The Tribunal noted that the addition was made via adjustments under Section 143(1) through an intimation dated 31.10.2019. The Tribunal held that such adjustments on debatable and controversial issues are beyond the scope of Section 143(1). The Tribunal cited several precedents, including the Hon’ble Delhi High Court's decisions in CIT vs. AIMIL Ltd. and CIT vs. P.M. Electronics Ltd., which supported the view that delayed payments do not constitute the assessee's income if made before the due date of filing the return.2. Applicability of the Amendment by Finance Act 2021:The Tribunal discussed whether the amendments to Section 36(1)(va) and Section 43B brought by the Finance Act, 2021, are prospective or retrospective. It was noted that the appeal pertains to the Assessment Year 2017-18, which is before the amendments' effective date of 01.04.2021. The Tribunal referred to various ITAT decisions that held the amendments as prospective. The Tribunal concluded that even if the Revenue contests this view, it is at least debatable and controversial, thus unsuitable for adjustments under Section 143(1).3. Validity of the Adjustment Made under Section 143(1) Without Proper Opportunity:The Tribunal emphasized that adjustments under Section 143(1) should not be made on debatable issues without providing the assessee a proper opportunity. It was noted that the adjustments made on 31.10.2019 were unfair and unjust, especially since the amendments were not in force at that time. The Tribunal cited the Hon’ble Jurisdictional High Court's decision in ACIT vs. Haryana Telecom Pvt. Ltd., which supports the view that adjustments on debatable issues are beyond the scope of Section 143(1).Conclusion:The Tribunal concluded that the adjustments made by the Revenue were beyond the scope of Section 143(1) and that the CIT(A) erred in law by not deleting the addition of Rs. 1,71,75,434. The Tribunal set aside the impugned appellate order and directed the Assessing Officer to delete the addition. The Tribunal clarified that it did not express any view on whether the amendments by Finance Act, 2021, are prospective or retrospective, as the issue was academic in nature for this decision.Final Order:The appeal of the assessee was partly allowed for statistical purposes, and the order was pronounced on 25.04.2022.