2023 (3) TMI 393 - AT - Income Tax

Tribunal upholds adjustments for late EPF contributions under expanded scope post Finance Act 2016

The Tribunal dismissed the appeal, upholding the legality of adjustments made under section 143(1) for late deposit of employees' provident fund ... Employee contribution of provident fund and ESI paid beyond due date - adjustment u/s 143 (1) - HELD THAT:- Hon’ble Apex Court in CHECKMATE SERVICES P. LTD. VERSUS COMMISSIONER OF INCOME TAX-1 [2022 (10) TMI 617 - SUPREME COURT] has expounded that the employees’ contribution retains its character as income (albeit deemed) by virtue of section 2(24)(x) unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e. depositing such amount received or deducted from the employee on or before the due date. Elaborating upon the same, further Hon’ble Apex Court had held that employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction form the employees’ income and held in trust by the employer. Hence, the above adjustment as done by the CPC u/s 143(1)(iv) and has now the sanction of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] - assessee’s thrust that the issue is debatable is not at all sustainable inasmuch as it is not relevant as per the extant provision of law contained in section 143 (1). Clarifies the matter from the very beginning itself. In this view of the matter, in our considered view, there is no infirmity in the order of ld. CIT (A). Hence, we uphold the same. Appeal of the assessee stands dismissed. Issues Involved:1. Powers of DCIT (CPC) in making adjustments on debatable issues under section 143(1).2. Legality of the addition made under section 36(1)(va) for late deposit of employees' provident fund contributions.3. Applicability of the Supreme Court decision in Checkmate Services Pvt. Ltd. to the present case.4. Whether adjustments can be made under section 143(1)(a)(iv) based on the audit report.Issue-wise Detailed Analysis:1. Powers of DCIT (CPC) in making adjustments on debatable issues under section 143(1):The assessee contested the powers of DCIT (CPC) to make adjustments on debatable issues while processing the return of income under section 143(1). The assessee argued that such adjustments should not be made on debatable issues, citing various judicial decisions. However, the CIT (A) noted that the scope of adjustments under section 143(1) was expanded by the Finance Act 2016, allowing for adjustments based on data available with the Department, including audit reports and Form 26AS. The Tribunal upheld the CIT (A)'s view, emphasizing that the adjustments under section 143(1)(a)(iv) were valid and not debatable as per the amended provisions.2. Legality of the addition made under section 36(1)(va) for late deposit of employees' provident fund contributions:The assessee's return was processed with an addition of Rs. 37,651 under section 36(1)(va) due to the late deposit of employees' provident fund contributions. The CIT (A) sustained this addition, referencing the expanded scope of section 143(1) adjustments. The Tribunal also upheld this addition, citing the Supreme Court's decision in Checkmate Services Pvt. Ltd., which clarified that employee contributions paid beyond the due date specified under the relevant Act must be added back to the income of the assessee.3. Applicability of the Supreme Court decision in Checkmate Services Pvt. Ltd. to the present case:The Tribunal referred to the Supreme Court's decision in Checkmate Services Pvt. Ltd., which held that employee contributions to provident fund and ESI paid beyond the due date specified under the relevant Act should be added back to the income of the assessee. The Tribunal found that this decision directly applied to the present case, reinforcing that the late deposit of employee contributions warranted the addition made by the DCIT (CPC).4. Whether adjustments can be made under section 143(1)(a)(iv) based on the audit report:The CIT (A) explained that adjustments under section 143(1)(a)(iv) could be made based on disallowances indicated in the audit report but not accounted for in the return. The Tribunal agreed, noting that the audit report serves as a compliance check and any breach inferred from it qualifies for adjustment under section 143(1)(a)(iv). The Tribunal concluded that the adjustment made by the CPC was within the scope of section 143(1)(a)(iv), aligning with the Supreme Court's interpretation in Checkmate Services Pvt. Ltd.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the CIT (A)'s order and confirming the legality of the adjustments made under section 143(1) for the late deposit of employees' provident fund contributions. The Tribunal emphasized that the Supreme Court's decision in Checkmate Services Pvt. Ltd. clarified the issue, making the adjustments valid and not debatable.