2022 (8) TMI 1522 - AT - Income Tax

Employees' PF and ESI contributions paid before return filing date under Section 139(1) are deductible despite missing statutory deadlines

The ITAT Raipur dismissed the assessee's challenge to adjustments made under Section 143(1) for PF and ESI disallowances, holding that CPC Bangalore ... Adjustment made in intimation u/s 143(1) - disallowance of employees contribution to PF and disallowance of employees contribution to ESI - Assessee argued the action of the DCIT(CPC) in making adjustments in intimation u/s.143(1) in respect of the issues which are debatable one, whereas the AO is permitted to make adjustment while processing the return only in respect of arithmetical error or incorrect claim - HELD THAT:- As per the provisio to Section 143(1)(a) of the Act, the AO is required to give an intimation before making such adjustments, either in writing or in electronic mode. Since in the present case, intimation u/s.143(1) of the Act itself has a mention that a communication dated 29.05.2019 was sent to the email id of the assessee [email protected]. It is also mentioned that “as there has been no response/the response was not acceptable, the adjustment(s) as mentioned below are being made to the total income as per the provisions of Section 143(1)(a) of the Act” Accordingly, the instructions of proviso to Section 143(1)(a) of the Act are duly discharged by the CPC, Bangalore by forming an opinion on the issue after providing reasonable opportunity to the assessee, on which assessee has not offered any comment before us. Hence, the addition made by the CPC is covered by the provisions of Section 143(1)(a)(iv) of the Act, which says that, “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return.” and cannot be dislodged, therefore, this ground of the assessee is dismissed. Disallowance of employees contribution to “Employee Provident Fund (EPF)” and Employee State Insurance Corporation (ESIC) paid after the due date specified in the relevant Acts but before the due specified u/s 139(1) - It is not disputed that the payment of employees contribution to PF and ESI was made before filing of the return u/s.139(1) of the Act and accordingly deleted the addition made by the AO and confirmed by the CIT(A) on account of delay in depositing the employees contribution to PF & ESI. We are of the opinion that the payments of the employees contribution to PF & ESI having been made before the due date of filing of the return though admittedly after the due date as prescribed under the relevant statute, the same is liable to be allowed in the case of the assessee for the assessment year under consideration. Appeal of assessee is partly allowed. Issues:1. Adjustment made in intimation u/s 143(1) for debatable issues2. Disallowance of employees' contributions to EPF and ESIC3. Set-off of unabsorbed depreciationIssue 1: Adjustment made in intimation u/s 143(1) for debatable issuesThe appeal challenged the CIT(A)'s confirmation of the adjustments made by the DCIT(CPC) in the intimation u/s 143(1), arguing that only arithmetical errors or incorrect claims can be adjusted during processing. The Tribunal noted that the AO must provide an intimation before such adjustments, and in this case, the intimation mentioned communication to the assessee's email. The Tribunal found that the adjustments were made in accordance with Section 143(1)(a)(iv) of the Act, covering disallowances indicated in the audit report but not considered in the return. As the CPC had provided a reasonable opportunity to the assessee, the Tribunal dismissed this ground.Issue 2: Disallowance of employees' contributions to EPF and ESICThe appeal contested the disallowance of contributions to EPF and ESIC made after the specified due dates but before u/s 139(1) of the Income-tax Act. The Tribunal considered recent judgments and found that payments made before the due date of filing the return, though after the statutory due date, should be allowed. Referring to various case laws, the Tribunal concluded that the contributions were allowable, citing precedents where similar disallowances were deleted. Consequently, the Tribunal allowed ground Nos. 2 and 3 of the appeal, overturning the disallowances.Issue 3: Set-off of unabsorbed depreciationThe appeal raised concerns about the disallowance of set-off of brought forward unabsorbed depreciation against the income assessed u/s 143(1). However, this ground was not pressed by the assessee and was dismissed as such during the proceedings.In conclusion, the Tribunal partly allowed the assessee's appeal, overturning the disallowances related to employees' contributions to EPF and ESIC. The Tribunal upheld the adjustments made in the intimation u/s 143(1) and dismissed the issue regarding the set-off of unabsorbed depreciation as it was not pressed during the proceedings.