2024 (9) TMI 1808 - AT - Income Tax

Disallowance of deduction under s.36(1)(va) upheld where PF/ESI paid after statutory due dates despite before return due date

ITAT PUNE (AT) upheld disallowance under s.36(1)(va) where PF/ESI was deposited after the statutory due dates under the respective Acts though before the ... Deduction u/s 36(1)(va) - amount of PF/ESI was deposited before expiry of due date prescribed u/s 139(1) but after the expiry of due date specified under respective PF/ESIT Act - HELD THAT:- In view of decision of ‘Checkmate Services’ [2022 (10) TMI 617 - SUPREME COURT (LB)] we find the aforestated disallowance is in order and necessitating no interference with the orders of tax authorities below. Further the contention of the assessee that such disallowance cannot be carried u/s 143(1) of the Act has no legs to stand in view of ‘Rohan Korgaonkar [2024 (2) TMI 1373 - BOMBAY HIGH COURT] - The grounds of the appeal are accordingly stands dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an order of the Tribunal passed under the income-tax appellate jurisdiction can be recalled/rectified under the Tribunal's rectification power where it is asserted that the order is an 'apparent mistake' by reason of non-application of a subsequently rendered binding decision of the Supreme Court interpreting statutory deductibility of employer contributions (PF/ESI) for purpose of section 36(1)(va) read with section 43B. 2. Whether amounts of employer contributions to Provident Fund/ESI deposited after the due date prescribed under the respective PF/ESI statutes but before the due date of filing the income-tax return are deductible under section 36(1)(va) of the Income-Tax Act, having regard to the interplay with section 43B. 3. Whether a disallowance under section 36(1)(va) based on non-payment by the PF/ESI statutory due date can be sustained by assessment/purchase proceedings completed under section 143(1) of the Income-Tax Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Rectification/Recall of Tribunal Order in Light of a Subsequent Supreme Court Decision Legal framework: The Tribunal's power to rectify its own order is governed by the statutory provision empowering recall/rectification (as applied in appellate practice) and the principles that a decision contrary to binding precedent may amount to a 'mistake apparent from record'. Article 141 of the Constitution establishes that the law declared by the Supreme Court is binding on all courts and tribunals. Precedent Treatment: The judgment relies on multiple judicial authorities addressing whether subsequent judicial interpretations operate retrospectively and when such subsequent interpretations can found rectification. It treats Supreme Court pronouncements as normally having retrospective effect and as capable of rendering an earlier tribunal order inconsistent with the correct law, thereby constituting an apparent mistake. Interpretation and reasoning: The Court reasoned that when a Tribunal's earlier order is inconsistent with a subsequently rendered binding interpretation of the Supreme Court (which merely declares the correct law rather than enacting new law), such subsequent declaration operates retrospectively from the enactment of the statutory provision. Consequently, the earlier Tribunal order is inconsistent with the law as correctly interpreted and may be rectified/ recalled. The Court distinguished the view that rectification is confined to the law as it stood at the time of the original order, holding that the normal rule is retrospective operation of Supreme Court decisions unless expressly made prospective. The Tribunal further observed that failure to consider a binding Supreme Court decision (whether available at the time or rendered subsequently) can constitute a mistake apparent on record warranting recall. Ratio vs. Obiter: The determination that a subsequent binding Supreme Court interpretation can form the basis for rectification of a prior Tribunal order is treated as ratio for purposes of the present rectification application. Observations about exceptions (prospective operation only where expressly stipulated) and comparative authority are explanatory though applied concretely. Conclusions: The Tribunal concluded that the rectification/review power is available where a prior order conflicts with a later binding Supreme Court interpretation of the law, because such interpretation operates retrospectively by declaring the correct law. Accordingly, the Tribunal's earlier order was recalled on this ground. Issue 2 - Deductibility under section 36(1)(va) Where PF/ESI Contributions Paid After Statutory PF/ESI Due Date but Before Income-Tax Return Due Date Legal framework: Section 36(1)(va) allows deduction for employer's contributions to specified funds; section 43B contains special timing principles for deduction of certain payments linked to payment date. The PF/ESI statutes prescribe statutory due dates for deposit of contributions to the relevant funds. Precedent Treatment: The Court applied a subsequent Supreme Court interpretation holding that deductibility under section 36(1)(va) in relation to PF/ESI contributions is contingent upon deposit by the due date prescribed under the respective PF/ESI statute, and that mere payment before the tax return due date is insufficient to claim deduction where PF/ESI statutory due dates have expired. Interpretation and reasoning: The Tribunal accepted the Supreme Court's ratio that the statutory timing under the respective labour/statutory fund legislation determines entitlement to deduction; thus, payments made after the statutory PF/ESI due date but before the tax return due date do not satisfy the condition required for deduction. The Court reasoned that the specialized statutory regime governing PF/ESI contributions takes precedence for the purpose of allowing the deduction, and that retrospective operation of the Supreme Court's pronouncement confirms this view for the assessment year in question. Ratio vs. Obiter: The holding that deposit after the PF/ESI statutory due date does not permit deduction under section 36(1)(va) is treated as ratio and was applied to dismiss the appeal on the substantive disallowance. Conclusions: The Tribunal concluded the disallowance of the employer's PF/ESI contribution (remitted after the PF/ESI statutory due date) was proper and required no interference in view of the binding Supreme Court interpretation that such payments are not deductible. Issue 3 - Validity of Disallowance Carried Out under Section 143(1) Legal framework: Section 143(1) authorizes certain summary adjustments in assessment; the question is whether a disallowance under section 36(1)(va) predicated on non-deposit by statutory PF/ESI due date can validly be effected through such proceedings. Precedent Treatment: The Tribunal relied on an applicable decision of the jurisdictional High Court which supports that such disallowance can be sustained when made under section 143(1). Interpretation and reasoning: The Tribunal observed that, given the substantive legal position established by the Supreme Court and the High Court's treatment of similar assessments, a disallowance based on non-deposit by the PF/ESI due date is within the competence of assessment authorities and may stand when effected under section 143(1). The Tribunal rejected the contention that the disallowance could not be carried out by summary assessment under section 143(1). Ratio vs. Obiter: The affirmation that section 143(1) assessments may sustain such a disallowance (in the facts presented) is applied as ratio for dismissal of the taxpayer's appeal; ancillary remarks are explanatory. Conclusions: The Tribunal upheld the disallowance effected under section 143(1) of the Act, finding it legally sustainable in light of higher court authority and the binding interpretation of deductible timing. Cross-References and Final Disposition 1. Issue 1 and Issue 2 are interlinked: the power to rectify the Tribunal's earlier order (Issue 1) was exercised because the subsequent Supreme Court interpretation (Issue 2) established that timing under PF/ESI statutes governs deductibility and that this interpretation operates retrospectively. 2. Issue 3 is consequential: once deductibility is negated by reason of non-deposit by statutory PF/ESI due date, the assessment action that gave effect to that legal position (including summary adjustments under section 143(1)) was validated. Overall conclusion: The Tribunal recalled its prior order as an apparent mistake in view of the retrospective binding interpretation by the Supreme Court concerning timing of PF/ESI payments for deduction; it upheld the substantive disallowance of the impugned PF/ESI contributions deposited after the statutory due date and affirmed that the disallowance could properly be effected under section 143(1).