Late ESIC/PF payments disallowed under sections 36(1)(va)/43B despite jurisdictional challenges being dismissed

The ITAT Indore upheld disallowance under sections 36(1)(va)/43B for late payment of ESIC/PF contributions, following SC precedent in Checkmate Services P. Ltd. that mandates timely deposit before due dates for deduction eligibility. The tribunal dismissed jurisdictional challenges regarding CPC processing under section 143(1), ruling that once scrutiny assessment under section 143(3) is completed, CPC orders merge with assessment orders. However, the validity challenge based on non-issuance of draft assessment order under e-Assessment Scheme 2019 was remanded to AO for fresh assessment following due process, after noting SC's decision in National Faceless Assessment Centre vs. Mantra Industries Limited set aside the relied-upon Bombay HC judgment. Appeal partly allowed for statistical purposes.

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Issues Involved:

1. Disallowance under Section 36(1)(va) for late payment of ESIC/PF.
2. Retrospective applicability of amendments introduced by the Finance Act, 2021.
3. Jurisdiction of CPC in processing returns under Section 143(1).
4. Validity of the assessment order under the e-Assessment Scheme, 2019.

Detailed Analysis:

1. Disallowance under Section 36(1)(va) for Late Payment of ESIC/PF:

The primary issue in this case was the disallowance of Rs. 27,91,386/- under Section 36(1)(va) due to the late payment of employees' contributions to PF and ESIC. The Tribunal referred to the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT-I, which clarified the distinction between employers' and employees' contributions. The Supreme Court emphasized that employees' contributions, if not deposited on or before the due date, are deemed income under Section 2(24)(x) and cannot be deducted. The Tribunal upheld the disallowance, aligning with the Supreme Court's interpretation that timely deposit is a precondition for deduction under Section 36(1)(va).

2. Retrospective Applicability of Amendments Introduced by the Finance Act, 2021:

The assessee argued that the amendments introduced by the Finance Act, 2021, should not apply retrospectively. However, the Tribunal did not find merit in this argument, as the disallowance was based on the existing legal framework and the Supreme Court's ruling, which did not rely on the amendments' retrospective application. The Tribunal dismissed the grounds related to the retrospective applicability of these amendments.

3. Jurisdiction of CPC in Processing Returns under Section 143(1):

The Tribunal examined the jurisdiction of the Centralized Processing Centre (CPC) in making adjustments for belated payments to PF and ESIC under Section 143(1). The assessee had filed a rectification request with the CPC, which was transferred to the Assessing Officer (AO) due to the case being selected for scrutiny. The Tribunal noted that once the scrutiny assessment was completed under Section 143(3), the CPC's order merged with the assessment order, and no separate issue arose regarding the CPC's jurisdiction. Consequently, the Tribunal dismissed the ground concerning the CPC's jurisdiction.

4. Validity of the Assessment Order under the e-Assessment Scheme, 2019:

The assessee challenged the validity of the assessment order, arguing that the AO failed to issue a draft assessment order and show cause notice as required under the e-Assessment Scheme, 2019. The Tribunal acknowledged the procedural requirements under the scheme, which necessitate a draft assessment order and an opportunity for the assessee to respond to any proposed variations. However, the Tribunal noted that the CIT(A) dismissed this ground as it was not pressed during appeal proceedings. Despite this, the Tribunal recognized the seriousness of the procedural lapse and remanded the issue to the AO for passing a fresh assessment order following due process. The Tribunal's decision was influenced by the Supreme Court's remand of a similar issue in the case of National Faceless Assessment Centre vs. Mantra Industries Limited.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal upholding the disallowance under Section 36(1)(va) and addressing procedural concerns under the e-Assessment Scheme, 2019, by remanding the matter for fresh consideration by the AO.

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