AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 393
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....on 36(1)(va) of the Income-tax Act, 1961 (for short 'the Act') on account to late deposit of employees contribution of provident fund. Assessee filed an application under section 154 to reprocess the return of income, but CPC has rejected the rectification application vide order under section 154 dated 10.08.2020. 4. Upon assessee's appeal, ld. CIT (A) elaborately noted submissions of the assessee. However, he was not convinced with the same and rejected the assessee's plea by observing as under :- "6.2.1 The scope of adjustments that can be made in course of processing of return u/s 143(1) has been widened through the Finance Act 2016 w.e.f. AY 2017-18. The rationale for the same as explained in the Memorandum to Finance Bill 2016, was to expeditiously remove the mismatch between the return and the information available with the Department, by expanding the scope of adjustments that can be made at the time of processing of returns under sub-section (1) of section 143. It was proposed that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS ....
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....dit report serves the purpose of indicating compliance or other-wise with the provisions of the Act. Therefore if any breach of a provision can be inferred from the transactional report, the same would qualify for appropriate adjustment in terms of 143(1 )(a)(iv). 6.2.4. Audit report form 3CD at item 20(b) requires the auditors to specify the details of contribution received from employees for various funds as referred to in section 36(1)(va). Such details include the sum received from employees, the due date for payment, the actual date of payment, and actual amount paid etc. from which compliance with the provisions of Section 36(1 )(va) can be inferred. Non-compliance to the provisions of this section as can be inferred from the details provided by the audit report therefore will squarely fall within the ambit of adjustment as spelt out at 143(1)(a)(iv). 6.2.5. Various judicial decisions cited by appellant are distinguishable as they were examining the scope of the word 'Prima facie' adjustment as was contained in the section 143(1) prior to its amendment through Finance Act, 2001. 6.2.6. In the light of the above, the plea of the appellant tha....
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....pesh Synthetics (p.) Ltd v. DCIT (CPC), Bangaluru [2022] 137 taxmann.com 475 (Mumbai- Trib) that solely on the basis of observation of auditor in tax audit report, no disallowance of expenditure can be made u/s 143(1 )(a)(iv). This is further submitted before your honour that now question will also arise that due date under the relevant Act will be reckoned from which date i.e. from the end of the month for which salary was due or from the end of the month of the date on which salary was actually been paid and contribution of provident fund was actually been deducted from the salary of the employees. Assessee can be said to be custodian of the employee contribution from the date on which employee contribution was actually been deducted. In this connection "due date" for payment of Provident Fund contributions, clause (1) of Paragraph 38 of Employees' Provident Fund Scheme, 1952 is relevant. It reads as follows:- "The employer shall, before paying the member his wages in respect of any period or part of period for which contribution are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an....
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....month" should mean here the month during which the wages/ salary is actually disbursed irrespective of the month to which the same relates. Thus, the scheme of the Govt. in this regard is that once a deduction is made in respect of the employees' contribution to the provident fund from the salary/ wages of the employee or the employer also makes his contribution, factually at the time of disbursement of the salary the payment in respect of such contribution should be made forth with. If for some reason or other the payment of salary for a particular month be held up for considerable period of time it cannot be said that the employer would be liable to make payments in respect of the "employer's" as well as "employees" contribution in respect of wages for such period within a period of 15 days from the close of the month to which the wages relates. On the other hand, in our view, most appropriate interpretation would be that the employer' would be at liberty to make payment of the contribution concerned within 15 days (subject however to the further grace period) from the end of the month during which the disbursement of the salary is actually made and the contribution o....
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....d was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under subsection (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return" 10. So, the aforesaid adjustment done by the CPC falls under the limb of section 143(1)(iv) of the Act which calls for disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return. Now, we may gainfully refer to Hon'ble Apex Court's conclusion in the case of Checkmate Services Pvt. Ltd. (supra) as under :- "51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax....
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....nt within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer's contribution which is its primary li....