TaxTMI 
TaxTMI 
2023 (11) TMI 1106
X X X X Extracts X X X X
X X X X Extracts X X X X
....owances of Rs. 51,82,242/- made by CPC while processing return u/s 143(1) on 13.12.2019. 2. On facts and in the circumstances of the case, CIT(A) has erred in confirming action of CPC in making disallowances of Rs. 51,82,242/- while processing return u/s 143(1) on 13.12.2019 on the issues which are debatable one, i.e. on which there are difference of opinions of various judicial forums and/or favourable decisions of jurisdictional hon'ble Chhattisgarh High Court and jurisdictional hon'ble ITAT' Raipur Bench at the time of processing of return. 3. On facts and in the circumstances of the case, CIT(A) has erred in confirming action of CPC in making disallowances of Rs. 51,82,242/- while processing return u/s 143(1) on 13.12.2019 without appreciating the facts that the adjustments made by the CPC are not permissible u/s 143(1)(a) as the same are beyond the jurisdiction of the CPC. 4. The assessee reserves the right to add, amend, or alter/withdraw any ground/grounds of appeal at the time of hearing." 2. Succinctly stated, the assessee had e-filed his return of income for A.Y.2018-19 on 24.10.2018 declaring an income of Rs. 12,53,850/-. The return of income filed by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny fund set up under ESI Act or any other fund for the welfare of employees to the extent not credited to the employees account on or before the due date [36(1)(va)." Section 36(1)(va) of the Act reads as under : "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before on or before the due date. [Explanation 1] for the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the At, employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.] [Explanation 2.- For the removal of doubts, it is hereby clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n various decisions on this issue and high courts had different views on this issue. While some of them were in favour of the revenue, some were favouring the assessees. The appellant has also cited a number of decisions in its favour. The decisions in the favour of the assessee mainly held that the proviso to section 43B of the Act will apply to the amount covered in section 36(1)(va) of the Act also and, therefore, the employee's contribution towards ESI and PF through not paid due dates as per PF or ESI Acts but paid before date of filing of return of income u/s 139(1) of Income tax Act, 1961 will be allowable. 6. However, Hon'ble Supreme court has put this controversy to an end in its decision in Civil Appeal no. 2833 of 2016 in the case of Checkmate Services Pvt Ltd. Hon'ble SC in this order has considered entire conspectus of the matter (-related history of sec 2(24)(x); sec 36(1)(va) (employee contribution) versus (employer contribution) vide sec 36(1) (iv) / sec 43B (b) / second proviso etc.) with specific reference to explanatory CBDT circulars No. 372 dated 08-12-1983. & Circular no. 495 dated 22.09.1987 etc.). Para 51 to para 55 of this order of Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees' income; at the time, payment 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 the distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (section36(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 assessee are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed as income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment The decisions of the other high courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interface with the impugned judgment. The appeals are accordingly dismissed." 7. In view of the judgment of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....though the A.O had made impugned disallowance/addition of Rs. 51.82 lacs (approx.) on two fold counts, viz. (i) delayed deposit of the employees share of contributions towards EPF/ESIC u/s. 36(1)(va) of the Act : Rs. 44,16,229/-; and (ii) disallowance u/s. 43B(a) of the Act towards service tax paid beyond the "due date" specified for filing of return of income u/s. 139(1) of the Act : Rs. 7,66,013/-, but the CIT(Appeals) had approved the said order by wrongly attributing the entire disallowance as having been made u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act on account of delayed deposit of employees share of contribution towards ESIC/EPF by pressing into service the judgment of the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT (supra). The Ld. AR in order to drive home his aforesaid contention had taken us through the relevant extract of the order of the CIT(Appeals). 7. Apropos the disallowance of the delayed deposit of the employees share of contributions towards ESIC/EPF of Rs. 44,16,229/-, the Ld. AR submitted that the A.O had traversed beyond the scope of his jurisdiction in carrying out the same u/s. 143(1) of the Act. It was averred by the Ld. AR tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of Ganeshan Puroshothaman Achari Vs. DCIT, CPC, Bengaluru, ITA Nos. 146 to 148/RPR/2022 dated 27.03.2023. 9. Based on the aforesaid facts, the Ld. AR submitted that no part of the disallowance/addition made by the A.O u/s. 36(1)(va) r.w.s. 2(24)(x); AND u/s. 43B(b) of the Act could be sustained. 10. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 11. We have thoughtfully considered the contentions of the Ld. authorized representatives of both the parties in the backdrop of the observations of the lower authorities. At the threshold, we may herein observe that there is substance in the claim of the Ld. AR that the CIT(Appeals) had proceeded with and approved the view taken by the A.O on the basis of misconceived facts. We, say so, for the reason that though the A.O had made disallowance on two counts, viz. (i) delayed deposit of the employees share of contributions towards EPF/ESIC u/s. 36(1)(va) of the Act : Rs. 44,16,229/-; and (ii) disallowance u/s. 43B(a) of the Act towards service tax paid beyond the "due date" specified for filing of return of income u/s. 139(1) of the Act : Rs. 7,66,013/-, but the CIT(App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der Section 36(1)(va) r.w.s 2(24)(x) of the Act while processing his return of income u/s. 143(1) of the Act,.? 8. As is discernable from the records, it transpires that the assessee's chartered accountant in his audit report filed in "Form 3CD" r.w.r 6G(2) of the Income Tax Rules, 1962, had at Sr.No.20(b) of the said report furnished details of the delayed deposits by the assessee-employer of the employees share of contributions towards ESI & EPF, which reads as under: Ostensibly, as the aforementioned amounts received by the assessee-employer as employees share of contribution towards ESI & EPF were deposited by him beyond the stipulated time period prescribed under the said relevant Acts, therefore, the A.O while processing his return of income u/s. 143(1) of the Act, had held the same as the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act. 9. It is the claim of the Ld. A.R that the aforementioned addition could not have been made by the A.O in the garb of a prima facie adjustment u/s. 143(1)(a) of the Act. Elaborating on his aforesaid contention, it was the claim of the Ld. AR that the assessee's chartered accountant as per the mandate of law had at Sr. N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en summarily held by the A.O as the income of the assessee u/s. 143(1) of the Act. Ld. A.R in support of his aforesaid contention had relied on the orders of the ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (2022) 137 taxmann.com 475 (Mumbai) and that of P.R Packaging Service Vs. ACIT (2023) 148 taxmann.com 153 (Mumbai). It was averred by the Ld. AR, that the addition of the delayed deposit of employee's share of contribution of Rs. 19,91,318/- made u/s. 36(1)(va) of the Act by the A.O, vide his intimation issued u/s. 143(1) of the Act could not be sustained and was liable to be vacated. 10. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the assessee's auditor had categorically qualified his audit report and furnished details of the delayed deposit of employees share of contributions towards ESI and EPF as referred in Section 36(1)(va) of the Act, therefore, no infirmity did emerge from the order of the A.O, who while processing the return of income u/s. 143(1) of the Act had rightly held the said amount as the income of the assessee. 11. We have given a t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not offered the same as disallowance; I am of the considered view, that there could have been no justification for the A.O at the time of processing the return of income of the assessee u/s. 143(1) of the Act on 21.02.2020 to have summarily held such delayed deposit of the employees share of contributions towards labour welfare funds i.e ESI & EPF by the assessee-employer, as the income of the assessee. My said view is supported by the judgment of the Hon'ble High Court of Bombay in the case of Khatau Junkar Ltd. vs. K.S Pathania (1992) 196 ITR 157 (Bom). It was observed by the Hon'ble High Court that where a claim has been made which requires further inquiry, it cannot be disallowed without hearing the parties and/or giving the party an opportunity to submit proof of its claim. It was further observed that in absence of Sec. 143(1)(a) being read in the above manner, i.e debatable issues cannot be adjusted by way of intimation under section 143(1)(a), would lead to arbitrary and unreasonable intimations being issued, leading to chaos. In fact, I find that the aforesaid issue in hand had been deliberated at length by the ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hed beyond the due date specified under sub-section (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". So far as the first point is concerned, it must be noted that the expression "incorrect claim apparent from any information in the return", for the purpose of Section 143(1)(a), is further defined, under Explanation to Section 143(1), and it means that a claim, on the basis of an entry, in the return,-(i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. On the second point, it is useful to bear in mind the fact that the scheme of Section 143(1)(a) thus permits the processing of the income tax return in the manner that the total income or loss of the assessee is computed after making the adjustments for (i) any a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of 'such adjustments' [as proposed under section 143(1)], in writing or by electronic mode, and "the response received from the assessee, if any" to be "considered before making any adjustment" makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter- one way or the other, and such disposal of objections is a quasijudicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised bef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made by the Hon'ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi and Ors., [2021] 4 SCC 516. While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi-judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon'ble Justice Chandrachud, Hon'ble Supreme Court has made the following observations: ..... ............Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations since what we have encountered in this case is no longer an isolated aberration. This has become a recurring phenomenon. .........How judges communicate in their judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary. 7. These observations of Their Lordships apply equally, and in fact with much greater vigour, to the quasi-judicial functionari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon'ble Courts have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant- more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the statu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of it. If a Tribunal can do so, all the subordinate Courts can equally do so, for there is no specific provision, just like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer 8. When the law enacted by the legislature has been construed in a particular manner by the Hon'ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon'ble High Court to read it in any other manner than as read by the Hon'ble jurisdictional High Court. The views expressed by the tax auditor, in such a situation, cannot be reason enough to disregard the binding views of the Hon'ble jurisdictional High Court. To that extent, the provisions of Section 143(1)(a)(iv) must be read down. What essentially follows is that the adjustments under section 143(1)(a) in respect of "disallow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise", one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted "disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return" as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pport from its earlier order in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), had, further observed, that as in the subsequent judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT (supra) assessment was framed u/s. 143(3) of the Act and not u/s. 143(1)(a) of the Act, therefore, the same would not assist the case of the department before them, wherein the assessee had assailed the validity of the addition of the delayed deposit of the employee's share of contributions towards labour welfare funds, i.e. ESI & EPF that were made by the A.O u/s. 143(1)(a) of the Act. Further, I find that similar view had been taken by the ITAT, Jaipur in the case of Paris Elysees India Private Limited Vs. DCIT, ITA No.357/JPR/2022 dated 20.02.2023; and ITAT, Delhi in the case of M/s. 360 Realtors LLP Vs. ADIT, CPC in ITA No.303/Del/2022 and Garg Heart Centre & Nursing Home Private Limited, ITA No.1700/Del/2022. 15. On the basis of my aforesaid observations, I am of the considered view that as the issue involved in the present appeal is squarely covered by the order of the ITAT Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot claimed as a deduction in the books of accounts. For the sake of clarity the relevant observations of the Hon'ble High Court are culled out as under: "2. Heard learned Counsel for the revenue and learned Counsel for the respondent-assessee. The fundamental issue that arises for decision is, as to whether a particular amount which is subject matter of the appeal is to be treated as relatable to Value Added Tax (VAT) payable by the assessee and, if so, whether it has to be actually paid by him before filing of the return under the Income Tax Act. This question is relevant, having regard to the manner in which the question of law has been framed. The issue as to whether Section 43-B of the Income Tax is attracted even when the assessee does not claim any deduction on the strength of that provision may also be relevant. 3. The Assessing Authority, on the instant issue, noticed that the assessee's claim regarding the treatment of VAT in the Books of Accounts has been verified from the Books and that has been found to be in order. The Assessing Authority also found that VAT has been found separately accounted for in the Books of Accounts. The only ground on which the Assessing....