TaxTMI 
TaxTMI 
2023 (11) TMI 1106
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....t. 12.10.2022" and hence, in confirming the disallowances 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 24.10.20....
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....or 'any sum received from employees as contribution to any provident fund or superannuation fund or any 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 re....
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....9-20 and therefore, the said amendment cannot be applied in the instant case." 5.5. Further prior to insertion of this explanation 2 to section 36(1)(va) of the Act, there have been 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 (....
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....ion authorized by the statute) as income-it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as 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 t....
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.... trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of Statutory pay out. They are others' income, 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....
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....i, Ld. Authorized Representative (for short 'AR') at the threshold of hearing of the appeal submitted that the CIT(Appeals) had based on misconceived facts, had approved the view taken by the A.O. Elaborating on his aforesaid contention, it was averred by the Ld. AR that 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 disal....
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....uttress his aforesaid claim had relied on the judgment of the Hon'ble High Court of Chhattisgarh in the case of ACIT-1, Bhilai, Dist. Durg Vs. M/s. Ganapati Motors, Tax Case (Income Tax Appeal) No. 30 of 2016 dated 25.04.2017 and order of the ITAT, "SMC" Bench, Raipur in the 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 em....
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....pective contentions. 7. Controversy involved in the present appeal lies in a narrow compass, i.e as to whether or not the delayed deposit of the employee's share of contributions towards ESI & EPF by the assessee-employer, could have summarily been held by the A.O, as the assessee's income under 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. ....
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.... r.w.s. 2(24)(x); while for the courts on the other hand had accepted the assessee's claim that such delayed deposits which were made by the assessee not later than the "due date" of filing of its return of income under sub section (1) of Section 139 of the Act were saved by the provisions of Section 43B of the Act, therefore, the said delayed deposits could not have been 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 qualifie....
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....sions of Section 43B of the Act, i.e to the extent such deposits were made not later than the "due date" of filing of the return of income of the assessee as prescribed under sub-section (1) of Section 139 of the Act, was a highly debatable; AND (ii). that the assessee's chartered account had only furnished the details of such delayed deposits in column 20(b) of his audit report in Form 3CD and had 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 f....
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....urn of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished 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 ....
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....n 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Section 143(1), is indeed permissible. It is, however, important to take note of the fact that unlike the old scheme of 'prima facie adjustments' under section 143(1)(a), the scheme 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 ....
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....need for disposal of objections by way of a speaking order has to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee, is performing a quasi-judicial function, and the soul of a quasijudicial decision making is in the reasoning for coming to the decision taken by the quasi-judicial officer. While on this aspect of the matter, we may usefully refer to the observations 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 ha....
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....that the tax auditor is a third party, and his opinions cannot bind the auditee in any manner. As a matter of fact, no matter how highly placed an auditor is, and even within the Government mechanism and with respect to CAG audits, the audit observations are seldom taken an accepted position by the auditee- even when the auditor is appointed by the auditee himself. These are mere opinions and at best these opinions flag the issues 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....
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....ther purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all Courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and start proceedings in direct violation 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 jurisd....
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....ll. 9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be 'due date' in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression 'due date' has been defined under Explanation (now Explanation 1) to Section 36(1)(va) provides that "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 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....
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....7 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 11. In a result, this appeal is allowed." 14. Also, I find that a similar view had been taken by the ITAT, Mumbai in the case of P.R Packaging Service Vs. ACIT (supra). In the aforesaid case, the Tribunal after drawing support 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 P....
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....epresentatives of both the parties. We may herein observe that the Hon'ble High Court of Chhattisgarh in the case of Assistant Commissioner of Income Tax-1, Bhilai, Dist. Durg (C.G.) Vs. M/s. Ganapati Motors, Tax Case (Income Tax Appeal) No.30 of 2016 dated 25.04.2017 had held that in a case where the assessee had not charged VAT to its profit and loss account, then, despite the fact that the liability may still be unpaid it could not have been added u/s. 43B of the Act as the same was not 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 ....
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....and maintained by an assessee. The acceptability or otherwise of the accounts in a mercantile system would obviously be a matter of concern for other taxation authorities. 6. In the case in hand, as already noted, the fact situation that the Assessing Authority and the First Appellate Authority did not doubt the modality of the accounting system adopted by the assessee is an outstanding phenomenon which goes in favour of the assessee. Under such circumstances, it is not necessary for the authorities to consider, whether Section 43-B of the Income Tax is to be relied on by the assessee to claim any deduction. 7. For the aforesaid reasons, on the facts and circumstances of the case in hand, we answer to the question formulated in these appeals in the negative, that is to say, against the revenue and in favour of the assessee." 17. Considering the aforesaid judgment of the Hon'ble Jurisdictional High Court as per which, no addition can be made of an assessee's unpaid VAT tax liability that was not charged to the profit and loss account, there is substance in the claim of the Ld. AR that based on the same analogy there was no justification for the A.O to have made ....