AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 1325
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.... circumstances of the case, the JCIT(A)-12, Mumbai (NFAC) was not justified in confirming the disallowance of employees' contribution to PF and ESI u/s 36(1)(va) of the Act of Rs. 26,05,843/- without following the decision of the Mumbai ITAT in the case of P R Packaging Services Vs ACIT in ITA No. 2376/Mum/2022 cited before it, which was binding on it being a quasi-judicial authority subordinate to the ITAT in the judicial hierarchy in violating Article 141 of the Constitution of India. 3. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds or ground of appeal either before or at the time of appeal hearing." 3. Brief facts of the case are that assessee is a partnership firm engaged in the business of food products. Return was filed on 31.01.2020 reporting total income at Rs. 22,27,820/- which was processed by Centralized Processing Centre (CPC), Income Tax Department, Bengaluru u/s. 143(1) of the Act vide intimation dated 06.03.2020 at the total income of Rs. 48,36,130/- after making an addition of Rs. 26,05,843/- towards late deposit of employees' contribution to Provident Fund and Employees State Insurance (P....
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.... the due date. The last expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). * The significance of this is that Parliament treated contributions under Section 36(1)(va) from those under Section 36(1)(iv). The latter (hereinafter, "employers' contribution") is described as "sum paid by the assessee as an employer by way of contribution towards a recognized provident fund". However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that "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 the due date." The essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underl....
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....ved from the employee or by way of deduction 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 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.....
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....ployees' 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 an 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 nonobstante 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." 5. Contention raised by the Ld. Counsel for the assessee that disallowance made towards delayed deposit of PF & ESI is a debatable issue and hence, not a permissible adjustment which ....
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....03.2021, Hon'ble Calcutta High Court (Jurisdictional High Court) judgement in the case of CIT Vs. Vijay Shree Ltd. (2014) 43 taxmann.Com 396 (Calcutta High Court) was holding field which held that such employees' contribution, if deposited within due date of filing ITR (which in the instant case of appellant was 15.02.2021) is not to be disallowed u/s. 36(1)(va) of the Act. a) CIT Vs. Hindustan Electrographite Ltd. (2000) 243 ITR 48 (SC) (2000) 109 Taxman 342 (SC) b) Modern Fibotex India Ltd. Vs. DCIT (1995) 212 ITR 496 (Cal) c) SamtelColor Ltd. Vs. UOI (2002) 258 ITR 1 (Del) (2002) 125 Taxman 1002 (Delhi) d) ITO Vs. Gujarat Power Corpn. Ltd. (2002) 254 ITR 217 (Gujarat) (2002) 122 Taxman 367 (Gujarat) e) CIT Vs. Vijayshree Ltd. (2014) 43 taxmann.com 396 (Calcutta High Court) 6. Admittedly, the issue on merits has been set at rest by the recent decision of the Hon'ble Supreme Court in bunch of appeals with the lead case in 'Checkmate Services Pvt. Ltd vs. CIT' in Civil Appeal No. 2833 of 2016 dated 12.10.2022. Earlier, there were divergent opinions of various High Courts. The High Courts of Bombay, Himachal Pradesh, Cal....
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....loyers' contribution towards ESI/PF would not be applicable in case the employees' contribution as provided u/s 36(1)(va) of the Act and that the due date in respect of deposit of employees' contribution would be such as prescribed u/s 36(1)(va) of the Act. 7. Now the contention raised by the ld. counsel for the assessee is that before the decision of the Hon'ble Supreme Court in the case of 'Checkmate Services (P) Ltd. vs. CIT' (supra), the judgement of the jurisdictional Calcutta High Court in CIT vs. Vijayshree Ltd. (supra) was holding field which held that employees' contribution if deposited within the due date of filing of ITR is not to be disallowed u/s 36(1)(va) of the Act. Therefore, the Assessing Officer was not justified in making adjustment u/s 143(1)(a) of the Act. Before proceeding further, it will be relevant to mention here that under section 43B(b) of the Income Tax Act, the following amount is allowable as deduction if paid by the assessee before due date of furnishing of return u/s 139(1) of the Act. "43B(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any ....
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....F, however, the aforesaid decision would show that the Hon'ble Calcutta High Court referred to the provisions of section 43B of the Act to hold that the said section 43B introduced by Finance Act 2003, was curative in nature and was required to be applied retrospectively w.e.f. 01.04.1988. It was not brought to knowledge of the Hon'ble High Court that the provisions of section 43B do not prescribe the due date of deposit of employees' contribution, rather, the same refers to only the employer's contribution. There is no discussion in the said decision of the Hon'ble Calcutta High Court that the provisions of section 43B would also include employees' contribution along with employer's contribution. However, since the hon'ble High Court in the concluding para mentioned Employees' contribution, while holding about the retrospective application of section 43B of the Act, therefore, it was taken that the aforesaid decision of Calcutta High Court in the case of CIT vs. Vijayshree Ltd. (supra) was applicable on Employees' contribution also. 8. However, as observed above, the issue has been settled by the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. (supra) whe....
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....'ble High Court on the already existing provisions, which were subject to appeal to hon'ble Supreme Court. If the assessee has chosen to reap the fruits of the interpretation given by the hon'ble High Court, the assessee is also liable to face the consequences, if such an interpretation given by the hon'ble High Court is reversed or modified by the Apex Court of the country. So far as the reliance of the ld. counsel on the decision of the Hon'ble Supreme Court in the case of 'CIT vs. Hindustan Electrographite Ltd.' (supra) is concerned, I find that the said decision is not applicable to the facts and circumstances of the present case. The said decision deals with the retrospective amendment of the statutory provision, and not relating to the interpretation of the provisions already existing in the Statute. The facts of the said case were that the assessee had received during the prevision year relevant to assessment year 1988-89 certain amount by way of cash compensatory support. It did not include this income in its return which was filed on 29.12.1989. the Assessing Officer treated cash compensatory support receipt as additional income u/s 143(1A) in view of insertion of....
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....ed belatedly after due date prescribed under relevant statute if deposited within due date of filing ITR which in the instant case of appellant was 15.02.2021. a) M/S P.R. Packaging Service Vs. ACIT (2022) 66 CCH 0378 Mum. Trib b) A Infrastructure Ltd. Vs. DCIT (2023) 37 NYPTTJ 165 (Jd) c) Paris Elysees India Private Limited Vs. DCIT Order dated 20.02.2023 in ITA No. 357/JPR/2022 11. The contention as canvassed by the ld. counsel is that the Assessing Officer could have disallowed the aforesaid employees' contribution to ESI/PF being deposited after the due date under the relevant statute, only in an assessment carried out u/s 143(3) of the Act. That the Assessing Officer did not have any power or jurisdiction to disallow the aforesaid amount while processing the return u/s 143(1)(a) of the Act. The ld. Counsel for the assessee, in this respect, has relied upon the recent decision of the Coordinate Mumbai Bench of the Tribunal in the case of 'M/s P R Packaging Service vs. ACIT' in ITA No. 2376/Mum/2022 order dated 07.12.2022, wherein, the Coordinate Bench of the Tribunal has held that as per the provisions of section 143(1)(a)(iv) of th....
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....e by the assessee with delay had been reported by the Tax Auditor in the Tax Audit Report. The copy of the Tax Audit Report is placed on record by the Ld.AR before us together with its annexures. On perusal of the same, we find that the Tax Auditor had merely mentioned the due date for remittance of Provident Fund as per the Provident Fund Act and the actual date of payment made by the assessee. The Tax Auditor had not even contemplated to disallow the employees' contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. Hence, it is merely recording of facts and a mere statement made by the Tax Auditor in his audit report. The Ld.CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. For the sake of convenience, the relevant provisions is reproduced hereunder:- "143(1) Where a return has been made under section 139, or in response to a notice under sub section (1) of section 142, such return shall be processed in the following manner, namely:- ....
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....ome appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:] ... Explanation.-For the purposes of this sub-section,- (a) "an incorrect claim apparent from any information in the return" shall mean 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;" A peru....
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....hat somebody is thinking or feeling. Further the 'indicative' has been explained as showing or suggesting something. 16. In the light of the above meaning or expression of the word 'indicate', when I look into the facts of the case, I note that there is a prescribed form for furnishing of audit report and the auditor is supposed to furnish the information as per the prescribed columns of the Form 3CD. Under section 44AB of the Act, if the sales/turnover or the gross receipts, as the case may be, of an assessee carrying on business exceeds the prescribed threshold, it has been made mandatory for him to get his books of account audited. The object is to get a clear picture of the assessee's accounts so as to enable the Income Tax authorities to assess true and correct income of the assessee. The information furnished by the auditor in the prescribed form enable the Assessing Officer/CPC to make the required adjustments into the returned income of the assessee. I note that under clause 20B of the prescribed form, the auditor is supposed to furnish the information in respect of nature of fund, sum receipts from employee, due date for payment, the actual amount paid an....
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....s the right to file response/objection to such adjustment and the Assessing Officer/CPC is required to consider such response/objection before making the adjustments. Therefore, the word 'indicate' does not mean that the auditor is required to specifically mention that such and such disallowance is required to be made in the case of the assessee, rather, correct view would be that the auditor is required to furnish the information and that information can be compared and considered by the Assessing Officer/CPC in the light of the relevant statutory provisions as well as relevant laws and if such information is suggestive of any adjustment of disallowance, the Assessing Officer will make such disallowance after giving opportunity to the assessee to rebut the same. 18. Identical view has been taken by the Coordinate Ranchi Bench of the Tribunal in the case of Nepal Chandra Dey vs. ACIT in ITA No. 63/Ran/2022 order dated 15.05.23 (The said decision also authored by the undersigned Judicial Member). 19. I have come across of the another decision of the Coordinate 'Chennai Bench' of the Tribunal passed in bunch of appeals with the title case of "M/s Electrical Ind....
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....ulfil the mandate of Sec. 36(1)(va). It could also be seen that this is not an increase in income but disallowance of expenditure, the adjustment of which is covered u/s 143(1)(a)(iv) which provide that the disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return could be made while processing the return of income. The amendment made w.e.f. 01.04.2021 by insertion of words 'increase in income' would have no impact on such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv). 8. The impugned adjustment, in our opinion, would also fall u/s 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per statutory mandate, the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. The purpose of the audit is to enable the revenue to make correct computation of assessee's income. A proper audit would, inter-alia, ....
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....hat. 11. The case law of Hon'ble Supreme Court in Kvaverner John Brown Engg. (India) P. Ltd. V/s ACIT (305 ITR 103), as referred on behalf of assessee, deal with deduction u/s 80-O for which two interpretations were possible viz. the deduction could be computed at gross value or the same could be computed on net value. The same is not the case here. The action of revenue is in accordance with the law laid down by Hon'ble Supreme Court in the cited decision. In fact, Hon'ble High Court of Madras in Tamilnadu Magnesite Ltd. vs DCIT (303 ITR 71) held that where the amount was inadmissible in view of Sec. 43B which overrides section 36(1) of the Act, the revenue was well within its power to make a prima facie adjustment in the computation of taxable total income while processing return of income under Section 143(1)(a) of the Act. The aforesaid decision supports our view. 12. The decision of Hon'ble High Court of Bombay in Bajaj Auto Finance Ltd. vs. CIT (93 Taxmann.com 63) as referred before us deals with case of debatable issue and hence distinguishable. The case law of Chandigarh Tribunal in Lanjani Co-operative Agri Service Society Ltd. vs DCIT (IT....
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....he views expressed by the tax auditor may not be binding on the auditee; that the tax audit reports are mere opinions and these opinions flag the issues which are required to be considered by the stakeholders; that these audit reports are inherently even less relevant, more so, when the reports require reporting of a factual position rather than express an opinion about legal implication of that position. The Coordinate Mumbai Bench further goes on to hold that 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. That, hence, the views expressed by the tax auditor in such a situation, cannot be the reason enough to disregard the binding views of the Jurisdictional High Court. The Coordinate bench, therefore, goes on to read down provisions to section 143(1)(a)(iv) and to hold that "what essentially follows is the adjustments under section 143(1)(a) in respect of "disallowance of expenditure indicated in the audit report but not taken into account in comp....
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.... therefore, following the same we do not find merit in the present appeals of the assessee and the same are accordingly dismissed." 6. In the grounds taken by the assessee, reference has been made to the decision of Coordinate Bench of ITAT, Mumbai in the case of P R Packaging Services Vs. ACIT in ITA No. 2376/Mum/2022 and it has been claimed that the Ld. JCIT(A) has erred in not following the binding judicial precedent. This decision by the Coordinate Bench of Mumbai has been dealt by the Coordinate Bench of ITAT Guwahati in the case of Harendra Nath Deka Vs. ACIT (supra) which in turn has considered the decision by Coordinate Bench of ITAT Kolkata in the case of Siddhi Vinayaka Graphics Pvt. Ltd. (supra) and does not need any further elaboration by us. 6.1. Also, ld. Counsel placed reliance on the decision of Coordinate Bench of ITAT, Raipur in the case of Pradeep Kumar Dhurve Vs. DCIT in ITA No. 302/RPR/2023 dated 23.11.2023 to assert the claim that disallowance towards delayed deposit of PF & ESI is not a permissible adjustment u/s. 143(1) of the Act. The issue dealt by ITAT Raipur Bench also has already been dealt by the Coordinate Bench of ITAT, Kolkata and Gu....