2022 (5) TMI 1565 - AT - Income Tax

Delayed Employees contribution to Provident Fund and ESI - due date determination - amounts were not remitted within the due date prescribed u/s. 36(1)(va) but were remitted before the due date of filing of income tax returns u/s. 139(1) - intimation u/s 143(1) - HELD THAT - It is not in dispute that assessee had remitted the employees contribution of PF ESI with much before the due date of filing of return u/s. 139(1) of the Act though the same has been remitted belatedly beyond the due dates specified under the respective PF ESI Acts. We find that this issue is no longer res integra in view of the recent decision in the case of Kalpesh Synthetics Pvt. Ltd 2022 (5) TMI 461 - ITAT MUMBAI 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 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). While preparing the tax audit report the auditor is expected to report the information as per the provisions of the Act and the tax auditor has done that but that information ceases to be relevant because in terms of the law laid down by Hon ble Courts which binds all of us as much as the enacted legislation does the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return u/s 139(1). Viewed thus also the impugned adjustment is vitiated in law and we must delete the same for this short reason as well. The impugned adjustment in the course of processing of return under section 143(1) is vitiated in law and we delete the same. We find that the law prevailing prior to A.Y.2021-22 would rule the field and the case laws rendered by various High Courts would rule the field. Prior to the amendment the Hon ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT had held that employees contribution to PF ESI if remitted within the due date prescribed u/s. 139(1) of the Act for filing the income tax returns would be allowed as deduction u/s. 43B of the Act. This issue has been decided in favour of the assessee after considering various decisions of Hon ble Supreme Court High Court and this Tribunal in the case of Force Point Software Consulting India P. Ltd. 2022 (6) TMI 95 - ITAT MUMBAI Decided in favour of assessee.

Summary

Issues Involved
1. Whether the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) remitted after the due date prescribed under section 36(1)(va) but before the due date of filing income tax returns under section 139(1) can be subject to adjustment under section 143(1)(a) by the Central Processing Centre (CPC).

Issue-wise Detailed Analysis

Adjustment of Employees' Contribution to PF and ESI under Section 143(1)(a)
The primary issue in this appeal is whether the employees' contribution to PF and ESI, remitted after the due date specified under the respective Acts but before the due date for filing income tax returns under section 139(1), can be adjusted under section 143(1)(a) by the CPC.

The Tribunal noted that the assessee had remitted the employees' contributions to PF and ESI before the due date of filing the return under section 139(1) but after the due dates specified under the respective Acts. The Tribunal referred to a recent decision in the case of Kalpesh Synthetics Pvt. Ltd., vs. DCIT, CPC, Bangalore, where it was held that such payments are deductible if made before the due date of filing the income tax return under section 139(1).

Legal Precedents and Judicial Interpretations
The Tribunal highlighted that the issue is no longer res integra and cited several judicial precedents. Specifically, it referred to the judgments of the Hon'ble jurisdictional High Court in the cases of CIT v. Hindustan Organic Chemicals Limited and CIT v. Ghatge Patil Transports Ltd., which allowed such deductions. The Tribunal emphasized that the scope of adjustments under section 143(1)(a) is limited and cannot override binding judicial precedents.

Arguments from Both Sides
The assessee's counsel argued that the binding judicial precedents from the Hon'ble jurisdictional High Court should be followed, and the payments made before the due date of filing the return should be allowed as deductions. The counsel also contended that the amendments to Sections 36(1)(va) and 43B by the Finance Bill 2021 are prospective and cannot be applied retrospectively.

The Departmental Representative (DR) argued that the scope of section 143(1)(a) has been expanded and that the CPC was justified in making the adjustments based on the tax audit report. The DR also contended that the amendments introduced by the Finance Bill 2021 should be considered clarificatory and applicable retrospectively.

Tribunal's Observations and Decision
The Tribunal observed that the scheme of section 143(1)(a) involves an interactive process where the Assessing Officer CPC must consider the assessee's objections before making any adjustments. The Tribunal criticized the CPC for not providing specific reasons for rejecting the assessee's objections and for using a standard template response.

The Tribunal further noted that the tax audit report is prepared by an independent professional and cannot bind the assessee. It emphasized that the law laid down by the Hon'ble jurisdictional High Court must prevail over the tax auditor's observations.

The Tribunal concluded that the adjustments made by the CPC under section 143(1) were not sustainable in law. It held that the amendments to Section 36(1)(va) brought by the Finance Act 2021 are prospective and cannot be applied to the assessment year in question.

Conclusion
The Tribunal allowed the appeal of the assessee, holding that the employees' contributions to PF and ESI, remitted before the due date of filing the income tax return under section 139(1), are deductible, and the adjustments made by the CPC under section 143(1)(a) were not justified. The Tribunal emphasized the need for the CPC to provide specific reasons for rejecting objections and to follow binding judicial precedents.