2022 (5) TMI 1579 - AT - Income Tax

Employees contribution to Provident Fund and ESI - sum 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) - Adjustment u/s. 143(1)(a) - HELD THAT - We find that this issue is no longer res integra in view of the recent decision of the Co-ordinate Bench of this Tribunal in the case of Kalpesh Synthetics Pvt. Ltd 2022 (5) TMI 461 - ITAT MUMBAI held that When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is indicative of the disallowance of expenditure in question. 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 under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. The amendment brought in Section 36(1)(va) of the Act is to be construed only as prospective in operation and cannot be applicable for the year under consideration. 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 - Assessee Appeal allowed.

Summary

Issues Involved:
1. Whether the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) remitted after the due date prescribed under respective Acts but before the due date of filing income tax returns under Section 139(1) of the Income Tax Act, 1961, can be subject to adjustment under Section 143(1)(a) by the Central Processing Centre (CPC).

Issue-wise Detailed Analysis:

1. Legality of Adjustments under Section 143(1)(a):
The core issue was whether the employees' contribution to PF and ESI, remitted after the due date under respective Acts but before the due date of filing returns under Section 139(1), could be adjusted under Section 143(1)(a). The Tribunal noted that the assessee had remitted the contributions before the due date of filing returns but beyond the due date under the respective Acts. The Tribunal referred to the case of Kalpesh Synthetics Pvt. Ltd. vs. DCIT, CPC, Bangalore, where it was held that such contributions are deductible if paid before the due date of filing returns, despite being late under the respective Acts.

2. Judicial Precedents and Binding Nature:
The Tribunal highlighted that the issue is no longer res integra due to the binding judicial precedents from the Hon'ble jurisdictional High Court, which permit such deductions. The Tribunal cited the judgments of the Bombay High Court in CIT v. Hindustan Organic Chemicals Limited and CIT v. Ghatge Patil Transports Ltd., which support the deduction if contributions are paid before the due date of filing returns under Section 139(1).

3. Scope of Prima Facie Adjustments under Section 143(1):
The Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) is limited. The Tribunal noted that the adjustments under Section 143(1)(a) must be based on clear and undisputed facts. The Tribunal found that the CPC's adjustment was not sustainable as it did not consider the binding judicial precedents.

4. Prospective Nature of Amendments by Finance Bill 2021:
The Tribunal discussed the amendments to Sections 36(1)(va) and 43B by the Finance Bill 2021, which are prospective and applicable from AY 2021-22 onwards. The Tribunal held that these amendments do not apply to the assessment year under consideration (AY 2019-20).

5. Requirement of Speaking Order for Disposal of Objections:
The Tribunal criticized the CPC for not providing specific reasons for rejecting the assessee's objections. The Tribunal held that the disposal of objections is a quasi-judicial function requiring a speaking order. The Tribunal found that the CPC's use of a standard template without specific reasons was inadequate.

6. Status and Significance of Tax Audit Report:
The Tribunal noted that the tax audit report is prepared by an independent professional and does not bind the assessee. The Tribunal held that the observations in the tax audit report cannot be the sole basis for disallowance under Section 143(1)(a)(iv), especially when contrary to binding judicial precedents.

Conclusion:
The Tribunal concluded that the impugned adjustment under Section 143(1) was vitiated in law and deleted the same. The Tribunal allowed the appeal of the assessee, emphasizing that the law prevailing prior to the amendments by the Finance Bill 2021 would rule the field for the assessment year under consideration. The Tribunal's decision was based on the binding judicial precedents and the requirement for a speaking order in disposing of objections.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 19/05/2022.