2023 (5) TMI 1274 - AT - Income Tax

Delayed payment of Employees Contribution to Employees Provided Fund/ESI - Intimation u/s 143(1) - AO held it as the assessee s income u/s 36(1)(va) r.w.s 2(24)(x) while processing his return of income u/s.143(1) - HELD THAT - The issue involved in the present appeal is squarely covered by the order of Kalpesh Synthetics (P) Ltd. Vs. DCIT 2022 (5) TMI 461 - ITAT MUMBAI wherein 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). Thus 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). We thus respectfully follow the same and vacate the addition as summarily made by the A.O CPC u/s.143(1)(a) - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legality of addition made under Section 143(1) for delayed deposit of employees' contributions towards ESI & EPF.

Summary:

Condonation of Delay:
The assessee filed an appeal with a delay of 41 days. The delay was attributed to the assessee's initial unawareness of the order sent via email and subsequent financial constraints. The tribunal considered these reasons bonafide and condoned the delay, noting the lack of habitual non-compliance by the assessee.

Legality of Addition under Section 143(1):
The controversy centered on whether the delayed deposit of employees' contributions towards ESI & EPF could be added to the assessee's income under Section 36(1)(va) read with Section 2(24)(x) while processing the return under Section 143(1). The assessee argued that such an addition was beyond the jurisdiction of CPC, Bengaluru and that the issue was highly debatable at the time of processing the return.

Assessment and Judicial Pronouncements:
The tribunal reviewed the audit report and noted that the auditor had only reported the delayed deposits without offering them as income. It was emphasized that the issue was debatable and had been settled only recently by the Supreme Court in Checkmate Services (P) Ltd. Vs. CIT. The tribunal referred to various judicial pronouncements, including the ITAT Mumbai's decision in Kalpesh Synthetics (P) Ltd. Vs. DCIT, which held that such additions could not be made under Section 143(1)(a).

Conclusion:
The tribunal concluded that the addition of Rs. 19,91,318/- made by the A.O under Section 143(1)(a) was unjustified. The order of the CIT(Appeals) was set aside, and the addition was vacated, allowing the appeal of the assessee.

Order Pronouncement:
The order was pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, on 11th May 2023.