2023 (8) TMI 1383 - AT - Income Tax

Delayed deposit of employee s share of contributions towards ESI/PF - Intimation u/s.143(1) - whether or not the delayed deposit by the assessee of the employee s share of contributions towards ESI/PF could have been summarily disallowed by the AO prior to the judgment of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT while processing his return of income vide intimation u/s.143(1)(a) HELD THAT - As decided in SATPAL SINGH SANDHU 2023 (5) TMI 1274 - ITAT RAIPUR 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. Disallowance of employer's contribution to ESIC invoking Section 43B.
2. Disallowance of delayed payment of employee's contribution to ESIC & other welfare funds invoking Section 36(1)(va).
3. Permissibility of adjustment made by AO/CPC under Section 143(1).

Summary:

1. Disallowance of employer's contribution to ESIC invoking Section 43B:

The assessee did not press this ground of appeal. Consequently, the ground of appeal regarding the disallowance of Rs.3,93,165/- on account of employer's contribution to ESIC invoking Section 43B was dismissed as not pressed.

2. Disallowance of delayed payment of employee's contribution to ESIC & other welfare funds invoking Section 36(1)(va):

The CIT(A) upheld the disallowance of Rs.24,03,630/- made by the AO under Section 36(1)(va) read with Section 2(24)(x) of the Act for the delayed deposit of employee's share of contributions towards ESI/PF. The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. The Tribunal noted that on the date of issuance of intimation under Section 143(1), there were divergent views regarding the allowability of such deductions. The Tribunal referenced the ITAT, SMC Bench, Raipur's decision in Satpal Singh Sandhu Vs. DCIT, which held that no such disallowance could be made while processing the return under Section 143(1)(a). The Tribunal concluded that the issue was highly debatable and could not be summarily disallowed by the CPC while processing the return. The Tribunal vacated the addition of Rs.24,03,630/- made by the AO.

3. Permissibility of adjustment made by AO/CPC under Section 143(1):

The Tribunal observed that the issue of delayed deposit of employee's share of contributions towards ESI/PF was highly debatable at the time of processing the return under Section 143(1). The Tribunal held that such adjustments could not be made summarily without hearing the parties. The Tribunal referenced several judicial pronouncements, including the ITAT, Mumbai's decision in Kalpesh Synthetics (P) Ltd. Vs. DCIT, which supported the view that no such disallowance could be made under Section 143(1)(a). The Tribunal vacated the addition made by the AO/CPC under Section 143(1).

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and vacating the additions made by the AO/CPC under Section 143(1). The judgment was pronounced in open court on August 3, 2023.