2022 (8) TMI 1505 - AT - Income Tax

Adjustment and intimation u/s 143(1) - Delayed employees contribution to ESI/Provident Fund - payments made after stipulated dates prescribed under relevant laws governing provident fund and ESI, but before due date of filing of return prescribed u/s 139(1) - HELD THAT - The fact that payments by way of employees contribution to provident fund and ESI were made by the respective assessees after stipulated date prescribed under the relevant laws governing provident fund and ESI, but before the due date of filing of return of income prescribed u/s 139(1) of Income Tax Act; is not in dispute. Whether the aforesaid amendments to Income Tax Act by way of Finance Act, 2021 are retrospective or prospective, is debatable and controversial.Adjustments made by Revenue u/s 143(1) of Income Tax Act, whereby aforesaid additions were made to the income of the respective assessee, were unfair, unjust and bad in law.Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of Section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments. Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act, on the basis of retrospective amendment to Income Tax Act is beyond the scope of Section 143(1) of Income Tax Act. In the present appeals before us, additions of aforesaid amount have been made by way of adjustments and intimation u/s 143(1) of Income Tax Act, on a debatable and controversial issue. Thus the aforesaid additions by way of adjustment and intimation u/s 143(1) of Income Tax Act, were beyond the scope of Section 143(1) of Income Tax Act. Thus we direct the Assessing Officer to delete the additions made by way of adjustments/intimation u/s 143(1).

Issues Involved:
1. Validity of additions made under Section 143(1) of the Income Tax Act for delayed deposit of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI).
2. Retrospective vs. prospective applicability of amendments to Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Principles of natural justice in the assessment proceedings.

Detailed Analysis:

1. Validity of Additions under Section 143(1):
The primary issue in these appeals was whether the additions made by way of adjustment under Section 143(1) of the Income Tax Act for delayed deposits of employees' contributions to PF and ESI were justified. The respective assessees had deposited these contributions after the due dates prescribed under the relevant laws but before the due date of filing the income tax return as per Section 139(1) of the Income Tax Act.

The Tribunal observed that the additions were made by the Revenue invoking Section 36(1)(va) and Section 43B of the Income Tax Act. The Tribunal noted that such adjustments on debatable and controversial issues are beyond the scope of Section 143(1). The Tribunal cited several precedents, including the Delhi High Court's decision in ACIT vs. Haryana Telecom Pvt. Ltd., which held that adjustments under Section 143(1) on debatable issues are not permissible.

2. Retrospective vs. Prospective Applicability of Amendments:
The Tribunal discussed whether the amendments brought by the Finance Act, 2021, to Section 36(1)(va) and Section 43B, which inserted Explanation-2 and Explanation-5 respectively, were retrospective or prospective. The Tribunal referred to various ITAT decisions that held these amendments to be prospective, applicable from AY 2021-22 onwards. These decisions include Digiqal Solution Services Pvt. Ltd. vs. Assistant Director of Income Tax and Shand Pipe Industry Pvt. Ltd. vs. DCIT.

The Tribunal concluded that even if the Revenue's view that the amendments are retrospective is considered, the issue remains debatable and controversial. Therefore, such adjustments under Section 143(1) are not justified.

3. Principles of Natural Justice:
The assessees contended that the additions were made without providing a reasonable opportunity of being heard, violating the principles of natural justice. The Tribunal agreed, noting that the Revenue should have considered the debatable nature of the issue before making adjustments under Section 143(1).

Conclusion:
The Tribunal set aside the appellate orders of the CIT(A) in the cases of Garg Heart Centre & Nursing Home Pvt. Ltd., Global Groupware Solutions Ltd., Publix Realtors and Facilitators Pvt. Ltd., Samarpit Suraksha Pvt. Ltd., Ritu Mukherji, Manmohan Raizada, Girdhari Yadav, Dharamjit Singh, Virender Pratap Singh, and Ansal API Infrastructure Ltd., directing the Assessing Officer to delete the additions made under Section 143(1). However, the Tribunal upheld the CIT(A)'s order in the case of M/s Jagatjit Industries Ltd.

Clarification:
The Tribunal clarified that it did not express any view on whether the amendments brought by the Finance Act, 2021, are prospective or retrospective, as the issue was academic in nature for the current decision.

Result:
All appeals were treated as partly allowed for statistical purposes. The order was pronounced orally on 22nd August 2022 and signed on 25th August 2022.

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