2023 (5) TMI 1322 - AT - Income Tax

Late deposit of employee s contribution to PF/ESI etc. - assessment carried out u/s 143(1) - reliance on information in the return of income/audit report - interpretation of law which was prevailing as on the date of filing of subject Income tax Return (ITR) and any subsequent pronouncement of law or retrospective amendment on the concerned issue - HELD THAT - In the present case as observed there is no change of law. the statutory provisions have not been amended retrospectively, rather, it was a question only of interpretation of statutory provisions. Moreover, as noted above, provision in the decision of the Hon ble Calcutta High Court in the case of CIT vs. Vijay shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT the sole issue raised before the Hon ble Calcutta High Court was as to whether the provisions of section 43B will have to be applied retrospectively or prospectively without any discussion on the issue whether the employer s contribution mentioned in section 43 would also include employees contribution. It was not the case that the assessee was not aware that the decision of the hon ble High Court was subject to appeal before the hon ble Supreme Court and that the decision of the Hon ble High Court could be reversed by the Hon ble Supreme Court. Similarly, the case law cited by the ld. counsel in the case of Modern Fibotex India Ltd. 1994 (3) TMI 17 - CALCUTTA HIGH COURT the other case laws of different High Courts relied by the ld. counsel, are not applicable in view of the settled proposition of law by the Hon ble Supreme Court in the various case laws as discussed above. AO power or jurisdiction to disallow the aforesaid amount while processing the return u/s 143(1)(a) - as argued Despite Hon'ble Supreme Court judgement in Checkmate Services (P) Ltd. 2022 (10) TMI 617 - SUPREME COURT prima facie adjustment u/s. 143(1)(a) of the Act cannot be made to disallow u/s. 36(1)(va) the employees' contribution to PF/ESI deposited belatedly after due date prescribed under relevant statute if deposited within due date of filing ITR - In view of the above facts, as indicated in the audit report , in my humble view, would mean that where the information in the audit report is suggestive of some disallowance but not taken into account by the assessee in computing the total income in the return, the AO/CPC would give intimation to the assessee of such proposed adjustments and whereupon the assessee has the right to file response/objection to such adjustment and the AO/CPC is required to consider such response/objection before making the adjustments. Therefore, the word indicate does not mean that the auditor is required to specifically mention that such and such disallowance is required to be made in the case of the assessee, rather, correct view would be that the auditor is required to furnish the information and that information can be compared and considered by the Assessing Officer/CPC in the light of the relevant statutory provisions as well as relevant laws and if such information is suggestive of any adjustment of disallowance, the Assessing Officer will make such disallowance after giving opportunity to the assessee to rebut the same. The views of the Coordinate bench of the Tribunal in Kalpesh Synthetics Pvt. Ltd. 2022 (5) TMI 461 - ITAT MUMBAI in no manner is suggestive that the djustment u/s 36(1)(va) cannot be made while processing the return u/s 143(1) of the Act, rather, the above view is limited to the proposition that if the law laid down by the High Court/Supreme Court is otherwise as compared to the factual information given in the audit report, then the law laid down by the Hon ble High Court/Supreme Court would prevail over the tax audit report. Therefore, the Coordinate Mumbai Bench in the said case of Kalpesh Synthetics Pvt. Ltd. vs. DCIT (supra) has also mentioned time and again that in the audit report factual information is given, whereupon the Assessing Officer has to apply the prevailing law. As observed above, the law has been settled by the Hon ble Supreme Court on the issue in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT . The law declared by the Hon ble Supreme Court is to be treated as if the same was the right interpretation since the date of the inception of the relevant provision and, therefore, even as per the decision of the Coordinate Bench of the Tribunal in Kalpesh Synthetics Pvt. Ltd. vs. DCIT (supra), the issue is required to be decided in favour of the Revenue and against the assessee. Interpretation of the existing old provisions - Whether law prior to amendment should be taken in favour of the assessee by taking the due date as mentioned u/s 43B ? - The law prior to amendment should be taken in favour of the assessee by taking the due date as mentioned u/s 43B of the Act - we are not convinced with the above submission of assessee. As discussed above, there is no mention in 43B of the Income Tax Act regarding the due date of filing of return as due date of deposit of employees contribution to PF/ESI etc. Even the law as prevailing prior to amendment brought by Finance Act 2021 on this issue has been settled by the Hon ble Supreme Court and it has been held by the Hon ble Supreme Court that as per the statutory provision of section 43B of the Income Tax Act as prevailing prior to the amendment brought vide Finance Act 2021, non-obstante clause u/s 43B could not apply in case of amounts which were held in trust as was case of employee s contribution which were deducted from their income and was held in trust by assessee-employer as per section 2(24)(x), thus, the said clause would not absolve assessee-employer from its liability to deposit employee s contribution on or before due date as prescribed u/s 36(1)(va) as a condition for deduction. Due to new statute/amendment brought by new statute, there is some conflict with the other existing older provisions either in the same statute or any other Act - As there is no conflict between a prevailing old law or new law in this case, rather, the amendment has been brought to the relevant provisions with prospective effect and there is no conflict between any existing/unamended old provisions and the new provisions. Further even under the amended provisions, the application of section 43B to the provisions of section 36(1)(va) of the Income Tax Act has been done away with. Even if the contention of the ld. counsel is to be accepted, the new law is against the assessee even in respect of employer s contribution to ESI/PF what to say of, the employees contribution. If the new law has to prevail then the provisions of section 43B will not have any application and therefore, this contention raised by the counsel for the assessee is of no help to assessee but to Revenue. Therefore, there is no force in the above arguments of the ld. counsel. However, it is made clear that my above discussion in any manner does not hold that the amendment provisions will prevail over the old provisions to section 36(1)(va), rather, there is no conflict in the prevailing law with any of the existing provisions in the Income Tax Act after amendment brought by Finance Act, 2021 relating to the issue under consideration. The above contention of the ld. counsel is totally misconceived. Appeal of the assessee stands dismissed.

Summary

Issues Involved:

1. Disallowance of employees' contribution to PF/ESI due to delayed deposit.
2. Jurisdiction of Assessing Officer/CPC to make adjustments under section 143(1)(a) of the Income Tax Act.
3. Interpretation of statutory provisions prior to amendments by Finance Act 2021.
4. Precedence of later enactments over earlier ones.

Summary of Judgment:

Issue 1: Disallowance of Employees' Contribution to PF/ESI

The sole issue raised by the assessee was the disallowance made by the Assessing Officer/CPC due to the delayed deposit of employees' contribution to PF/ESI under section 36(1)(va) read with section 2(24)(x) of the Income Tax Act. The assessee argued that the adjustment should not consider the Supreme Court's judgment in Checkmate Services Pvt. Ltd. vs. CIT (2022) as it was subsequent to the filing of the ITR. The assessee relied on the jurisdictional Calcutta High Court judgment in CIT vs. Vijay Shree Ltd. (2014), which allowed such contributions if deposited before the due date of filing the ITR.

However, the Tribunal noted that the Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT clarified that the conditions of section 43B prescribing the due date as the date of filing of the return of income would not apply to employees' contributions under section 36(1)(va). The Supreme Court held that the due date for depositing employees' contributions is as prescribed under section 36(1)(va) and not section 43B.

Issue 2: Jurisdiction of Assessing Officer/CPC to Make Adjustments

The assessee contended that the Assessing Officer could disallow the employees' contribution only in an assessment carried out under section 143(3) and not under section 143(1)(a). The Tribunal referred to the Mumbai Bench's decision in M/s P R Packaging Service vs. ACIT, which held that the tax auditor's report merely records facts and is not a basis for disallowance under section 143(1)(a)(iv). However, the Tribunal disagreed, noting that the information in the audit report indicates the allowance or disallowance required while processing the return. The Tribunal emphasized that adjustments under section 143(1) could be made after giving the assessee an opportunity to respond.

Issue 3: Interpretation of Statutory Provisions Prior to Amendments

The assessee argued that the amendments by Finance Act 2021, introducing Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B, changed the law, implying that prior to these amendments, the law was otherwise. The Tribunal rejected this argument, stating that the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT clarified the law as it always was, and the amendments did not change the statutory provisions retrospectively.

Issue 4: Precedence of Later Enactments Over Earlier Ones

The assessee contended that the later enactment (Finance Act 2021) should prevail over the earlier interpretation by the Supreme Court. The Tribunal found no conflict between the old and new provisions and held that the amendments were prospective. The Tribunal emphasized that the new provisions clarified that section 43B does not apply to employees' contributions, aligning with the Supreme Court's interpretation.

Conclusion:

The Tribunal dismissed the appeal, upholding the disallowance of employees' contributions to PF/ESI deposited after the due date prescribed under section 36(1)(va) and affirming the jurisdiction of the Assessing Officer/CPC to make adjustments under section 143(1)(a). The Tribunal clarified that the law as interpreted by the Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT was applicable retrospectively.