2021 (7) TMI 54 - AT - Income Tax

Intimation passed u/s 143 (1) - adjustment made in intimation u/s 143 (1)(a) - Disallowance made on account of payment of employees contribution to PF - HELD THAT - On careful reading of the communication of proposed adjustment made u/s 143 (1) (a) which states that the return of income filed by the assessee contains the errors, incorrect claims, inconsistency which attracts adjustment as specified u/s 143 (1) (a) - On careful reading of the provisions of Section 143 (1) of the act we find that it describes a manner of computation of the total income or loss as per the return of income filed by the assessee. Both the adjustment made by the centralised processing centre, it is stated that assessee has made an incorrect claim. Therefore, centralized processing centre has invoked clause 143 (1) (a) (ii) of the act. Thus according to the centralized processing centre the claim of the assessee of deduction of deposit of employees provident fund contribution to the credit of the employees account though beyond the due date described under the respective provident fund act but before the due date of the filing of the return of income is an incorrect claim. We find that the claim of the assessee is supported by the decision of the Honourable jurisdictional High Court and hence it cannot be said to be an incorrect claim. With respect to the second adjustments was merely an error of grouping of an adjustment of income shown in the annual accounts of the assessee for arriving at correct taxable income. It is not the case of the centralized processing centre that income has been incorrectly computed by assessee. Therefore, both the adjustment made by the centralized processing centre for which assessee disagreed and with respect to the disallowance u/s 36 (1) (va) supported it with several judicial precedents of the jurisdictional honourable High Court as well as the honourable Supreme Court making it clearly beyond the purview of an incorrect claim. Profit on sale of assets as per books of accounts - Adjustment proposed is merely an error of grouping which does not make any impact on the total income. The adjustment made by the centralized processing centre has been incorrectly made resulting in double addition - Thus, both the adjustment proposed by the centralized processing centre are not sustainable. The order of the learned CIT A is also not sustainable as he directed learned assessing officer to examine the claim of the assessee. The mandate before the CIT A was only to see whether the above adjustment is in accordance with the law or not. Had it been the issue of examination, the case of the assessee would have been picked up for scrutiny. In view of this, we direct the learned assessing officer to delete both the above adjustment made in intimation u/s 143 (1)(a) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of belated payment of employee's contribution towards EPF and ESI.
2. Disallowance of ?7,75,519/- being the profit on sale of fixed assets.

Issue-wise Detailed Analysis:

1. Disallowance of Belated Payment of Employee's Contribution towards EPF and ESI:

The assessee challenged the addition of ?51,11,745/- made on account of the disallowance of belated payment of employee's contribution towards EPF (?43,33,303/-) and ESI (?7,78,442/-). The assessee argued that the payments were made either during the financial year or before the due date of filing the return as per Section 139(1) of the Income Tax Act, 1961. The assessee cited the Supreme Court judgment in CIT vs. Alom Extrusions Ltd. and the Delhi High Court ruling in CIT vs. Aimil Ltd., which held that the 'due date' refers to the due date of filing the return of income under Section 139(1).

The CIT(A) upheld the disallowance, relying on the Delhi High Court decision in CIT vs. Bharat Hotels Ltd., which was rendered on September 6, 2018. The CIT(A) did not confront the assessee with this decision, violating the principle of natural justice. The assessee also cited a later decision of the Delhi High Court in PCIT vs. Pro Interactive Services (India) Pvt. Ltd., which supported the assessee's stance.

The Tribunal found that the claim of the assessee was supported by the jurisdictional High Court and Supreme Court decisions, making it a valid claim. The Tribunal noted that the Centralized Processing Centre (CPC) had incorrectly invoked Section 143(1)(a)(ii) of the Act, as the claim was not incorrect. The Tribunal directed the AO to delete the disallowance, reversing the CIT(A)'s order.

2. Disallowance of ?7,75,519/- Being the Profit on Sale of Fixed Assets:

The assessee contended that the amount of ?7,75,519/- was profit on the sale of fixed assets, calculated as per the Companies Act, and should be allowable as a deduction under Section 32(1)(iii) of the Income Tax Act. The assessee argued that there was a clerical mistake in grouping the income/receipt credited to the profit and loss account.

The CPC made an adjustment, treating it as an incorrect claim. The CIT(A) directed the AO to verify the claim and allow it if found correct. The Tribunal observed that the adjustment was merely an error of grouping and did not impact the total income. The Tribunal held that the adjustment by the CPC resulted in a double addition, which was incorrect.

The Tribunal concluded that both adjustments made by the CPC were unsustainable. The CIT(A) should have only determined the legality of the adjustments, not directed further examination. The Tribunal directed the AO to delete both adjustments, reversing the orders of the lower authorities.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to delete the disallowances related to the belated payment of employee's contribution towards EPF and ESI, and the profit on the sale of fixed assets. The Tribunal emphasized that the adjustments made by the CPC were not in accordance with the law, and the CIT(A) erred in directing further examination instead of addressing the legality of the adjustments.