2021 (8) TMI 714 - AT - Income Tax

Disallowance u/s 36(1)(va) - contributions of employees towards welfare funds - employees s contribution towards ESI and PF - amount collected from employees towards contribution to welfare funds but deposited later than the scheduled dates as per provisions of PF Act, but deposited prior to filing the return under section 139(1) - HELD THAT - Hon ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner Jaipur 2014 (5) TMI 222 - RAJASTHAN HIGH COURT wherein the Hon ble High Court after extensively examining the matter and considering the various decisions of the Hon ble Supreme Court and various other High Courts has decided the matter in favour of the assessee and held PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act. The addition by way of adjustment while processing the return of income u/s 143(1) so made by the CPC towards the delayed deposit of the employees s contribution towards ESI and PF though paid well before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decision of the Hon ble Rajasthan High Court. Appeal of the assessee is allowed.

Issues Involved:
1. Whether the order passed by the CIT(A) is against the principles of natural justice.
2. Whether the disallowance under section 36(1)(va) is permissible while processing the return under section 143(1) of the Income Tax Act, 1961.
3. Whether the CIT(A) erred in law by sustaining the disallowance made by the AO for ?1,61,099/- for late deposit of employee contributions to welfare funds.

Issue-wise Detailed Analysis:

1. Principles of Natural Justice:
The appellant argued that the CIT(A)'s order was against the principles of natural justice as it was passed without considering the submissions given by the appellant in the online account of the Web portal of the department. This ground was not elaborated further in the judgment, suggesting that the main focus was on the substantive legal issues rather than procedural fairness.

2. Disallowance Under Section 36(1)(va) While Processing Return Under Section 143(1):
The appellant contended that the disallowance under section 36(1)(va) is a highly debatable issue and thus should not be adjusted while processing the return under section 143(1). It was submitted that section 143(1)(a) allows for certain types of adjustments, such as arithmetical errors or incorrect claims apparent from the return. However, the appellant argued that the disallowance of employee contributions deposited late but before the due date of filing the return is not an apparent error and is supported by judicial pronouncements, making it a debatable issue. Therefore, such an adjustment is not permissible under section 143(1).

3. Sustaining the Disallowance of ?1,61,099/- for Late Deposit of Employee Contributions:
The appellant argued that the CIT(A) erred in sustaining the disallowance made by the AO for ?1,61,099/-, which was collected from employees towards welfare funds but deposited later than the scheduled dates as per the PF Act, although deposited before the due date of filing the return under section 139(1). The appellant cited the binding judgment of the Rajasthan High Court in the case of CIT vs. SBBJ (363 ITR 70), which allows such deductions if the contributions are deposited before the due date of filing the return. The CIT(A) relied on judgments from the Madras, Gujarat, and Kerala High Courts, which were not binding on the jurisdictional authorities in Rajasthan.

Tribunal's Findings:
The Tribunal noted that the assessee had deposited the employee contributions towards ESI and PF well before the due date of filing the return of income under section 139(1). The Tribunal referred to the series of decisions by the Rajasthan High Court, including CIT vs. State Bank of Bikaner & Jaipur, which held that contributions deposited before the due date of filing the return cannot be disallowed under section 43B read with section 36(1)(va).

The Tribunal emphasized that the CIT(A) should have followed the binding decisions of the Rajasthan High Court, which have consistently held that such contributions are allowable if deposited before the due date of filing the return. The Tribunal directed the deletion of the addition of ?1,61,099/- made by the CPC while processing the return, as it was not in accordance with the binding jurisdictional High Court decisions.

Conclusion:
The appeal was allowed, and the disallowance of ?1,61,099/- was deleted. The Tribunal held that the CIT(A) should have adhered to the binding jurisdictional High Court decisions, which allow deductions for employee contributions deposited before the due date of filing the return. The other ground of appeal regarding the adjustment while processing the return became academic and was not adjudicated.

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