2021 (9) TMI 1210 - AT - Income Tax

Addition made by the CPC u/s 143(1) - disallowance of employees contribution to PF and ESI while processing the return of income u/s 143(1) - HELD THAT - There is no dispute that the return was processed u/s 143(1) and there was no scrutiny assessment made u/s 143(3) of the act. It is settled issue that no debatable issues are permitted to be made adjustments u/s 143(1) of the Act. In the instant case, what was added in the intimation u/s 143(1) was the employees contribution to PF and ESI. Hon ble Madras High Court in the case of Redington (India) Ltd. 2020 (12) TMI 516 - MADRAS HIGH COURT held that employees contribution to PF and ESI is also allowable deduction if the same is paid before the due date for filing the return of income. This Tribunal in the case of Andhra Trade Development Corporation 2021 (5) TMI 263 - ITAT VISAKHAPATNAM held that debatable issues are not permitted to be made adjustments while processing the return of income u/s 143(1) of the Act - we hold that the addition made by the CPC u/s 143(1) is unsustainable, accordingly deleted. The appeal of the assessee is allowed. Employees contribution to PF and ESI is allowable deduction if the same is paid before the due date of filing the return of income. See M/S. EASTERN POWER DISTRIBUTION COMPANY OF A.P. LTD. AND VICA-VERSA 2016 (9) TMI 1040 - ITAT VISAKHAPATNAM - Decided in favour of assessee.

Issues Involved:
1. Adjustment of employees' contribution to PF and ESI under Section 143(1) of the Income Tax Act.
2. Deductibility of employees' contribution to PF and ESI if paid after the due date under respective Acts but before the due date for filing the return of income.

Detailed Analysis:

1. Adjustment of employees' contribution to PF and ESI under Section 143(1) of the Income Tax Act:

The assessee filed a return of income under Section 139(1) of the Income Tax Act, 1961. The Centralized Processing Center (CPC) made adjustments of ?8,13,028/- towards disallowance of employees' contribution to PF and ESI while processing the return under Section 143(1). The assessee appealed against this adjustment, arguing that the issue is debatable and thus should not be adjusted under Section 143(1). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the CPC's adjustments, citing that employees' contributions to PF and ESI must be paid before the due date under the respective Acts as per Section 36(1)(va) of the Act. The CIT(A) relied on the decision in the case of CIT Vs. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100.

The Tribunal noted that no scrutiny assessment was made under Section 143(3) and that debatable issues should not be adjusted under Section 143(1). Citing the Hon'ble Madras High Court's decision in Redington (India) Ltd., which allows such deductions if paid before the due date for filing the return, the Tribunal referenced its own decision in Andhra Trade Development Corporation, emphasizing that adjustments requiring verification with relevant documents are beyond the scope of Section 143(1)(a). The Tribunal concluded that the CPC's adjustment was unsustainable and deleted it.

2. Deductibility of employees' contribution to PF and ESI if paid after the due date under respective Acts but before the due date for filing the return of income:

On merits, the Tribunal consistently held that employees' contributions to PF and ESI are allowable deductions if paid before the due date for filing the return of income. In the case of APEPDCL, the Tribunal considered various judicial precedents, including the Hon'ble Karnataka High Court in Essae Teraoka (P) Ltd. Vs. DCIT and the ITAT Hyderabad in Tetra Soft (India) Pvt. Ltd. Vs. ACIT, which supported the view that such contributions are deductible if paid before the due date for filing the return.

The Tribunal emphasized that there is no distinction between employees' and employer's contributions under the PF Act, and both must be treated similarly under Section 43B of the Income Tax Act. The Tribunal also referenced the Hon'ble Supreme Court's decision in CIT Vs. M/s Vegetables Products Ltd., which mandates that when two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted.

The Tribunal concluded that the contributions paid before the due date for filing the return should be allowed as deductions. Consequently, the appeal of the assessee was allowed on both procedural and substantive grounds.

Conclusion:

The Tribunal allowed the appeal, holding that the adjustments made by the CPC under Section 143(1) were unsustainable and that the employees' contributions to PF and ESI paid before the due date for filing the return should be allowed as deductions. The judgment reiterated the principle that debatable issues should not be adjusted under Section 143(1) and reinforced the non-distinction between employees' and employer's contributions under the PF Act.

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