2021 (10) TMI 208 - AT - Income Tax

Intimation u/s 143(1) - Delayed employees contribution towards P.F and ESI - 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. As 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) - Thus we hold that the addition made by the CPC u/s 143(1) is unsustainable, accordingly deleted. The appeal of the assessee is allowed Addition u/s 43B - This Tribunal has consistently viewed that the 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 ESSAE TERAOKA PVT LTD VERSUS DEPUTY COMMISSIONER OF INCOME-TAX 2014 (3) TMI 386 - KARNATAKA HIGH COURT - 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. Allowability of employees' contribution to PF and ESI if paid before the due date for filing the return of income.

Issue-wise Detailed Analysis:

1. Adjustment of Employees' Contribution to PF and ESI Under Section 143(1):
The assessee filed a return of income under section 139(1) of the Income Tax Act, 1961. The Centralized Processing Center (CPC) made adjustments amounting to ?16,80,840 towards the disallowance of employees' contribution to PF and ESI while processing the return under section 143(1). The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the addition of employees' contributions to PF and ESI was a debatable issue and should not have been adjusted under section 143(1). The CIT(A) dismissed the appeal, stating that non-payment of PF and ESI before the due date specified under the respective Acts disqualified the assessee from deduction under the Income Tax Act, relying on the decision in CIT Vs. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100.

Upon further appeal, the Tribunal noted that the return was processed under section 143(1) without a scrutiny assessment under section 143(3). It is a settled issue that no debatable issues are permitted to be adjusted under section 143(1). The Tribunal cited the case of Andhra Trade Development Corporation, where it was held that adjustments requiring verification with relevant documents are beyond the scope of section 143(1). The Tribunal concluded that the addition made by the CPC under section 143(1) was unsustainable and deleted it, allowing the appeal of the assessee.

2. Allowability of Employees' Contribution to PF and ESI if Paid Before the Due Date for Filing the Return of Income:
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 ITAT Visakhapatnam, after considering various judicial precedents, including the decision of 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, concluded that there is no distinction between employees' and employer's contributions under the PF Act. Section 43B of the Income Tax Act provides that any sum payable by the employer to the PF or any other fund for the welfare of employees is deductible if paid on or before the due date of furnishing the return of income under section 139(1).

The Tribunal emphasized that the Provident Fund Act does not differentiate between employees' and employer's contributions, and both are considered contributions under the PF scheme. The Hon'ble Karnataka High Court and various ITAT benches have upheld that contributions paid before the due date of filing the return of income are deductible. The Tribunal also referred to the Hon'ble Supreme Court's decision in CIT Vs. M/s Vegetables Products Ltd., which held that if two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted.

In conclusion, the Tribunal held that on merits, the assessee's appeal succeeds, and the employees' contributions to PF and ESI are allowable deductions if paid before the due date for filing the return of income. The appeal of the assessee was allowed.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the adjustments made by the CPC under section 143(1) were unsustainable and that employees' contributions to PF and ESI are allowable deductions if paid before the due date for filing the return of income. The Tribunal's decision was based on consistent judicial precedents and the interpretation of relevant provisions of the Income Tax Act and the Provident Fund Act.

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