2021 (11) TMI 1004 - AT - Income Tax

Adjustments while processing the return of income u/s. 143(1) - Disallowance of employees contribution to PF and ESI - HELD THAT - In the instant case, 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 - 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). Since, the facts are identical respectfully following the view taken by this Tribunal, 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 - thus we hold that on merits also, the assessee succeeds in appeal. Accordingly, appeal of the assessee is allowed.

Summary

Issues Involved:
1. Adjustment of employees' contribution to PF and ESI under section 143(1) of the Income Tax Act, 1961.
2. Allowability 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.

Issue-wise Detailed Analysis:

1. Adjustment of employees' contribution to PF and ESI under section 143(1) of the Income Tax Act, 1961:

The assessee filed the return of income under section 139(1) of the Income Tax Act, 1961. The Centralized Processing Center (CPC) made adjustments of ?14,08,714/- towards disallowance of employees' contribution to PF and ESI while processing the return of income under section 143(1). The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the addition of employees' contribution to PF and ESI is a debatable issue and cannot be made under section 143(1). The CIT(A) upheld the adjustments, stating that employees' contributions are covered by section 36(1)(va) and must be paid before the due date under the respective Acts. The CIT(A) relied on the decision in the case of CIT Vs. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100.

Upon appeal, the Tribunal noted that no scrutiny assessment was made under section 143(3) and that debatable issues are not permitted to be adjusted under section 143(1). The Tribunal referred to the case of Andhra Trade Development Corporation (I.T.A. No. 434/Viz/2019), where it was held that adjustments requiring verification with relevant documents are beyond the scope of section 143(1)(a). Therefore, the adjustment made by the CPC was deemed unsustainable and was deleted, allowing the appeal of the assessee.

2. Allowability 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 the merits, the Tribunal consistently viewed that employees' contributions to PF and ESI are allowable deductions if paid before the due date of filing the return of income. The Tribunal referred to multiple cases, including APEPDCL (I.T.A. No. 609/V/2014), where it was held that there is no distinction between employer and employee contributions after the omission of the second proviso to section 43B by the Finance Act, 2003. The Tribunal emphasized that both contributions are covered under the Provident Fund Act and must be paid before the due date of filing the return of income under section 139(1) to be deductible.

The Tribunal also cited decisions from various High Courts and the Supreme Court, which supported the view that contributions paid before the due date of filing the return are deductible. Notably, the Hon'ble Karnataka High Court in Essae Teraoka (P) Ltd. Vs. DCIT and the Hon'ble Supreme Court in CIT Vs. M/s. Vegetables Products Ltd. favored the assessee's interpretation.

Respectfully following these precedents, the Tribunal held that there is no distinction between employees' and employer contributions to PF, and if paid before the due date of filing the return, no disallowance can be made. Consequently, the appeal of the assessee was allowed on merits as well.

Conclusion:

The Tribunal concluded that the adjustments made by the CPC under section 143(1) were unsustainable and deleted them. Additionally, it affirmed that employees' contributions to PF and ESI are allowable deductions if paid before the due date of filing the return of income, thereby allowing the appeal of the assessee. The order was pronounced in the open court on 23rd September 2021.