2021 (12) TMI 1067 - AT - Income Tax

Late payments towards EPF and ESI u/s 36(1)(va) - Payment before furnishing the return of income under section 139(1) - HELD THAT - As relying on MOHANGARH ENGINEERS AND CONSTRUCTION COMPANY 2021 (9) TMI 1319 - ITAT JODHPUR and M/S. STATE BANK OF BIKANER JAIPUR AND JAIPUR VIDYUT VITARAN NIGAM LTD. 2014 (5) TMI 222 - RAJASTHAN HIGH COURT the impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees contribution of ESI PF prior to filing of the return of income u/s 139(1) of the Act in both the years under consideration prior to the amendment made by the Finance Act 2021 w.e.f. 1.4.2021 vide Explanation 5 are deleted. - Decided in favour of assessee.

Issues Involved:
1. Adjustment under Section 143(1) beyond its purview.
2. Disallowance under Section 36(1)(va) of the Income Tax Act, 1961.
3. Non-issuance of notice before passing an order under Section 154.

Detailed Analysis:

1. Adjustment under Section 143(1) beyond its purview:
The appellant contended that the adjustments made by the Assessing Officer (AO) in the intimation under Section 143(1) were beyond the scope of Section 143(1)(a). The appellant argued that these adjustments were illegal, unjustified, arbitrary, and against the facts of the case. The Tribunal noted that the issue under consideration had been previously adjudicated by the ITAT Jodhpur Bench, which had ruled that such adjustments were not permissible. The Tribunal, therefore, found merit in the appellant's contention and held that the adjustments made by the AO were indeed beyond the purview of Section 143(1)(a).

2. Disallowance under Section 36(1)(va) of the Income Tax Act, 1961:
The appellant challenged the disallowance of ?16,97,107/- made by the AO for late payments towards Employees' Provident Fund (EPF) and Employees' State Insurance (ESI) under Section 36(1)(va). The appellant argued that the contributions were made before the filing of the return of income under Section 139(1). The Tribunal referred to several judgments, including those from the ITAT Jodhpur Bench and the Hon'ble Calcutta High Court, which had consistently held that contributions made before the due date of filing the return of income should not be disallowed. The Tribunal noted that the Finance Act, 2021, which introduced Explanation 5 to Section 36(1)(va) with effect from 01.04.2021, was not applicable retrospectively. Therefore, the Tribunal concluded that the disallowance made by the AO and sustained by the CIT(A) was not justified and directed the deletion of the disallowance.

3. Non-issuance of notice before passing an order under Section 154:
The appellant contended that the AO did not serve a notice before passing the rectification order under Section 154, thereby violating the principles of natural justice. The Tribunal acknowledged this procedural lapse and emphasized that the rectification order passed without giving the appellant an opportunity to be heard was bad in law. Consequently, the Tribunal quashed the rectification order.

Condonation of Delay:
The Tribunal also addressed the issue of the delay in filing the appeal, which was barred by 18 days. The appellant attributed the delay to the COVID-19 pandemic and provided evidence of filing the appeal online and sending physical copies later due to pandemic-related constraints. The Tribunal, considering the submissions and the uncontested nature of the delay, condoned the delay and admitted the appeal.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the disallowance made under Section 36(1)(va) and quashing the rectification order passed without serving notice. The Tribunal reiterated that contributions made before the due date of filing the return of income should not be disallowed and emphasized adherence to procedural fairness in rectification proceedings.

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