2022 (5) TMI 461 - AT - Income Tax

Delay in making the payment towards the employees contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) - intimation under section 143(1) - HELD THAT - When one considers what has been reported to be due date in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression due date has been defined under Explanation (now Explanation 1) to Section 36(1)(va) provides that For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise , one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is indicative of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Appeal allowed.

Issues Involved:
1. Adjustment under Section 143(1) based on tax audit report indicating delayed payment of employees' provident fund contributions.
2. Admissibility of deductions for provident fund payments made after the due date under the relevant statute but before the filing of the income tax return.
3. Applicability of judicial precedents and amendments to Section 36(1)(va) and Section 43B by the Finance Bill 2021.

Detailed Analysis:

Adjustment under Section 143(1) based on tax audit report indicating delayed payment of employees' provident fund contributions:
The assessee challenged the adjustment made by the Centralized Processing Centre (CPC) under Section 143(1) of the Income Tax Act, 1961, disallowing Rs 4,24,634 due to delayed payment of employees' provident fund contributions. The adjustment was based on the tax audit report indicating delays in depositing provident fund dues. The assessee contended that such payments, made before filing the income tax return but after the statutory due date, were still deductible based on judicial precedents. However, the CPC did not accept this argument and proceeded with the adjustment, which was upheld by the CIT(A).

Admissibility of deductions for provident fund payments made after the due date under the relevant statute but before the filing of the income tax return:
The assessee argued that according to the Hon'ble jurisdictional High Court, payments made after the statutory due date but before the filing of the income tax return should be deductible. The CPC, however, relied on the tax audit report, which indicated delays and did not consider the judicial precedents cited by the assessee. The Tribunal observed that the scheme of Section 143(1)(a) allows adjustments for disallowances indicated in the audit report but noted that the tax audit report is an independent professional opinion and not binding on the assessee. The Tribunal emphasized that the views of the tax auditor cannot override judicial precedents, especially when the jurisdictional High Court has ruled otherwise.

Applicability of judicial precedents and amendments to Section 36(1)(va) and Section 43B by the Finance Bill 2021:
The Tribunal noted that the law, as interpreted by the Hon'ble jurisdictional High Court, allows for deductions of provident fund payments made before the due date of filing the income tax return, even if made after the statutory due date. The Tribunal also addressed the amendments introduced by the Finance Bill 2021, which are prospective and not applicable to the assessment year 2018-19. The Tribunal highlighted that the CPC must consider objections raised by the assessee and provide specific reasons for rejecting them, which was not done in this case.

Conclusion:
The Tribunal concluded that the adjustment made under Section 143(1) was not justified as it did not consider the binding judicial precedents and the objections raised by the assessee. The Tribunal emphasized the need for a quasi-judicial approach in processing returns under Section 143(1), requiring the CPC to provide specific reasons for rejecting objections. Consequently, the Tribunal deleted the impugned adjustment and allowed the appeal.

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