2022 (5) TMI 608 - AT - Income Tax

Validity of order passed by the National Faceless Appeal Centre - Disallowing late payment of employees' contribution to PF and ESIC - assessee pleaded that Ld. NFAC has grossly erred in deciding the debatable issue viz. disallowance made under section 36(1)(va) of the Act in 143(1)(a) - HELD THAT - Admittedly, the assessee filed its return of income on 19.9.2018 and admitting total income of Rs. 26,03,940/-. The same was processed under section 143(1) on 19.10.2019. The said intimation is in the form of calculation in tabulated columns running into seven pages. There are two main columns; one column description showed as provided by Taxpayer in Return of Income and another column showed As computed under section 143(1) . There is no description in this intimation or explanation/note why such disallowance or addition made by the CPC in the 143(1) proceedings. A return can be processed u/s. 143(1) by making adjustments on six types of adjustments only. The first proviso to section 143(1)(a) make it very clear that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Apparently in the case of the assessee, no intimation had been given to the assessee for making any adjustment or disallowance either in writing or in electronic mode. Thus, the CPC center has not followed the first proviso to section 143(1)(a) of the Act. This position was not controverted by the Ld. DR also. Assuming a moment, if such an intimation is given to the assessee as per first proviso, then the second proviso stipulates that if any response is received from the assessee, the same should be considered before making any adjustment or disallowance, and also in a case where no response is received, then within thirty days of the issue of such intimation, department is free to make such adjustment. On going through the above intimation made under section 143(1), CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a). Further, the NFAC order is also silent about the intimation to the assessee. Therefore, we find that intimation issued under section 143(1) dated 19.10.2019 is against first proviso to section 143(1)(a), and therefore, the entire 143(1) proceedings is invalid in law. We also observe that the Ld. NAFC has not looked into this fundamental principle of audi alterm partem , which has not been provided to the assessee as per the 1st proviso of section 143(1) of the Act, but proceeded with the case on merits and also confirmed the addition made by the CPC. NAFC is thus erred in conducting the faceless appeal proceedings in a more mechanical manner without application of mind. We therefore hereby quash the intimation issued by the CPC and allow the appeal filed by the assessee.

Summary

Issues:
1. Disallowance of late payment of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act, 1961.
2. Validity of the intimation issued under section 143(1) of the Act and subsequent proceedings by the National Faceless Appeal Centre (NFAC).

Analysis:

Issue 1: Disallowance of late payment of employees' contribution to PF and ESI
The appeal was filed against the NFAC order upholding the addition of Rs. 2,10,743 as the late payment of employees' PF and ESI contributions. The NFAC relied on jurisdictional High Court judgments in similar cases to support its decision. The assessee contested the disallowance, citing pending Special Leave Petition (SLP) before the Supreme Court against a related judgment. The Revenue supported the lower authorities' decision based on High Court rulings. The Tribunal considered the arguments and analyzed the provisions of section 36(1)(va) of the Act. Ultimately, the Tribunal found in favor of the assessee, quashing the addition and allowing the appeal.

Issue 2: Validity of the intimation under section 143(1) and NFAC proceedings
The Tribunal examined the intimation issued under section 143(1) of the Act and the subsequent proceedings before the NFAC. It highlighted the provisions of section 143(1)(a) regarding the processing of returns and adjustments that can be made. The Tribunal noted that the intimation did not comply with the requirements of the first proviso to section 143(1)(a) as it did not provide the assessee with an opportunity to respond before making adjustments. The Tribunal found that the NFAC did not consider this fundamental principle of natural justice ("audi alteram partem") and proceeded with the case without proper adherence to the statutory provisions. Consequently, the Tribunal held that the intimation and the entire 143(1) proceedings were invalid in law. As a result, the Tribunal quashed the intimation and allowed the appeal filed by the assessee.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of late payments and the validity of the intimation under section 143(1) comprehensively, providing detailed analysis of the legal provisions and procedural aspects involved in the case.