2022 (5) TMI 612 - AT - Income Tax

Delay in payment towards Provident Fund (P.F.) / Employees State Insurance Corporation Scheme (ESIC) under section 36(1)(va) r/w section 2(24) - intimation under section 143(1) - HELD THAT - As relying on KALPESH SYNTHETICS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CPC BENGALURU. 2022 (5) TMI 461 - ITAT MUMBAI 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. adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Provident Fund (P.F.)/Employees State Insurance Corporation Scheme (ESIC) payments due to alleged delay.
2. Applicability of Section 143(1) adjustments.
3. Interpretation of tax audit report and its implications.
4. Judicial precedents and their binding nature.
5. Nature of quasi-judicial functions and requirement for speaking orders.

Issue-wise Detailed Analysis:

1. Disallowance of Provident Fund (P.F.)/Employees State Insurance Corporation Scheme (ESIC) payments due to alleged delay:

The core issue in the appeal was the disallowance of Rs.12,30,544 due to the alleged delay in payment towards P.F./ESIC under Section 36(1)(va) read with Section 2(24) of the Income Tax Act, 1961. The Centralized Processing Centre (CPC), Bengaluru, made this disallowance while processing the income tax return under Section 143(1), which was upheld by the learned Commissioner of Income Tax (Appeals) (CIT(A)).

2. Applicability of Section 143(1) adjustments:

The Tribunal noted that the issue was covered by a recent decision in Kalpesh Synthetics Pvt. Ltd. v/s DCIT, where it was observed that adjustments under Section 143(1) should be made only if the claim is prima facie inadmissible based on the material on record. The Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) is inherently limited and should be backed by binding judicial precedents.

3. Interpretation of tax audit report and its implications:

The Tribunal highlighted that the tax audit report, prepared by an independent professional, flagged the delays in depositing provident fund dues. However, the Tribunal clarified that the tax auditor's observations are not binding on the assessee and should not automatically lead to disallowance. The Tribunal pointed out that the audit report's indication of delayed payments does not necessarily mean disallowance under the Income Tax Act, especially when judicial precedents support the assessee's claim.

4. Judicial precedents and their binding nature:

The Tribunal underscored the importance of judicial precedents, particularly those from the jurisdictional High Court. It was noted that the Hon'ble jurisdictional High Court had held that payments made after the due date under the respective statute but before filing the income tax return are deductible in the computation of business income. The Tribunal emphasized that the CPC should not disregard binding judicial precedents while making adjustments under Section 143(1).

5. Nature of quasi-judicial functions and requirement for speaking orders:

The Tribunal criticized the CPC's standard template response for not addressing the assessee's objections adequately. It was emphasized that the CPC, while performing a quasi-judicial function, must provide specific reasons for rejecting the assessee's objections. The Tribunal highlighted that a quasi-judicial order without cogent reasons is contrary to the principles of judicial decision-making and cannot meet judicial approval.

Conclusion:

The Tribunal concluded that the impugned adjustment in the course of processing the return under Section 143(1) was vitiated in law. It was emphasized that the CPC must consider the assessee's objections judiciously and provide specific reasons for any adjustments. The Tribunal allowed the appeal, deleting the disallowance of Rs.12,30,544, and reiterated the importance of adhering to judicial precedents and the requirement for speaking orders in quasi-judicial functions. The decision was pronounced in the open court on 06/05/2022.