2022 (5) TMI 1260 - AT - Income Tax

Delayed employees contribution to ESI/Provident Fund - sum deposited by the assessee after the specified date prescribed under laws providing ESI/Provident Fund but before due date of filing of return of Income Tax prescribed u/s 139(1) - adjustments and intimation u/s 143(1) - HELD THAT - It is well settled that any adjustments u/s 143(1) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of Section 143(1) of Income Tax Act. In this regard we respectfully mention the order of Hon ble Jurisdictional High Court in the case of ACIT vs. Haryana Telecom Pvt. Ltd. 2009 (5) TMI 607 - ITAT DELHI Revenue should have given due consideration to the fact that the issue was highly debatable and controversial. As already discussed earlier adjustments u/s 143(1) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments u/s 143(1) of Income Tax Act on 25.11.2019 on a debatable and controversial issue. We would like to make respectful mention of order of Jabalpur Bench of ITAT in the case of Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR in which similar view has been taken. Further it is also well settled that retrospective amendment cannot be invoked to make addition by way of adjustment and intimation u/s 143(1) of Income Tax Act. This view was taken by the Hon ble Supreme Court in the case of CIT vs. Hindustan Electro Graphites Ltd. 2000 (3) TMI 2 - SUPREME COURT in which the view of Hon ble Kolkata High Court in the case of Modern Fibotex India Ltd. Anr. 1994 (3) TMI 17 - CALCUTTA HIGH COURT was approved. Same view was taken by the Hon ble Madhya Pradesh High Court in the case of CIT vs. Satish Traders 2000 (9) TMI 51 - MADHYA PRADESH HIGH COURT We are of the view that the aforesaid additions by way of adjustment and intimation u/s 143(1) of Income Tax Act were beyond the scope of Section 143(1) of Income Tax Act; and further that the Ld. CIT(A) erred in law in confirming the aforesaid addition on a debatable and controversial issue - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 3,97,41,559/- on account of employee’s contribution to ESI and EPF.
2. Validity of jurisdiction assumed under Section 143(1) of the Income Tax Act.
3. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Addition of Rs. 3,97,41,559/- on account of employee’s contribution to ESI and EPF:
The primary issue in this appeal was the addition of Rs. 3,97,41,559/- made under Section 36(1)(va) of the Income Tax Act due to the delayed deposit of employees' contributions to ESI and Provident Fund. The contributions were deposited after the specified date but before the due date for filing the return under Section 139(1). The assessee argued that the addition should be deleted, citing precedents where similar issues were decided in favor of the assessee for periods before the amendments brought by the Finance Act, 2021. The Tribunal acknowledged that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, are prospective and not applicable for the assessment year 2018-19. The Tribunal cited several decisions from various benches of ITAT, which supported the view that these amendments are prospective. Consequently, the Tribunal concluded that the addition of Rs. 3,97,41,559/- was beyond the scope of Section 143(1) and directed the Assessing Officer to delete the addition.

2. Validity of jurisdiction assumed under Section 143(1) of the Income Tax Act:
The Tribunal examined whether the adjustments made under Section 143(1) were valid, given that the issue of the amendments' applicability was debatable and controversial. The Tribunal held that adjustments under Section 143(1) on debatable issues are beyond its scope. The Tribunal supported its view by citing various judicial precedents, including decisions from the Hon’ble Delhi High Court and other High Courts, which held that adjustments on debatable and controversial issues are not permissible under Section 143(1). Therefore, the Tribunal concluded that the adjustments made by the Revenue were unfair, unjust, and bad in law.

3. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act:
Regarding the interest charged under Sections 234A, 234B, and 234C, the Tribunal noted that these are consequential in nature. Since the primary addition was directed to be deleted, the Tribunal instructed the Assessing Officer to re-compute the interest under these sections and allow consequential relief to the assessee.

Conclusion:
The Tribunal set aside the impugned appellate order dated 10.05.2021 of the Ld. CIT(A) and directed the deletion of the addition of Rs. 3,97,41,559/-. The Tribunal also directed the Assessing Officer to re-compute the interest under Sections 234A, 234B, and 234C and provide consequential relief. The appeal was partly allowed for statistical purposes.