2022 (9) TMI 492 - AT - Income Tax

Delayed employee contribution to PF/ESI - disallowance made under Section 36(1)(va) - assessee submitted that the contributions to PF and ESI were remitted to Govt. account before due dates for filing return of income by the assessee - HELD THAT - We direct the Assessing Officer/CPC to delete the disallowance of employees contribution to EPF and ESI in this case as the contribution was remitted before the due date for filing of return of income. See AIMIL LIMITED 2009 (12) TMI 38 - DELHI HIGH COURT , M/S. ALOM EXTRUSIONS LIMITED 2009 (11) TMI 27 - SUPREME COURT - Decided in favour of assessee. Disallowance made by the CPC, Bangalore u/s 143(1) in respect of interest paid by the assessee on delayed remittance of TDS - Scope of debatable issue - HELD THAT - As there are divergent views on the issue. In our opinion, whether interest paid by the assessee on delayed remittances of TDS is allowable expenditure or not is certainly a debatable issue and, therefore, is outside the scope of purview of the provisions of section 143(1) of the Act. Thus, the CPC, Bangalore/Assessing Officer is directed to delete the disallowance made in respect of interest paid on delayed remittances of TDS while passing the return under section 143(1) of the Act. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Adjustment of income under Section 143(1)(a) of the Income Tax Act.
2. Disallowance of employees' contribution to PF/ESI under Section 36(1)(va).
3. Disallowance of interest on late deposit of TDS under Section 37(1).

Issue-wise Detailed Analysis:

1. Adjustment of income under Section 143(1)(a):
The assessee contended that the Centralized Processing Centre (CPC) Bangalore improperly adjusted the returned income by making prima facie adjustments under Section 143(1)(a). The CIT (Appeals) confirmed this adjustment. The Tribunal noted that the issue of disallowance towards contribution to employees' PF and ESI is highly debatable and should not have been adjusted under Section 143(1). The Tribunal referenced the jurisdictional High Court's decision in CIT Vs. AIMIL Ltd. (321 ITR 508), which supports the assessee's position that contributions made before the due date for filing the return should not be disallowed.

2. Disallowance of employees' contribution to PF/ESI under Section 36(1)(va):
The CPC disallowed the employees' contribution to ESI and PF, which was upheld by the CIT (Appeals). The Department argued that the amendments made by the Finance Act, 2021, to Sections 36(1)(va) and 43B are clarificatory and retrospective. However, the Tribunal, referencing the Supreme Court's decision in M.M. Aqua Technologies Ltd. Vs. CIT, held that such retrospective provisions cannot be presumed if they alter the law. The Tribunal also noted that the amendments are effective from 1.04.2021 and do not apply retrospectively. The Tribunal directed the deletion of disallowance as the contributions were made before the due date for filing the return, aligning with the decision in CIT Vs. AIMIL Ltd. and other relevant case laws.

3. Disallowance of interest on late deposit of TDS under Section 37(1):
The CPC disallowed the interest paid on the late deposit of TDS, which the assessee claimed as a business expenditure under Section 37(1). The Tribunal noted divergent views on this issue, referencing the Kolkata Bench's decision in DCIT Vs. M/s. Rungta Mines Ltd. and DCIT Vs. M/s. Narayani Ispat Pvt. Ltd., which allowed such claims. Conversely, the Jaipur Bench in M/s. Govindam Clearing Agencies Pvt. Ltd. Vs. DCIT disallowed them. The Tribunal concluded that the issue is debatable and outside the scope of Section 143(1), directing the deletion of the disallowance.

Conclusion:
The Tribunal allowed the appeal, directing the deletion of disallowances related to employees' contributions to PF/ESI and interest on late deposit of TDS. The adjustments made under Section 143(1) were deemed inappropriate due to the debatable nature of the issues involved. The order was pronounced on 23/08/2022.