2022 (10) TMI 725 - AT - Income Tax

Correctness of the order passed by CIT(A) in the matter of the processing of income tax returns u/s. 143(1) - HELD THAT - As the issue in appeal is squarely covered in favour of the assessee, by a co-ordinate bench decision in the case of Kalpesh Synthetics Pvt 2022 (5) TMI 461 - ITAT MUMBAI

Issues Involved:
1. Correctness of Disallowance under Section 143(1)
2. Scope of Prima Facie Disallowance under Section 143(1)
3. Deductibility of Provident Fund Payments
4. Prospective Nature of Amendments to Sections 36(1)(va) and 43B
5. Role and Impact of Tax Audit Report
6. Jurisdictional High Court's Binding Precedents
7. Quasi-Judicial Function of Assessing Officer-CPC

Detailed Analysis:

1. Correctness of Disallowance under Section 143(1):
The appeal challenges the disallowance of Rs. 4,24,634 under Section 143(1) based on delayed provident fund payments as indicated in the tax audit report. The assessee objected, citing precedents that allow such deductions if payments are made before the income tax return filing due date. The Assessing Officer-CPC dismissed these objections without detailed reasons, leading to the appeal.

2. Scope of Prima Facie Disallowance under Section 143(1):
The counsel for the assessee argued that prima facie disallowance under Section 143(1) is limited to claims that are conclusively inadmissible based on the return's material. The case of Khatau Junkar Ltd. was cited, emphasizing that claims backed by binding judicial precedents cannot be disallowed under this section. The Departmental Representative countered that the scope of Section 143(1)(a) has evolved, allowing disallowances based on inconsistencies in the return or audit report.

3. Deductibility of Provident Fund Payments:
The assessee contended that payments made after the statutory due date but before the income tax return filing date are deductible, supported by jurisdictional High Court rulings. The Departmental Representative acknowledged conflicting decisions on this issue but maintained that the audit report's indication of delayed payments justified the disallowance.

4. Prospective Nature of Amendments to Sections 36(1)(va) and 43B:
The assessee argued that amendments to Sections 36(1)(va) and 43B by the Finance Bill 2021 are prospective and do not apply to periods before April 1, 2021. The Departmental Representative, however, pointed to the Explanatory Memorandum, suggesting that the amendments clarify the law retrospectively.

5. Role and Impact of Tax Audit Report:
The tribunal noted that while Section 143(1)(a)(iv) allows disallowances based on audit reports, the auditor's opinions are not binding on the assessee. The tax audit report's indication of delayed payments does not automatically justify disallowance if it contradicts binding judicial precedents.

6. Jurisdictional High Court's Binding Precedents:
The tribunal emphasized that the jurisdictional High Court's rulings are binding. The CPC's location is irrelevant; the jurisdictional High Court for the assessee and regular Assessing Officer is the Bombay High Court. Thus, the CPC must follow the Bombay High Court's precedents, which allow deductions for provident fund payments made before the income tax return filing date.

7. Quasi-Judicial Function of Assessing Officer-CPC:
The tribunal highlighted that the Assessing Officer-CPC's role in disposing of objections under Section 143(1) is quasi-judicial. The officer must provide specific reasons for rejecting objections, which was not done in this case. The use of a standard template without detailed reasoning was deemed insufficient.

Conclusion:
The tribunal concluded that the disallowance under Section 143(1) was incorrect, as it did not consider binding judicial precedents and lacked specific reasoning. The appeal was dismissed, and the tribunal upheld the CIT(A)'s order, emphasizing the need for a judicious and reasoned approach in quasi-judicial functions. The decision was pronounced on September 28, 2022.

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