2022 (12) TMI 550 - AT - Income Tax

Delay in making the payment towards the employees contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) - intimation u/s 143(1) - HELD THAT - As decided in 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.Tax audit report can not be reason enough to make the impugned disallowance. 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. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Assessee appeal allowed.

Summary

Issues Involved:
1. Disallowance of employees' contribution to Provident Fund and ESIC under Section 36(1)(va).
2. Non-adherence to judicial precedents by the CIT(A).
3. Prospective nature of the amendment made by Finance Act, 2021.
4. Principle of adopting the view favorable to the assessee when two views are possible.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to Provident Fund and ESIC under Section 36(1)(va):
The assessee challenged the disallowance of Rs. 47,51,831/- for employees' contribution to Provident Fund and ESIC under Section 36(1)(va) of the Income Tax Act, 1961. The contributions were deposited before the due date of filing the return under Section 139(1). The Tribunal referred to the case of Kalpesh Synthetics Pvt. Ltd., where it was observed that payments made after the statutory due date but before the due date for filing the income tax return are deductible. The Tribunal noted that the Assessing Officer-CPC did not provide specific reasons for rejecting the assessee's objections, which is a quasi-judicial function requiring a judicious call and specific reasons.

2. Non-adherence to Judicial Precedents by the CIT(A):
The assessee argued that the CIT(A) failed to follow the judicial precedents set by the Hon'ble Supreme Court in Commissioner of Income Tax v. Alom Extrusions Ltd. and the jurisdictional High Court in Commissioner of Income Tax, Mumbai v. Hindustan Organics Chemicals Ltd. These precedents held that no disallowance should be made if the contribution is deposited before the due date of filing the return. The Tribunal emphasized that the views expressed by the tax auditor cannot override the binding judicial precedents and that the law laid down by the Hon'ble jurisdictional High Court must be followed.

3. Prospective Nature of the Amendment Made by Finance Act, 2021:
The assessee contended that the amendment made by the Finance Act, 2021, which introduced Explanations to Section 36(1)(va) and 43B, is prospective in nature and should not apply to the assessment year 2018-19. The Tribunal noted that the amendment is to take effect from 1st April 2021 and should not affect the periods prior to this date. The Tribunal referred to the decisions of coordinate benches holding that the insertion of these explanations is prospective.

4. Principle of Adopting the View Favorable to the Assessee:
The assessee argued that in cases where two views are possible, the one favorable to the assessee should be adopted. The Tribunal reiterated that when the law laid down by the Hon'ble Courts is in favor of the assessee, it must be followed. The Tribunal emphasized that the tax auditor's report is not binding on the assessee and that the correct legal position, as interpreted by the Hon'ble Courts, must prevail.

Conclusion:
The Tribunal concluded that the impugned adjustment in the course of processing the return under Section 143(1) is vitiated in law and deleted the disallowance of Rs. 47,51,831/-. The Tribunal's decision was based on the binding judicial precedents, the prospective nature of the amendment by the Finance Act, 2021, and the principle of adopting the view favorable to the assessee. The appeal was allowed, and the adjustment was deleted.