2022 (12) TMI 671 - 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. Validity of processing of income tax returns under section 143(1) of the Income Tax Act, 1961.
2. Disallowance of Rs. 1,05,193/- due to delay in payment towards employees' provident fund contributions under section 36(1)(va) read with section 2(24)(x) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Processing of Income Tax Returns under Section 143(1):
The assessee challenged the correctness of the CIT(A)'s order upholding the validity of processing income tax returns under section 143(1) for the assessment year 2019-20. The Tribunal noted that the scheme of processing returns under section 143(1) has evolved significantly. The current scheme involves an interactive process where the assessee is given an opportunity to respond to proposed adjustments, and the Assessing Officer (CPC) must consider these responses before making any adjustments. The Tribunal emphasized that this process is quasi-judicial and requires the Assessing Officer CPC to provide specific reasons for rejecting any objections raised by the assessee. The Tribunal found that the Assessing Officer CPC had failed to provide such reasons, using a standard template text without striking out inapplicable portions, thus not fulfilling the requirement of a quasi-judicial function.

2. Disallowance of Rs. 1,05,193/- Due to Delay in Payment Towards Employees' Provident Fund Contributions:
The primary issue was the disallowance of Rs. 1,05,193/- on account of delayed payment towards employees' provident fund contributions, as reported in the tax audit report. The Tribunal referenced an identical issue considered in the case of Kalpesh Synthetics Pvt. Ltd., where it was 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 noted that the tax audit report, prepared by an independent professional, is not binding on the assessee, and the views expressed therein cannot override the legal position established by judicial precedents. The Tribunal highlighted that the law laid down by the Hon'ble jurisdictional High Court must prevail over the tax auditor's observations. It was also noted that the insertion of Explanations to Section 36(1)(va) and 43B by the Finance Bill 2021 is prospective in nature and does not apply to periods before 1st April 2021.

The Tribunal concluded that the impugned adjustment was not sustainable in law, as it was based on the tax audit report's observations, which were contrary to the binding judicial precedents. The Tribunal also emphasized that the Assessing Officer CPC's failure to provide specific reasons for rejecting the assessee's objections further invalidated the adjustment. Consequently, the Tribunal deleted the impugned adjustment of Rs. 1,05,193/-.

Conclusion:
The Tribunal allowed the appeal, deleted the impugned adjustment, and emphasized the need for specific reasons in quasi-judicial decisions, aligning with the binding judicial precedents and the correct legal position. The order was pronounced in the open court on 25th August 2022.