2022 (12) TMI 841 - AT - Income Tax

Prima facie adjustments - while processing the return u/s 143(1) - Disallowance of employees contribution to Provident Fund - Addition made based on the statement made in the Tax Audit Report while processing the return u/s 143(1) - HELD THAT - It is not in dispute that assessee had remitted the employees contribution to Provident Fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income u/s 139(1) - This fact of remittance made by the assessee with delay had been reported by the Tax Auditor in the Tax Audit Report. Tax Auditor had not even contemplated to disallow the employees contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. It is merely recording of facts and a mere statement made by the Tax Auditor in his audit report. CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return u/s 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. The tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, the said action of the Ld.CPC Bangalore in disallowing the employees contribution to Provident Fund while processing the return u/s 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt Ltd. 2022 (5) TMI 461 - ITAT MUMBAI - Decided in favour of assessee.

Issues Involved:
1. Justification of disallowance of employees' contribution to Provident Fund under section 143(1) of the Income Tax Act.
2. Chargeability of interest under sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Justification of Disallowance of Employees' Contribution to Provident Fund

The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the action of the ADIT-CPC Bangalore in disallowing the employees' contribution to Provident Fund based on the statement made in the Tax Audit Report while processing the return under section 143(1) of the Income Tax Act.

The Tribunal noted that the assessee had remitted the employees' contribution to the Provident Fund beyond the due date prescribed under the Provident Fund Act but before the due date for filing the return of income under section 139(1) of the Income Tax Act. The Tax Auditor had reported this delay in the Tax Audit Report without suggesting a disallowance of the contribution. The ADIT-CPC Bangalore disallowed the contribution under section 143(1)(a)(iv) of the Act, which allows for adjustments indicated in the audit report but not accounted for in the return.

The Tribunal referred to the provisions of section 143(1)(a)(iv), which come into play only when the Tax Auditor suggests a disallowance. Since the Tax Auditor did not recommend disallowance, the Tribunal found the CPC's action to be against the provisions of the Act, as it did not fall within the ambit of prima facie adjustments.

The Tribunal further supported its view by citing the decision in Kalpesh Synthetics Pvt Ltd vs DCIT, which emphasized the need for a judicious and reasoned disposal of objections raised by the assessee against proposed adjustments under section 143(1). The Tribunal highlighted that the Tax Auditor's observations are opinions and do not bind the auditee. The Tribunal concluded that the disallowance based on the Tax Auditor's report, without considering the correct legal position, was unsustainable.

The Tribunal acknowledged the recent Supreme Court decision in Checkmate Services Pvt Ltd vs CIT, which ruled against the assessee on merits but noted that it pertained to assessments under section 143(3) and not section 143(1)(a).

2. Chargeability of Interest under Sections 234A, 234B, and 234C

The assessee raised issues regarding the chargeability of interest under sections 234A, 234B, and 234C of the Income Tax Act, which are consequential in nature. The Tribunal directed the Assessing Officer to recompute the interest in accordance with the law.

Conclusion

The Tribunal allowed the appeal, directing the deletion of the addition made in respect of employees' contribution to the Provident Fund and instructed the Assessing Officer to recompute the interest under sections 234A, 234B, and 234C. The general ground raised by the assessee did not require specific adjudication. The order was pronounced in the open court on 07/12/2022.

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