2023 (2) TMI 907 - AT - Income Tax

Disallowance being payment of employee s contribution to ESI and PF - debatable issue - adjustment u/s.143(1) - Payment delayed but well before the prescribed due date of filing of return u/s.139(1) - HELD THAT - The contention of the assessee that the issue of allowability of his claim for deduction of belated deposit of the employee s share of contributions towards ESI EPF was a debatable one, we are afraid would jeopardize the very maintainability of his application filed u/s.154 of the Act with the A.O. In case, the aforesaid claim of the assessee that the issue in question was a debatable one, is to be accepted, then, the remedy that was available with him against the adjustment made u/s.143(1) of the act was to prefer an appeal against the same before the CIT(Appeals) and not to carry the same before the A.O by way of an application u/s.154 of the Act. Be that as it may, the aforesaid judgment of the Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. ( 2022 (10) TMI 617 - SUPREME COURT ) not only seizes the issue in question and renders the matter as no more res-integra, but the same as per Article 141 of the Constitution of India is to be construed as a declaration of law by the Court and has to be given a retrospective application. On construing the judgment of the Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) as a declaration of law as it always have been, the view taken by the A.O disallowing the assessee s claim for deduction of delayed deposit of employees share of contribution towards ESI and EPF being in conformity with the aforesaid judgment of the Hon ble Apex Court, thus, by no means could be held to be debatable. We, thus, in terms of our aforesaid deliberations are of the considered view that the claim of the assessee that the issue in hand was a debatable one, and thus, could not have been brought within the realm of Section 143(1) of the Act cannot be accepted. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of employee's contribution to ESI and PF under Section 36(1)(va) of the Income-tax Act, 1961.
2. Maintainability of the application under Section 154 for rectification of the assessment order.

Issue-Wise Detailed Analysis:

1. Disallowance of Employee's Contribution to ESI and PF:

The core issue revolves around the disallowance of the assessee's claim for deduction of the delayed deposit of the employee's share of contributions towards labour welfare funds, specifically ESI and PF, under Section 36(1)(va) of the Income-tax Act, 1961. The Centralized Processing Center (CPC) disallowed Rs.31,98,463/- for delayed deposits. The assessee contended that these payments were made before the due date of filing the return under Section 139(1), thus should be allowed as deductions. However, the Commissioner of Income-Tax (Appeals) confirmed the disallowance of Rs.31,11,936/-.

The Tribunal noted that the issue of allowability of such deductions is no longer res-integra following the Supreme Court's judgment in the case of Checkmate Services P. Ltd. vs. Commissioner of Income Tax-I. The Supreme Court held that employee's share of contributions to ESI and EPF deposited by the employer beyond the due date prescribed under the respective Acts would constitute the income of the assessee under Section 36(1)(va) read with Section 2(24)(x) of the Act. The Court emphasized the distinction between employer's contributions and employee's contributions, underscoring that the latter must be deposited on or before the due date to qualify for deduction.

2. Maintainability of Application under Section 154:

The assessee argued that the issue of allowability of the deduction for belated deposit was debatable and thus should not have been adjusted under Section 143(1). The Tribunal acknowledged that debatable issues are generally not subject to rectification under Section 154, which is reserved for glaring, patent, and obvious mistakes. However, the Tribunal pointed out that if the issue was indeed debatable, the appropriate remedy would have been an appeal before the CIT(Appeals), not an application under Section 154.

The Tribunal further clarified that the Supreme Court's judgment in Checkmate Services P. Ltd. serves as a declaration of law under Article 141 of the Constitution of India and must be applied retrospectively. Consequently, the view taken by the Assessing Officer (A.O) in disallowing the deduction was in conformity with this judgment and could not be considered debatable. Thus, the assessee's claim that the issue was debatable and should not have been adjusted under Section 143(1) was rejected.

Conclusion:

The Tribunal dismissed the appeal, affirming the disallowance of Rs.31,11,936/- under Section 36(1)(va) read with Section 2(24)(x) of the Act. The Tribunal concluded that the issue was not debatable in light of the Supreme Court's ruling, and thus, the rectification application under Section 154 was not maintainable. The order was pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963.