2023 (3) TMI 461 - AT - Income Tax

Delayed payment of employee s contribution to PF/ESI - Assessment u/s 143(1) - HELD THAT - Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT decided the issue on allowability/ treatment of delayed payment of employee s contribution to PF/ESI in hands of the assessee under the provisions of the Income Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates i.e. employees contribution is linked to payment before the due dates specified in the respective Acts and employer s contribution is linked to the payment before the prescribed due date for filing of return of income under Section 139(1) of the Act. The result of any failure to pay within the prescribed dates also leads to different results. In case of employees contribution any failure to pay within the prescribed dates under the respective PF Act of Scheme will result in negating the employer s claim for deduction permanently forever under Section 36(1)(va) of the Act. On the other hand delay in payment of employer s contribution is visited with deferment of deduction on payment basis u/s 43B of the Act and is therefore not lost totally. Therefore as per the above decision the additions made by Revenue authorities were fully justified. We are of the view that the decisions cited by the learned Counsel for the assessee proceed on the assumption that the disallowance of employees share of PF and ESI paid beyond the due dates under relevant law has been made only under section 143(1)(a)(iv) of the Act while in the intimation under section 143(1)(a) of the Act no such basis has been given and therefore the disallowance can be justified even in terms of section 143(1)(a)(ii) of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of employees' contribution to PF and ESI under Section 36(1)(va) of the Income Tax Act, 1961.
2. Scope and validity of adjustments under Section 143(1)(a) of the Income Tax Act, 1961.
3. Jurisdiction of AO, CPC to make adjustments based on audit reports and amendments to Section 143(1)(a).

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to PF and ESI:
The primary issue in this appeal is the disallowance of Rs. 16,26,688/- towards employees' contribution to PF and ESI under Section 36(1)(va) of the Income Tax Act, 1961. The assessee argued that the disallowance was not justified as the issue was debatable and could not be adjusted under Section 143(1)(a). The CIT(A) relied on the Supreme Court's decision in Checkmate Services (P) Ltd., which held that belated employees' contributions to PF and ESI must be disallowed if not paid within the due dates specified under the respective Acts.

2. Scope and Validity of Adjustments under Section 143(1)(a):
The assessee contended that the scope of Section 143(1)(a) is limited to prima facie adjustments and does not cover debatable issues. The AO, CPC disallowed the sum based on sub-clauses (i), (ii), and (iv) of Section 143(1)(a). The assessee argued that:
- Sub-clause (i) pertains to arithmetical errors, which was not applicable.
- Sub-clause (ii) relates to incorrect claims apparent from the return, which requires the claim to be apparent and undisputed.
- Sub-clause (iv) was amended to include "increase in income" only from 01.04.2021, and hence, adjustments for earlier assessment years were not valid.

3. Jurisdiction of AO, CPC Based on Audit Reports and Amendments:
The assessee argued that the AO, CPC's jurisdiction to make adjustments based on audit reports was limited and only applicable from AY 2020-21 due to the amendment in Section 143(1)(a)(iv). The audit report is not conclusive, and the ROI may not necessarily reflect all details from the audit report. The assessee cited various judicial decisions supporting the view that disallowances based on audit reports and debatable issues should not be made under Section 143(1)(a).

Tribunal's Decision:
The Tribunal upheld the disallowance, relying on the Supreme Court's decision in Checkmate Services (P) Ltd., which clarified that employees' contributions to PF and ESI must be paid within the due dates specified under the respective Acts to claim deductions under Section 36(1)(va). The Tribunal also referred to its previous decision in Itek Packz, which supported the view that adjustments under Section 143(1)(a) could be made for disallowances indicated in the audit report if not paid within the due dates.

Conclusion:
The Tribunal dismissed the appeal, holding that the disallowance of employees' contributions to PF and ESI was justified under Section 36(1)(va) and that the AO, CPC had the jurisdiction to make such adjustments under Section 143(1)(a). The decision was based on the Supreme Court's ruling in Checkmate Services (P) Ltd. and other relevant judicial precedents.