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2023 (4) TMI 755 - AT - Income TaxEmployee contribution to PF/ESI beyond the due dates as prescribed u/s. 36(1)(va) - adjustment made by the lower authorities u/s 143(1) - HELD THAT - Assessee demonstrated that the tax auditor has merely given the details as required in the form no 3CD and at the same time in 3CA has given his view that considering the favorable decision for ESI and PF they have considered the same as allowable and not considered the deemed income of the assessee. On going the tax audit report and provision of section 143(1) of the Act we are of the considered view that the PF and ESI being the deemed income of the assessee as the same is collected from the employee salary and therefore, the same is not under the permissible adjustments. Thus we are of the considered view that the adjustment made by the lower authorities are outside the purview of Section 143(1) of the act - To support the view taken by us we have relied upon the detailed finding in the case of Garg Heart Center Nursing Home Private Limited 2022 (8) TMI 1135 - ITAT DELHI - Decided in favour of assessee.
Issues Involved:
1. Legality of the adjustment made under Section 143(1) of the Income Tax Act, 1961. 2. Disallowance of Employee contribution to PF/ESI under Section 36(1)(va). Issue-Wise Detailed Analysis: 1. Legality of the Adjustment Made Under Section 143(1): The assessee argued that the adjustment made by the CPC (Centralized Processing Center) while processing the return of income was illegal and beyond the scope of Section 143(1)(a)(iv). The assessee contended that the adjustment was made without following the proper procedure and was not within the permissible adjustments under the Act. Specifically, the adjustment pertained to the disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. The Tribunal noted that the tax auditor had merely provided details as required in Form 3CD and had not suggested any disallowance. The assessee's argument was supported by various judicial precedents, including the judgments in Garg Heart Centre & Nursing Home Private Limited vs. ACIT and Kalpesh Synthetics (P.) Ltd. vs. DCIT, which held that adjustments on debatable and controversial issues are beyond the scope of Section 143(1). The Tribunal concluded that the adjustment made by the CPC was outside the permissible adjustments under Section 143(1) and was therefore illegal. The Tribunal allowed the assessee's ground on this issue, emphasizing that retrospective amendments cannot be invoked to make additions by way of adjustment and intimation under Section 143(1). 2. Disallowance of Employee Contribution to PF/ESI Under Section 36(1)(va): The assessee challenged the disallowance of Rs. 4,62,183/- related to the employee contribution to PF/ESI, arguing that the contributions were deposited before the due date of filing the return of income. The Tribunal noted that the clarificatory amendment brought by the Finance Act, 2021, which states that the provisions of Section 43B do not apply to the due date for employee contributions to PF/ESI, applies retrospectively. The Tribunal referred to the Supreme Court judgment in Checkmate Services Private Limited vs. CIT, which clarified that the amendment brought by the Finance Act, 2021, is prospective. The Tribunal also considered the auditor's report, which indicated that the contributions were deposited before the due date of filing the return, and therefore, should not be disallowed. The Tribunal concluded that the adjustment made by the CPC was not justified and was beyond the scope of permissible adjustments under Section 143(1). The Tribunal allowed the assessee's appeal on this ground as well. Conclusion: The Tribunal allowed the appeal of the assessee on the technical ground that the adjustment made by the CPC was outside the permissible scope under Section 143(1). The Tribunal did not decide on the merits of the disallowance issue, leaving it open. The appeal was partly allowed, and the adjustment made by the CPC was quashed.
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