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2023 (6) TMI 168 - AT - Income TaxDisallowance of employees' contribution to PF/ESI u/s 36(1)(va) read with section 2(24)(x) - adjustment made while processing the return u/s 143(1) - information given in the audit report relied upon - HELD THAT - The crux of the entire decision of 'Kalpesh Synthetics Pvt. Ltd. vs. DCIT' 2022 (5) TMI 461 - ITAT MUMBAI is that even when the factual information given in the audit report indicates the disallowance u/s 36(1)(va), however, that is subject to the law laid down by the courts and if the Jurisdictional High Court has interpreted the provisions in any other manner then the decision of the Hon'ble High Court would prevail over the indication given in the tax audit report. The above views of in 'Kalpesh Synthetics Pvt. Ltd. in no manner is suggestive that the adjustment u/s 36(1)(va) cannot be made while processing the return u/s 143(1) of the Act, rather, the above view is limited to the proposition that if the law laid down by the High Court/Supreme Court is otherwise as compared to the factual information given in the audit report, then the law laid down by the Hon'ble High Court/Supreme Court would prevail over the tax audit report. As observed above, the law has been settled in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT - The law declared by the Hon'ble Supreme Court is to be treated as if the same was the right interpretation since the date of the inception of the relevant provision and, therefore, even as per the decision of the Coordinate Bench of the Tribunal in 'Kalpesh Synthetics Pvt. Ltd. vs. DCIT' (supra), the issue is required to be decided in favour of the Revenue and against the assessee.
Issues Involved:
1. Disallowance of employees' contribution to PF/ESI u/s 36(1)(va) read with section 2(24)(x) of the Income Tax Act. 2. Applicability of the amendment to section 36(1)(va) from 1st April 2022. 3. Jurisdiction of the Assessing Officer to disallow the amount while processing the return u/s 143(1)(a) of the Act. Summary: 1. Disallowance of Employees' Contribution to PF/ESI: The assessee challenged the disallowance of employees' contribution to PF/ESI under section 36(1)(va) read with section 2(24)(x) of the Act. The Tribunal noted that the issue has been settled by the Supreme Court in 'Checkmate Services Pvt. Ltd vs. CIT', which held that the due date for depositing employees' contributions is as prescribed under section 36(1)(va) and not the extended date under section 43B. The Supreme Court clarified that employees' contributions retain their character as income unless deposited on or before the due date under the relevant statutes. 2. Applicability of Amendment to Section 36(1)(va): The assessee argued that the amendment to section 36(1)(va) by the Finance Bill, 2021, applicable from 1st April 2022, should not be applied retrospectively to AY 2018-19. The Tribunal, referencing the Supreme Court's decision, emphasized that law declared by the court has retrospective effect unless stated otherwise. The Tribunal concluded that the amendment's prospective application does not affect the retrospective applicability of the Supreme Court's interpretation of the existing provisions. 3. Jurisdiction of Assessing Officer under Section 143(1)(a): The assessee contended that the disallowance should have been made during an assessment under section 143(3) and not while processing the return under section 143(1)(a). The Tribunal referred to the Mumbai Bench's decision in 'M/s P R Packaging Service vs. ACIT', which held that disallowance of expenditure indicated in the audit report but not considered in the return can be made under section 143(1)(a)(iv). The Tribunal also cited the Chennai Bench's decision in 'M/s Electrical India vs. ADIT, CPC', which upheld such adjustments, emphasizing that the audit report's information enables the revenue to make correct income computations. The Tribunal concluded that the Assessing Officer/CPC was justified in making the adjustment for disallowance of expenditure on account of late deposit of employees' contributions to PF/ESI while processing the return under section 143(1) of the Act. Conclusion: The appeal of the assessee was dismissed, affirming the disallowance of employees' contribution to PF/ESI under section 36(1)(va) and the jurisdiction of the Assessing Officer to make such adjustments under section 143(1)(a).
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