2023 (11) TMI 1106 - AT - Income Tax

Delayed deposit of the employees share of contributions towards EPF/ESIC u/s. 36(1)(va) - adjustments carried out u/s 143(1) - HELD THAT - The aforesaid issue had been looked into in the case of Satpal Singh Sandhu 2023 (5) TMI 1274 - ITAT RAIPUR and Gurmeet Singh Hora 2023 (8) TMI 1383 - ITAT RAIPUR . The Tribunal while deliberating at length on the aforesaid issue had after drawing support from the orders of Kalpesh Synthetics (P) Ltd. 2022 (5) TMI 461 - ITAT MUMBAI and P.R. Packaging Service 2022 (12) TMI 841 - ITAT MUMBAI had held that no such disallowance of the delayed deposit of the employee s share of contribution towards labour welfare fund could have been made in the hands of the assessee company while processing its return of income u/s. 143(1)(a) Disallowance u/s. 43B(a) of the Act towards service tax paid beyond the due date specified for filing of return of income u/s. 139(1) - HELD THAT - We may herein observe that in the case of M/s. Ganapati Motors 2017 (4) TMI 1613 - CHHATTISGARH HIGH COURT had held that in a case where the assessee had not charged VAT to its profit and loss account, then, despite the fact that the liability may still be unpaid it could not have been added u/s. 43B of the Act as the same was not claimed as a deduction in the books of accounts. Thus no addition can be made of an assessee s unpaid VAT tax liability that was not charged to the profit and loss account, there is substance in the claim of the Ld. AR that based on the same analogy there was no justification for the A.O to have made an addition u/s. 43B of the amount of service tax payable as the same was not charged to the latters profit and loss account. Thus no means could have been dubbed as an incorrect claim and brought within the realm of the adjustments contemplated in clause (a) of Section 143(1) Appeal of assessee allowed.

Summary

Issues Involved:
1. Applicability of the Supreme Court decision in "Checkmate Services Pvt. Ltd. Vs. CIT" to the assessee's case.
2. Legitimacy of disallowances made by CPC under Section 143(1) of the Income-tax Act, 1961.
3. Jurisdictional authority of CPC in making adjustments under Section 143(1)(a).

Summary:

Issue 1: Applicability of Supreme Court Decision in "Checkmate Services Pvt. Ltd. Vs. CIT"
The CIT(A) treated the assessee's case as covered by the Supreme Court decision in "Checkmate Services Pvt. Ltd. Vs. CIT" and confirmed the disallowance of Rs. 51,82,242 made by CPC while processing the return under Section 143(1). The CIT(A) observed that the appellant did not deposit the employees' contributions to EPF and ESIC within the due dates specified under the respective Acts, thus disallowing the deductions under Section 36(1)(va) of the Income-tax Act.

Issue 2: Legitimacy of Disallowances Made by CPC
The assessee argued that the adjustments made by CPC were not permissible under Section 143(1)(a) as they were beyond the jurisdiction of CPC. The ITAT noted that the issue of delayed deposit of employees' contributions to EPF/ESIC was highly debatable at the time of processing the return, and therefore, could not have been summarily disallowed by the CPC under Section 143(1).

Issue 3: Jurisdictional Authority of CPC in Making Adjustments
The ITAT observed that the CIT(A) had misconceived facts by attributing the entire disallowance to Section 36(1)(va) r.w.s. 2(24)(x) of the Act, while the AO had made disallowances on two counts: (i) delayed deposit of employees' contributions towards EPF/ESIC (Rs. 44,16,229) and (ii) disallowance under Section 43B(a) for service tax paid beyond the due date (Rs. 7,66,013). The ITAT held that the AO had traversed beyond his jurisdiction in making such disallowances under Section 143(1), especially given the divergent judicial opinions at the time.

Conclusion:
The ITAT set aside the order of the CIT(A) and vacated the disallowances made by the AO. The appeal of the assessee was allowed, emphasizing that no part of the disallowance/addition made under Sections 36(1)(va) and 43B(b) could be sustained. The ITAT reiterated that the CPC could not summarily disallow claims that were debatable and required further inquiry.