2022 (8) TMI 1525 - AT - Income Tax

Delay in making the payment towards the employees contribution for the provident fund and ESI dues u/s 36(1)(va) r.w.s. 2(24)(x) - HELD THAT - We direct the AO to delete the impugned disallowances, on account of, what is termed as, delayed payments of PF and ESI contributions. The assessee gets the relief accordingly. Adjustments that can be carried out u/s 143(1) - We see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). When a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147, or when no findings were to be given on the scope of permissible adjustments u/s 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. The point raised by DR remains open for adjudication in a fit case.

Summary

Issues Involved:
1. Justification of adjustments made by the Centralized Processing Centre (CPC) under section 143(1) based on tax audit reports.
2. Permissibility of disallowance of employee's provident fund and ESI contributions due to delayed payment.
3. Scope and application of section 143(1) adjustments.
4. Relevance and binding nature of judicial precedents from jurisdictional High Courts.
5. Interpretation and application of Explanations to Section 36(1)(va) and 43B.

Detailed Analysis:

1. Justification of Adjustments Made by CPC Under Section 143(1):
The common grievance in the appeals was that the first appellate authority upheld the adjustments made by CPC Bengaluru while processing income tax returns under section 143(1). These adjustments were based on delays in payments towards employees' provident fund and ESI dues, as reported in the tax audit reports. The assessee contended that such payments, if made before the filing of the income tax return, should be deductible as per the jurisdictional High Court's judgments.

2. Permissibility of Disallowance Due to Delayed Payment:
The learned counsel for the assessee argued that payments made before the due date of filing the income tax return under section 139(1) should be deductible, even if made after the due date under the respective statute. This position is supported by judicial precedents from the Hon'ble jurisdictional High Court. The counsel also contended that the insertion of Explanations to Section 36(1)(va) and 43B by the Finance Bill 2021 is prospective and does not apply to periods before April 1, 2021.

3. Scope and Application of Section 143(1) Adjustments:
The Tribunal noted that the scheme of processing returns under section 143(1)(a) has evolved. The current provisions allow for broader adjustments, including disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. However, the Tribunal emphasized that the process involves an "interactive and cerebral" exercise, requiring the Assessing Officer CPC to consider objections raised by the assessee and provide specific reasons for any adjustments made.

4. Relevance and Binding Nature of Judicial Precedents:
The Tribunal highlighted that the law laid down by the jurisdictional High Court binds all authorities within its jurisdiction. The Tribunal criticized the CPC for not considering the binding judicial precedents and for relying solely on the tax audit report. The Tribunal reiterated that the views of the tax auditor, being an independent professional, cannot bind the assessee, especially when contrary to the law laid down by the jurisdictional High Court.

5. Interpretation and Application of Explanations to Section 36(1)(va) and 43B:
The Tribunal observed that the due date under Explanation to Section 36(1)(va) has been judicially held to be not decisive for determining disallowance in the computation of total income. The Tribunal noted that the adjustments made based on the tax audit report were not justified, as the payments made before the due date of filing the income tax return should be deductible. The Tribunal also mentioned that the insertion of Explanations to Section 36(1)(va) and 43B by the Finance Bill 2021 is prospective and does not affect periods before April 1, 2021.

Conclusion:
The Tribunal directed the Assessing Officer to delete the impugned disallowances related to delayed payments of PF and ESI contributions. The Tribunal's observations were confined to the specific facts of the case and the scope of adjustments permissible under section 143(1). The Tribunal did not address the broader question of the applicability of the Explanations to Section 36(1)(va) and 43B for periods prior to April 1, 2021, leaving it open for future adjudication in appropriate cases.

Result:
All appeals were allowed, and the Assessing Officer was directed to delete the impugned disallowances.