2022 (8) TMI 1527 - AT - Income Tax

Addition u/s 36(1)(va) being employees contribution paid - HELD THAT - We find that the issue is squarely in the case of Kalpesh Synthetics Pvt. Ltd. 2022 (5) TMI 461 - ITAT MUMBAI as held when the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is indicative of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. We are of the considered view that the impugned adjustment in the course of processing of return u/s 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that 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). That question, in our humble understanding, can be relevant, for example, 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 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 9,15,520/- under Section 36(1)(va) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Confirmation of Addition under Section 36(1)(va):

The assessee-appellant challenged the correctness of the order dated 20th June 2022, passed by the learned CIT(A) regarding the processing of income tax returns under Section 143(1) for the assessment year 2020-21. The primary grievance was the confirmation of the addition of Rs. 9,15,520/- under Section 36(1)(va) concerning employees' contribution paid.

The Tribunal examined the issue and noted that it was covered by a co-ordinate bench decision in the case of Kalpesh Synthetics Pvt. Ltd., ITA No. 1785/Mum/2021. The Tribunal observed that the disallowance was based on delays in depositing provident fund dues as reported in the tax audit report. The assessee contended that payments made after the due date under the respective statute but before filing the income tax return should be deductible, citing judicial precedents supporting this view.

The Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) is limited and should only apply to claims conclusively inadmissible based on material on record. The Tribunal noted that the judicial precedents, including those from the jurisdictional High Court, support the deductibility of such payments if made before the due date of filing the income tax return under Section 139(1).

The Tribunal also addressed the argument that the insertion of Explanations to Section 36(1)(va) and 43B by the Finance Bill 2021 is prospective and should not affect periods before 1st April 2021. The Tribunal found that the Assessing Officer-CPC did not provide specific reasons for rejecting the assessee's objections, which is necessary for a quasi-judicial function.

The Tribunal concluded that the disallowance based solely on the tax audit report is unsustainable, especially when the audit report's observations are contrary to the legal position established by higher courts. The Tribunal held that the tax audit report's indication of delayed payments does not automatically justify disallowance under Section 143(1)(a)(iv) when judicial precedents allow such deductions.

The Tribunal emphasized that the processing of income tax returns under Section 143(1) involves an interactive process, requiring the Assessing Officer-CPC to consider the assessee's objections judiciously. The Tribunal found that the impugned adjustment was vitiated in law and deleted the addition of Rs. 9,15,520/-.

In conclusion, the Tribunal allowed the appeal, deleting the impugned adjustment and emphasizing the need for a judicious and reasoned approach in processing income tax returns under Section 143(1). The Tribunal's decision was pronounced in the open court on the 25th day of August 2022.