2022 (12) TMI 1528 - AT - Income Tax

Delayed payment of employees contributions of PF ESI beyond the due date as prescribed under the PF ESI Act but before the date of filing of return of income - Adjustment u/s 143(1) - HELD THAT - Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd 2022 (10) TMI 617 - SUPREME COURT has considered the aspect of deemed income in regard to money held by assessee as a custodian on account of employees contribution of ESI and PF payments and that is also held not be an expenditure. The Hon ble Supreme Court considered that the money held by employer of employees contribution to ESI and PF as custodian is deemed income in view of provisions of section 36(1)(va) as well as section 2(24)(x) of the Act. In view of the above discussion carried out in view of the amended provisions of the Act by the Finance Act, 2008 w.e.f. 01.04.2008 and subsequently by Finance Act, 2016 w.e.f. 01.06.2016, the legal position is very clear that while processing return of income u/s.143(1)(a)(ii) of the Act, an incorrect claim, if such incorrect claim is apparent from any information in the return of income is to be disallowed and such adjustment is to be made on the total income or loss to the assessee. We find not infirmity in the order of CIT(A) and that of the CPC and hence, the same are confirmed. This issue of assessee s appeal is dismissed. Action of AO denying the tax benefit / tax rates to be adopted while computing tax liability in term of Section 115BAA(5) - We noted that the assessee has already moved petition for condonation of delay in filing the return of income u/s.119(2)(b) of the Act dated 09.11.2022 before CBDT, New Delhi. Revenue can await decision of this petition and in the eventuality, the CBDT condones the delay, the assessee is liable to assess at a lower rate of tax in the given facts and circumstances of the case. Hence, we restore this issue back to the file of the AO to await and pursue the petition for condonation of delay filed by assessee before CBDT, New Delhi. The assessee will also pursue the same and we are confident that CBDT will take up this decision and will decide this issue at the earliest. In term of the above, this issue of assessee s appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Adjustment under Section 143(1) regarding delayed payment of employees' contributions to Provident Fund (PF) and Employees State Insurance (ESI).
2. Denial of tax benefit under Section 115BAA due to late filing of return.

Issue-wise Detailed Analysis:

1. Adjustment under Section 143(1) regarding delayed payment of employees' contributions to PF and ESI:

The assessee filed a return of income for the assessment year 2020-21, which was processed by the ADIT, CPC, Bangalore, resulting in an adjustment under Section 143(1) of the Income Tax Act, 1961. The adjustment disallowed the deduction of employees' contributions to Provident Fund (PF) amounting to Rs. 2,09,425 and Employees State Insurance (ESI) contributions of Rs. 3,408, totaling Rs. 2,12,833, because these payments were made beyond the due dates prescribed under the respective statutes.

The assessee argued that such adjustments fall outside the scope of Section 143(1). However, the CIT(A) upheld the adjustment, referencing the audit report which indicated the delayed payments. The CIT(A) noted that adjustments can be made under Section 143(1) based on information in the tax audit report, even if the claims are incorrect or apparent from the return.

The Tribunal observed that the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. had categorically held that payments on account of employees' contributions to PF and ESI are allowable only if made within the due dates prescribed under the respective statutes. The Tribunal upheld the CIT(A)'s decision, noting that the adjustments were within the purview of Section 143(1) and were based on the audit report filed by the assessee.

2. Denial of tax benefit under Section 115BAA due to late filing of return:

The second issue involved the denial of the tax benefit under Section 115BAA(5) of the Act. The CPC, Bangalore, while processing the return of income, computed the tax liability at a higher rate of 30% plus surcharge and cess, instead of the lower rate of 22% plus surcharge and cess as per Section 115BAA. The assessee had filed the return of income belatedly on 30.03.2021, beyond the extended due date of 15.02.2021.

The CIT(A) upheld the CPC's action, stating that the assessee failed to meet the first condition of timely filing the return of income. Although the assessee exercised the option under Section 115BAA in the return and filed Form 10-IC, the delay in filing the return could not be condoned as per the CBDT's circular.

The Tribunal noted that the assessee had moved a petition for condonation of delay in filing the return of income under Section 119(2)(b) before the CBDT. The Tribunal restored the issue to the AO to await and pursue the decision on the petition for condonation of delay. If the CBDT condones the delay, the assessee would be eligible for the lower tax rate under Section 115BAA.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal upholding the adjustment under Section 143(1) regarding delayed PF and ESI contributions and restoring the issue of the tax rate under Section 115BAA to the AO, pending the decision on the petition for condonation of delay by the CBDT.