2023 (3) TMI 1508 - AT - Income Tax

Belated payments of employees contribution to PF and ESI after due date prescribed under the respective Acts - intimation u/s 143(1) - HELD THAT - Late remittance of the contribution under PF and ESI is settled in the case of Checkmate Services Pvt. Ltd 2022 (10) TMI 617 - SUPREME COURT Whether CPC has no power to make any adjustment u/s 143(1) intimation - It is pertinent to mention that earlier position is only prima-facie arithmetic adjustments can be made but in view of the amended provisions by the Finance Act 2008 w.e.f. 01.04.2008 the amended provisions empowers adjustments to be made inter alia on the basis of remarks indicated in the return of income or incorrect claim apparent from any information in the return of income. Post amendment w.e.f. 01.04.2008 the scope of adjustment u/s 143(1) has widened and enlarged. It provides that total income shall be computed after making adjustments inter-alia on account of incorrect claim if such incorrect claim is apparent from any information in the return of income. In the case on hand the adjustments u/s 143(1)(a) has been made on the basis of information contained in the tax audit report with respect to the belated payments of employees contribution of EPF and ESI paid beyond the due dates prescribed under the respective Act and these various funds are referred in section 36(1)(va) of the Act. The information gives the details of due date of payment actual date of payment to the concerned authorities and these payments have been made beyond the due dates specified in the respective Acts i.e. Provident Fund Act ESI Act which attracts the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act leading to disallowance of this sum to the extent not paid on or before the due date stipulated in the respective PF and ESI Act. Disallowance made by way of adjustment by CPC has been rightly upheld by the Ld.CIT(A). The above view has been taken in the case of Sree Gokulam Chit and Finance Co.P.Ltd 2022 (12) TMI 1528 - ITAT CHENNAI and also the ratio laid down in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. 2021 (4) TMI 1169 - MADRAS HIGH COURT wherein it was categorically held that if there is any incorrect claim made in the return the disallowance made by the CPC is valid - adjustments made by CPC u/s 143(1) are valid. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of belated payments of employees' contributions to PF and ESI.
2. Scope of adjustments under section 143(1) of the Income Tax Act, 1961.
3. Applicability of amendments made by Finance Act, 2021 to sections 36(1)(va) and 43B.

Detailed Analysis:

1. Disallowance of Belated Payments of Employees' Contributions to PF and ESI:
The assessee filed his return of income for the A.Y. 2019-20, declaring a total income of Rs. 34,66,020/-. The Centralized Processing Centre (CPC) disallowed Rs. 4,50,886/- due to belated payments of employees' contributions to PF and ESI. The assessee argued that these contributions were remitted before the due date of filing the return under section 139(1) and thus should not be disallowed. The CIT(A) upheld the disallowance, and the assessee appealed to the Tribunal.

2. Scope of Adjustments under Section 143(1) of the Income Tax Act, 1961:
The assessee contended that the adjustment of Rs. 4,50,886/- was outside the scope of intimation under section 143(1) of the Act. The Tribunal examined the provisions of section 143(1)(a), which allows for adjustments in cases of arithmetical errors, incorrect claims apparent from the return, and other specified conditions. The Tribunal referenced the Memorandum of Finance Bill, 2008 and 2016, which expanded the scope of adjustments to include incorrect claims apparent from the return's information, such as audit reports.

The Tribunal noted that the adjustments made by the CPC were based on the tax audit report, which indicated belated payments of employees' contributions to PF and ESI. These payments were made beyond the due dates specified under the respective Acts, invoking disallowance under section 36(1)(va) read with section 2(24)(x) of the Act. The Tribunal upheld the CPC's disallowance, citing the Hon'ble Supreme Court's decision in Checkmate Services Pvt. Ltd., which confirmed that belated payments under PF and ESI are not allowable deductions under section 36, even if remitted before filing the return under section 139(1).

3. Applicability of Amendments Made by Finance Act, 2021 to Sections 36(1)(va) and 43B:
The assessee argued that the amendments made by Finance Act, 2021 to sections 36(1)(va) and 43B, which clarified the disallowance of belated payments, were applicable only from A.Y. 2022-23 and should not apply to the A.Y. 2019-20. The Tribunal, however, emphasized that the disallowance was based on the provisions existing during the relevant assessment year and not on the amendments introduced later.

The Tribunal also referenced decisions from the ITAT Chennai and the Hon'ble High Court of Madras, which supported the validity of disallowances made by the CPC under section 143(1) when incorrect claims were apparent from the return's information.

Conclusion:
The Tribunal concluded that the CPC's adjustments under section 143(1) were valid and upheld the CIT(A)'s order. The appeal of the assessee was dismissed, affirming the disallowance of Rs. 4,50,886/- for belated payments of employees' contributions to PF and ESI. The Tribunal emphasized the broad scope of section 143(1)(a) adjustments and the applicability of existing provisions at the time of the assessment year in question. The order was pronounced in the open court on 8th March 2023.