2022 (8) TMI 1534 - AT - Income Tax

Disallowance of employees contribution to provident fund, ESIC and other welfare fund - amount was credited to the fund before the due date of filing the return of income - intimation under section 143(1) - HELD THAT - We find that the issue is squarely covered by co-ordinate bench decision, in the case of Kalpesh Synthetics Pvt. Ltd. 2022 (5) TMI 461 - ITAT MUMBAI held computation of total income in the return as is sine qua non for disallowance of Section 143(1)(a)(iv). 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. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Assessee appeal allowed.

Summary

Issues Involved:

1. Disallowance of employees' contribution to provident fund, ESIC, and other welfare funds.
2. Applicability of the amendment to Section 36(1)(va) of the Income Tax Act for Assessment Year 2019-20.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to Provident Fund, ESIC, and Other Welfare Funds:

The appellant challenged the disallowance of Rs. 21,54,180/- related to employees' contributions to provident fund, ESIC, and other welfare funds. The disallowance was confirmed by the Centralized Processing Centre (CPC) and the CIT(A), despite the contributions being credited before the due date of filing the income tax return.

The Tribunal referred to a co-ordinate bench decision in the case of Kalpesh Synthetics Pvt. Ltd. The issue was whether the delay in depositing provident fund dues, as reported in the tax audit report, could justify a disallowance under Section 143(1). The Tribunal noted that the tax auditor's report indicated delays, but the appellant argued that payments made before the due date of filing the return should be deductible, as held by the jurisdictional High Court.

The Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) is limited to claims that are conclusively inadmissible based on the material on record. The Tribunal found that the appellant's claim, supported by judicial precedents, could not be considered prima facie inadmissible.

The Tribunal also addressed the argument that the tax auditor's report should not bind the assessee, as the auditor is an independent professional. The Tribunal held that the auditor's observations are not sufficient justification for disallowance, especially when contrary to judicial precedents.

2. Applicability of the Amendment to Section 36(1)(va) for Assessment Year 2019-20:

The appellant argued that the amendment to Section 36(1)(va) by the Finance Bill 2021 is prospective and should not apply to the assessment year 2019-20. The Tribunal agreed, noting that judicial precedents have held that payments made before the due date of filing the return are deductible, even if made beyond the statutory due date.

The Tribunal rejected the Departmental Representative's argument that the amendment clarifies that Section 43B does not apply to employees' contributions. The Tribunal held that the amendment's prospective nature means it does not affect periods before 1st April 2021.

Conclusion:

The Tribunal concluded that the impugned adjustment under Section 143(1) is vitiated in law and deleted the disallowance of Rs. 21,54,180/-. The Tribunal emphasized the need for a speaking order when disposing of objections to proposed adjustments and held that the tax auditor's report alone cannot justify disallowance contrary to judicial precedents. The appeal was allowed, and the adjustment was deleted.

Pronouncement:

The judgment was pronounced in the open court on 3rd August 2022.