2025 (4) TMI 1040 - AT - Income Tax

Disallowance of late payment of Provident Fund - HELD THAT - This issue is covered against the assessee by the Hon ble Supreme Court judgment in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT Rectification orders passed u/s 154 reducing the refund claimed by the assessee when the intimation under section 143(1) was not served on the assessee - HELD THAT - As perused the rectification order dated 08-11-2022 in that there is a column details of previous order to be rectified wherein it is mentioned as 143(1) dated 26-07-2022 but it is without DIN number. This makes it very clear since there is no DIN allotted to the 143(1) intimation the same to be treated as not passed and therefore not served on the assessee. As per 2nd proviso to Section 143(1) of the Act no intimation under sub-section shall be sent after the expiry of nine months from the end of the financial year in which the return was filed. Further as per 1st proviso to Section 143(1) of the Act the intimation shall be sent to the assessee declaring the loss assessed/adjusted but no tax interest or fee payable or no refund due to the assessee. Since the intimation made u/s. 143(1) of the Act was not served on the assessee therefore there cannot be adjustment or rectification u/s.154 of the Act consequently the additions made by CPC are liable to be deleted and the refund claimed by the assessee is to be allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions arising from two separate appeals relating to Assessment Years 2020-21 and 2021-22:

(a) Whether the disallowance of late payment of Provident Fund contributions under section 36(1)(va) of the Income Tax Act, 1961, as upheld by the Commissioner of Income Tax (Appeals) (CIT(A)), was justified in light of the Supreme Court precedent.

(b) Whether the rectification orders passed under section 154 of the Income Tax Act, 1961, reducing the refund claimed by the assessee, were valid and sustainable, particularly when the intimation under section 143(1) was not served on the assessee.

(c) Whether the disallowance of business income under section 41 of the Act and the disallowance of employee's contribution towards Provident Fund under section 36(1)(va) were correctly made in the rectification orders.

(d) Whether the procedural requirements under section 143(1) and section 154 of the Act were complied with, specifically regarding the issuance and service of intimation and the consequent rectification.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Disallowance of Late Payment of Provident Fund Contributions

Relevant legal framework and precedents: Section 36(1)(va) of the Income Tax Act disallows deduction of any sum payable by the employer by way of contribution to any provident fund or superannuation fund or gratuity fund to the extent such sum is not paid on or before the due date specified under the relevant statute. The Supreme Court judgment in Checkmate Services Pvt. Ltd. vs. CIT [2022] 143 taxmann.com 178 (SC) clarified the applicability of this provision.

Court's interpretation and reasoning: In the appeal relating to AY 2020-21, the CIT(A) allowed the claim of depreciation but confirmed the disallowance of late payment of Provident Fund contributions, following the Supreme Court's ruling in Checkmate Services Pvt. Ltd. The assessee's counsel conceded that this issue was squarely covered against the assessee by the Supreme Court judgment.

Application of law to facts: The Tribunal noted the binding nature of the Supreme Court precedent and upheld the disallowance of late payment of Provident Fund contributions. The assessee's appeal on this issue was dismissed accordingly.

Treatment of competing arguments: The assessee's concession effectively ended the dispute on this issue. The Tribunal did not find any reason to deviate from the Supreme Court's authoritative pronouncement.

Conclusion: The disallowance under section 36(1)(va) for late payment of Provident Fund contributions was upheld as per the Supreme Court judgment.

Issue (b): Validity of Rectification Orders under Section 154 in Absence of Service of Intimation under Section 143(1)

Relevant legal framework: Section 143(1) of the Income Tax Act requires the Assessing Officer to send an intimation to the assessee after processing the return. The 2nd proviso to section 143(1) mandates that such intimation shall not be sent after nine months from the end of the financial year in which the return was filed. Section 154 permits rectification of mistakes apparent from the record.

Court's interpretation and reasoning: For AY 2021-22, the assessee filed the original return and a revised return, claiming a refund. The CPC communicated an inconsistency in the amount of profit chargeable to tax under section 41. The assessee clarified the position, and no intimation under section 143(1) was served. Despite this, a rectification order under section 154 was passed reducing the refund claim by making disallowances.

The Tribunal examined the rectification order which referred to an intimation under section 143(1) dated 26-07-2022 but without a Document Identification Number (DIN), indicating that the intimation was not validly issued or served. The Tribunal relied on the statutory provisos to section 143(1) and held that since no valid intimation was served, the basis for the rectification order under section 154 was absent.

Key evidence and findings: The CPC's communication acknowledged the non-availability of the section 143(1) intimation due to technical migration issues. The absence of DIN on the purported intimation further supported the conclusion that the intimation was not validly issued or served.

Application of law to facts: The Tribunal held that without a valid and served intimation under section 143(1), no rectification order under section 154 could be sustained. The additions and disallowances made in the rectification order were therefore invalid.

Treatment of competing arguments: The Revenue's attempt to rely on the rectification order was negated by the procedural non-compliance and lack of valid intimation. The Tribunal gave primacy to procedural safeguards embedded in the Act.

Conclusion: The rectification order under section 154 without a valid intimation under section 143(1) was quashed, and the refund claimed by the assessee was allowed.

Issue (c): Disallowance of Business Income under Section 41 and Employee's Contribution towards Provident Fund

Relevant legal framework: Section 41 of the Income Tax Act deals with profits chargeable to tax in certain cases where assets are converted or converted into money. Section 36(1)(va) disallows deduction of employer's contribution to Provident Fund if not timely paid.

Court's interpretation and reasoning: The CIT(A) deleted the disallowance made under section 41 but confirmed the addition related to late payment of Provident Fund contributions. The Tribunal, while allowing the appeal, confirmed deletion of the section 41 disallowance and also allowed the refund by quashing the rectification order on procedural grounds as discussed above.

Application of law to facts: The assessee had clarified that the amount of Rs. 1,07,54,026/- was offered to tax under "Other Income" and was not excluded from business income; hence, no inconsistency existed. The Tribunal accepted this explanation and deleted the disallowance under section 41.

Treatment of competing arguments: The Revenue did not produce contrary evidence to rebut the assessee's clarification. The Tribunal relied on the assessee's explanation and the absence of any valid intimation to sustain the deletion.

Conclusion: The disallowance under section 41 was deleted. The disallowance under section 36(1)(va) relating to employee's contribution was allowed as the rectification order was invalid due to procedural lapses.

Issue (d): Compliance with Procedural Requirements under Section 143(1) and Section 154

Relevant legal framework: Section 143(1) requires issuance and service of intimation within prescribed timelines. Section 154 permits rectification of mistakes apparent from the record but presupposes the existence of a valid order or intimation to be rectified.

Court's interpretation and reasoning: The Tribunal emphasized that the absence of a valid intimation under section 143(1) precludes the issuance of a valid rectification order under section 154. The procedural safeguards ensure that the assessee is not prejudiced by uncommunicated adjustments.

Key evidence and findings: The absence of DIN and the CPC's admission of non-availability of the intimation due to technical migration confirmed non-compliance with procedural requirements.

Application of law to facts: The Tribunal held that the rectification orders passed without valid intimation were null and void, and the refund claims of the assessee had to be allowed.

Treatment of competing arguments: The Revenue's reliance on rectification orders without valid intimation was rejected as contrary to statutory provisions and principles of natural justice.

Conclusion: Procedural non-compliance rendered the rectification orders invalid, entitling the assessee to the claimed refunds.

3. SIGNIFICANT HOLDINGS

"Since the intimation made u/s. 143(1) of the Act was not served on the assessee, therefore, there cannot be adjustment or rectification u/s.154 of the Act, consequently the additions made by CPC are liable to be deleted and the refund claimed by the assessee is to be allowed."

The Tribunal established the core principle that a rectification order under section 154 cannot be sustained in the absence of a valid and served intimation under section 143(1). This procedural safeguard ensures that the assessee's rights are protected and prevents arbitrary adjustments without due communication.

On the substantive issue of late payment of Provident Fund contributions, the Tribunal adhered to the binding Supreme Court precedent, confirming that disallowance under section 36(1)(va) is justified when contributions are paid late.

Final determinations:

- The appeal relating to AY 2020-21 was dismissed with respect to the disallowance of late payment of Provident Fund contributions, following Supreme Court precedent.

- The appeal relating to AY 2021-22 was allowed by deleting the disallowance under section 41 and by quashing the rectification order under section 154 due to non-service of intimation under section 143(1), thereby allowing the refund claimed by the assessee.