2022 (1) TMI 32 - AT - Income Tax

Late payments towards EPF and ESI under section 36(1)(va) - Payment before furnishing the return of income under section 139(1) - HELD THAT - Issue decided in favour of assessee as relying on RAJA RAM VERSUS THE ITO, WARD 3 AND SANCHI MANAGEMENT SERVICES PRIVATE LIMITED VERSUS THE ITO, WARD 5 (2) , CHANDIGARH 2021 (11) TMI 370 - ITAT CHANDIGARH .

Issues Involved:
1. Legality of the intimation order passed under Section 143(1) read with Section 154 by the AO, CPC, Bangalore.
2. Disallowance of ?81,240/- towards EPF and ESI payments.
3. Retrospective application of the amendment to Section 36(1)(va) of the Income Tax Act, 1961.
4. Jurisdiction and procedural fairness in passing the intimation order.
5. Deduction of genuine and legitimate business expenditure under Section 37 of the Income Tax Act.

Detailed Analysis:

1. Legality of the Intimation Order:
The appellant argued that the intimation order passed under Section 143(1) read with Section 154 by the AO, CPC, Bangalore, was illegal. The contention was that the order was against the law and facts of the case. The Tribunal found that the issue was already adjudicated in similar cases, where it was held that such orders were not sustainable when the contributions were made before filing the return of income under Section 139(1).

2. Disallowance of ?81,240/- Towards EPF and ESI Payments:
The primary grievance was the disallowance of ?81,240/- made by the AO on account of late payments towards EPF and ESI under Section 36(1)(va) of the Income Tax Act. The Tribunal noted that similar issues had been adjudicated in earlier cases (e.g., Raja Ram Vs. ITO, Yamunanagar), where it was held that contributions made before the filing of the return under Section 139(1) should not be disallowed. The Tribunal followed this precedent and deleted the disallowance.

3. Retrospective Application of Amendment to Section 36(1)(va):
The appellant argued that the CIT(A) erred in applying the amendment to Section 36(1)(va) retrospectively. The Tribunal agreed, noting that the amendment introduced by the Finance Act, 2021, was applicable from 1.4.2021 and not to the year under consideration. This position was supported by various court rulings, including the Hon'ble Calcutta High Court in the case of Vijayshree Ltd., which held that such amendments should not be applied retrospectively.

4. Jurisdiction and Procedural Fairness:
The appellant contended that the intimation order was passed without proper jurisdiction and without providing a reasonable opportunity of being heard. The Tribunal found merit in this argument, emphasizing that procedural fairness and proper jurisdiction are essential in passing such orders. The Tribunal noted that the AO, CPC, Bangalore, had overstepped its jurisdiction, and the order was passed without adhering to due process.

5. Deduction of Genuine and Legitimate Business Expenditure:
The appellant also raised an alternative ground for the deduction of genuine and legitimate business expenditure under Section 37 of the Income Tax Act. Although this was a secondary issue, the Tribunal's primary findings on the legality of the disallowance under Section 36(1)(va) rendered this ground moot. However, the Tribunal acknowledged that genuine business expenditures should be allowable under Section 37.

Conclusion:
The Tribunal, after considering the submissions and material available on record, concluded that the disallowances made by the AO and sustained by the CIT(A) were not justified. The Tribunal deleted the disallowances, emphasizing that contributions made before the filing of the return under Section 139(1) should not be disallowed. The appeals were allowed in favor of the assessees.

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