2022 (5) TMI 617 - AT - Income Tax

Delay in payment towards Provident Fund (P.F.) / Employees State Insurance Corporation Scheme (ESIC) under section 36(1)(va) r/w section 2(24) - intimation under section 143(1) - HELD THAT - As relying on KALPESH SYNTHETICS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CPC BENGALURU. 2022 (5) TMI 461 - ITAT MUMBAI 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. adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of delayed payment towards Provident Fund (P.F.) / Employees State Insurance Corporation Scheme (ESIC) under section 36(1)(va) r/w section 2(24) of the Income Tax Act, 1961.
2. Applicability of judicial precedents and statutory amendments in processing income tax returns under section 143(1).

Detailed Analysis:

Disallowance of Delayed Payment towards P.F./ESIC:
The assessee challenged the disallowance of Rs.1,91,869 due to delayed payments towards P.F. and ESIC, which was upheld by the learned Commissioner of Income Tax (Appeals) [CIT(A)]. The disallowance was made under section 36(1)(va) r/w section 2(24) while processing the income tax return under section 143(1) by the Centralized Processing Centre (CPC), Bengaluru. The assessee contended that payments made after the due date under the respective statute but before filing the income tax return are deductible in the computation of business income, citing judicial precedents from the jurisdictional High Court.

Applicability of Judicial Precedents and Statutory Amendments:
The Tribunal referred to a recent decision in Kalpesh Synthetics Pvt. Ltd. v/s DCIT, where it was observed that the scope of prima facie disallowance under section 143(1) is limited and only such disallowance can be made that is conclusively inadmissible based on material on record. The Tribunal noted that the tax auditor's report, which indicated delayed payments, cannot be the sole basis for disallowance, especially when judicial precedents support the deductibility of such payments if made before the due date of filing the income tax return.

The Tribunal emphasized that the scheme of processing returns under section 143(1) has evolved, and the current provisions allow for broader adjustments, including disallowance of expenditure indicated in the audit report but not considered in computing the total income. However, the Tribunal highlighted that the Assessing Officer CPC must dispose of objections raised by the assessee in a reasoned manner, which was not done in this case.

The Tribunal also addressed the prospective nature of the amendments introduced by the Finance Bill 2021 to Sections 36(1)(va) and 43B, clarifying that these amendments do not apply retrospectively to periods before 1st April 2021. The Tribunal concluded that the observations in the tax audit report, which are opinions of an independent professional, cannot bind the assessee and override judicial precedents.

Conclusion:
The Tribunal allowed the appeal by the assessee, holding that the impugned adjustment under section 143(1) was vitiated in law. The Tribunal reiterated that the tax auditor's report alone cannot justify disallowance when judicial precedents support the deductibility of payments made before the due date of filing the income tax return. The Tribunal emphasized the need for a reasoned disposal of objections by the Assessing Officer CPC and clarified that the amendments introduced by the Finance Bill 2021 are prospective and do not affect the assessment years prior to 2021-22.