2022 (7) TMI 476 - AT - Income Tax

Delayed payment of Provident fund and ESI of employees contribution - HELD THAT - Assessee has taken due date for payment as prescribed under the respective provident fund law and not the due date of filing of the return of income, which is now being claimed by the assessee as the due date by which the payment should have been made. Based on this, Central processing centre proposed to make an adjustment u/s 143 (1) (iv) stating that disallowance of expenditure is indicated in the audit report but is not taken into account in computing the total income in the return. Such intimation was sent to the assessee on 21/2/2019. We find that indication was made in form number 3CD but disallowance was not made in the computation of total income. The assessee submitted its response on 02/05/2019 , wherein it was stated that that the issue is covered in favour of the assessee by the decision of the honourable jurisdictional High Court and such payments are allowable if same are paid on or before the due date prescribed of filing of the return of income. Assessee also objected that in form number 3CD only information was provided about payment of provident fund and other Funds and therefore that clause cannot be an item of prima facie adjustment. We find that though there is an inconsistency in the details submitted in form number 3 CD by the assessee of the due date as prescribed in respective provident fund law but now assessee is claiming that such due date for payment should be the due date of filing of the return of income, which is also supported by the decision of the honourable jurisdictional High Court, we find that such adjustment cannot be made by the central processing unit. Thus in the present case the initiation of adjustment by invoking the provisions of Section 143 (1) (iv) was proper but the adjustment in view of the decision of the honourable jurisdictional High Court covering the issue in favour of the assessee is not proper. Accordingly we allow ground number in favour of the assessee and direct the learned assessing officer to delete the disallowance on account of delayed payment of Provident fund and ESI of employees contribution Under the respective law but deposited before the due date of filing of the return of income for the reason that same are not this allowable.

Summary

Issues:
- Disallowance of employees' contribution to provident fund or superannuation fund
- Interpretation of Section 36(1)(va) of the Income Tax Act
- Applicability of Section 43B and Explanation 2 to Section 36(1)(va)
- Compliance with Form 3CD requirements and audit report discrepancies

Analysis:

1. The appeal was filed against the disallowance of Rs.792,353/- by the National faceless appeal Centre for the assessment year 2017-18. The assessee contended that the adjustment made under Section 143(1)(a)(iv) of the Act was incorrect as the payments were made beyond the due date specified in the respective Acts governing provident fund and ESIC contributions. The assessee argued that these payments should be allowed if made before the due date of filing the Income Tax Return.

2. The Commissioner of Income Tax (Appeals) confirmed the adjustments, citing the provisions of Section 36(1)(va) and judicial precedents supporting the view that employees' contributions become income if not paid before the due date specified in the relevant laws. The Circular No. 22/2015 and amendments introduced by the Finance Act of 2021 were also referenced to justify the disallowance.

3. The Tribunal noted that the adjustment was proposed based on discrepancies in Form 3CD, where delays in depositing employees' contributions were mentioned. However, the Tribunal found that the due date for payment as per the provident fund law was considered by the assessee, not the due date for filing the Income Tax Return. The Tribunal also highlighted that the adjustment proposed by the Central Processing Centre was not in line with the decision of the jurisdictional High Court, which supported the assessee's claim that payments made before the due date of filing the return should be allowed.

4. Consequently, the Tribunal allowed the appeal in favor of the assessee, directing the assessing officer to delete the disallowance amount. Grounds 3 and 4 of the appeal were not adjudicated due to the decision on the first two grounds. The Tribunal's decision was based on the inconsistency in the details submitted in Form 3CD and the jurisdictional High Court's ruling supporting the assessee's position on the due date for payment of employees' contributions.

5. The Tribunal's ruling clarified the interpretation of Section 36(1)(va) and highlighted the importance of considering the due date for payment in the context of filing the Income Tax Return. The decision emphasized the need for consistency in applying the law and judicial precedents to determine the allowability of deductions related to employees' contributions to provident fund and ESIC.