2022 (8) TMI 1135 - AT - Income Tax

Delayed employees contribution to ESI/Provident Fund - adjustment and intimation u/s 143(1) - payments were deposited by the respective assessees well before the date of filing of return of Income Tax prescribed under section 139(1) - whether, the aforesaid additions by way of adjustments and intimation u/s 143(1) of Income Tax Act in respect of payments of Employee s contribution to ESI/Provident Fund, made by the assessee payments made after stipulated dates prescribed under relevant laws governing provident fund and ESI, but before due date of filing of return prescribed u/s 139(1) are to be sustained or deleted? - HELD THAT - We are aware about amendments to section 36(1)(va) and 43B of Income Tax Act, brought into effect by Finance Act, 2021. As regards whether these amendments are prospective in nature and applicable with effect from 01.04.2021 or retrospective in nature having applicability even before 01.04.2021; we are aware of some reported orders of ITAT, passed after the aforesaid amendments were brought in by Finance Act, 2021; in which the issue in dispute for Assessment Years prior to Assessment Year 2021-22 (i.e. for periods before 01.04.2021) has been decided in favour of the assessee and against Revenue. See DIGIQAL SOLUTION SERVICES PVT. LTD. 2022 (1) TMI 27 - ITAT CHANDIGARH , M/S MAHADEV COLD STORAGE, 2021 (6) TMI 506 - ITAT AGRA . Revenue should have given due consideration to the fact that the issue was highly debatable and controversial. As already discussed earlier, adjustments u/s 143(1) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act, on debatable and controversial issues, is beyond the scope of section 143(1) of Income Tax Act. Revenue was clearly in error, in making the aforesaid adjustments u/s 143(1) of Income Tax Act on a debatable and controversial issue. We would also like to make respectful mention of order of Jabalpur Bench of ITAT in the case of Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR in which similar view has been taken. Thus direct the Assessing Officer to delete the additions made by way of adjustments/intimation u/s 143(1).

Summary

Issues Involved:
1. Validity of adjustments made under section 143(1) of the Income Tax Act.
2. Application of amendments to section 36(1)(va) and section 43B of the Income Tax Act.
3. Principle of natural justice in the assessment process.
4. Prospective vs. retrospective application of amendments.

Issue-wise Detailed Analysis:

1. Validity of Adjustments Made Under Section 143(1):
The appeals involve the issue of whether additions made by way of adjustments under section 143(1) of the Income Tax Act for late deposits of employees' contributions to PF/ESI, but before the due date of filing returns under section 139(1), are justified. The tribunal noted that such adjustments were made by the Revenue, invoking sections 36(1)(va) and 43B. The tribunal concluded that adjustments under section 143(1) on debatable and controversial issues are beyond the scope of this section. The tribunal cited precedents where courts held that adjustments on such issues are not permissible. Consequently, the tribunal found the adjustments unfair, unjust, and bad in law, directing the Assessing Officer to delete the additions.

2. Application of Amendments to Section 36(1)(va) and Section 43B:
The core issue was whether the amendments to sections 36(1)(va) and 43B, introduced by the Finance Act, 2021, are retrospective or prospective. The tribunal referred to several ITAT decisions where it was held that these amendments are prospective, applicable from AY 2021-22 onwards. The tribunal noted that even if the Revenue contends the amendments are retrospective, the issue remains debatable and controversial. Therefore, such a debatable issue cannot be the basis for adjustments under section 143(1).

3. Principle of Natural Justice in the Assessment Process:
The tribunal observed that in several cases, the CIT(A) dismissed the appeals without providing adequate opportunity for the assessees to be heard, violating the principle of natural justice. The tribunal emphasized that any assessment or appellate process must adhere to the principles of natural justice, ensuring that the assessees have a fair opportunity to present their case.

4. Prospective vs. Retrospective Application of Amendments:
The tribunal refrained from expressing a view on whether the amendments are prospective or retrospective, considering it an academic issue in light of their decision on the scope of section 143(1). The tribunal noted that various ITAT benches have held the amendments to be prospective, supporting the view that the additions based on these amendments for periods before AY 2021-22 are not justified.

Conclusion:
The tribunal set aside the impugned appellate orders in cases where the additions were made by way of adjustments under section 143(1), directing the deletion of such additions. The tribunal upheld the appellate order in the case of M/s Jagatjit Industries Ltd., where the CIT(A) had allowed the appeal. The tribunal clarified that they did not decide on the prospective or retrospective nature of the amendments, as it was not necessary for their decision on the scope of section 143(1). The appeals were treated as partly allowed for statistical purposes.