2024 (10) TMI 299 - AT - Income Tax

Disallowance u/s 36(1)(va)/43B qua late payment ESIC/PF - HELD THAT - This issue of addition made on account of belated payment of employees contribution to P. F. and ESIC is now covered by the decision of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT held the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. Jurisdiction of CPC while processing the return of income u/s 143(1) for making the disallowance/adjustment on account of belated payment to P. F ESIC - This issue is very much subject matter of the assessment framed u/s 143(3) of the Act and hence, no issue arises qua the jurisdiction of CPC while processing the return of income u/s 143(1) for making such adjustment, when the case of the assessee was taken up for complete scrutiny and the assessment was framed u/s 143(3) read with sections 143(3A) and 143(3B) of the Income-tax Act, 1961. Even otherwise once scrutiny assessment was completed subsequent to processing of return u/s 143(1), the order of CPC merges with the assessment order passed u/s 143(3) and only in case when the assessment order is quashed being invalid or void ab initio, the order of CPC u/s 143(1) would revive and assessee would be at liberty to take the remedial steps under the law. Therefore, we do not find any merit or substance in the ground no. 3. The same is dismissed. Validity of the assessment order on the ground that the AO has not issued a draft order mandatory as per the e-Assessment Scheme, 2019 - Since this is a very serious objection raised by the assessee which ought to have been decided by the Ld. CIT(A), instead of dismissing on the ground of general in nature and not pressed. CIT(A) ought to have decided this issue by considering the fact regarding issuance of draft assessment and procedure as per e-Assessment Scheme, 2019. The assessee is seeking quashing of the assessment order being invalid on the strength of judgement of Chander Arjan Das vs. NFAC and Others 2021 (9) TMI 1108 - BOMBAY HIGH COURT However, it is pertinent to note that the said decision of Hon'ble Bombay High Court has been set- aside by the Hon'ble Supreme Court in the case of National Faceless Assessment Centre vs. Mantra Industries Limited 2023 (5) TMI 498 - SC ORDER wherein matter is remitted back to the High Court to consider the same afresh in accordance with law and on merits and the High Court to consider the effect of the omission of section 144B(9) of the Act, which has been omitted w.e.f. 01-4-2021 and the effect of such omission on para 3 of the CBDT Circular dated 13-8-2020 which, as such, prima facie seems to be pari materia to section 144B(9) of the Act - Thus this issue is remanded to the record of the AO to pass a fresh assessment order after following due process in accordance with law. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:

1. Disallowance under Section 36(1)(va) for late payment of ESIC/PF.
2. Retrospective applicability of amendments introduced by the Finance Act, 2021.
3. Jurisdiction of CPC in processing returns under Section 143(1).
4. Validity of the assessment order under the e-Assessment Scheme, 2019.

Detailed Analysis:

1. Disallowance under Section 36(1)(va) for Late Payment of ESIC/PF:

The primary issue in this case was the disallowance of Rs. 27,91,386/- under Section 36(1)(va) due to the late payment of employees' contributions to PF and ESIC. The Tribunal referred to the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT-I, which clarified the distinction between employers' and employees' contributions. The Supreme Court emphasized that employees' contributions, if not deposited on or before the due date, are deemed income under Section 2(24)(x) and cannot be deducted. The Tribunal upheld the disallowance, aligning with the Supreme Court's interpretation that timely deposit is a precondition for deduction under Section 36(1)(va).

2. Retrospective Applicability of Amendments Introduced by the Finance Act, 2021:

The assessee argued that the amendments introduced by the Finance Act, 2021, should not apply retrospectively. However, the Tribunal did not find merit in this argument, as the disallowance was based on the existing legal framework and the Supreme Court's ruling, which did not rely on the amendments' retrospective application. The Tribunal dismissed the grounds related to the retrospective applicability of these amendments.

3. Jurisdiction of CPC in Processing Returns under Section 143(1):

The Tribunal examined the jurisdiction of the Centralized Processing Centre (CPC) in making adjustments for belated payments to PF and ESIC under Section 143(1). The assessee had filed a rectification request with the CPC, which was transferred to the Assessing Officer (AO) due to the case being selected for scrutiny. The Tribunal noted that once the scrutiny assessment was completed under Section 143(3), the CPC's order merged with the assessment order, and no separate issue arose regarding the CPC's jurisdiction. Consequently, the Tribunal dismissed the ground concerning the CPC's jurisdiction.

4. Validity of the Assessment Order under the e-Assessment Scheme, 2019:

The assessee challenged the validity of the assessment order, arguing that the AO failed to issue a draft assessment order and show cause notice as required under the e-Assessment Scheme, 2019. The Tribunal acknowledged the procedural requirements under the scheme, which necessitate a draft assessment order and an opportunity for the assessee to respond to any proposed variations. However, the Tribunal noted that the CIT(A) dismissed this ground as it was not pressed during appeal proceedings. Despite this, the Tribunal recognized the seriousness of the procedural lapse and remanded the issue to the AO for passing a fresh assessment order following due process. The Tribunal's decision was influenced by the Supreme Court's remand of a similar issue in the case of National Faceless Assessment Centre vs. Mantra Industries Limited.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal upholding the disallowance under Section 36(1)(va) and addressing procedural concerns under the e-Assessment Scheme, 2019, by remanding the matter for fresh consideration by the AO.