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TMI Blog2023 (3) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... mistake by auditors. Disallowance which is paid after due date under PF/ESI laws - Identical issue is recently decided against assessee M/s Prashanti Engineering Works (P) Ltd. Vs. ADIT, CPC, Bangalore [ 2023 (3) TMI 729 - ITAT INDORE] after taking into account the latest decision of Hon ble Supreme Court in Checkmate Services (P.) Ltd. [ 2022 (10) TMI 617 - SUPREME COURT ] the legal provision of section 143(1) of the Act and various judicial rulings. We are also inclined to hold that the 2nd component i.e. employees contributions to PF / ESI paid after due date under PF / ESI laws is not an allowable deduction in computing taxable income of business and the revenue-authorities have rightly disallowed the same.Appeal of assessee is partly allowed. - ITA No. 205/Ind/2022 - - - Dated:- 13-3-2023 - MS. SUCHITRA KAMBLE , JUDICIAL MEMBER AND SHRI B. M. BIYANI , ACCOUNTANT MEMBER For the Assessee : None For the Revenue : Shri Ashish Porwal , Sr. DR ORDER Per B. M. Biyani , AM : Feeling aggrieved by appeal-order dated 14.07.2022, passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [ Ld. CIT(A) ], which in turn arises out of rectificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are such that the assessee filed his return of income alongwith auditors-report in Form No. 3CD. The auditors reported 4 instances of the late payment of employee s contributions to PF / ESI involving a total sum of Rs. 2,46,614/- after due date under the PF/ ESI laws. Based on such reporting by auditors, the Ld. AO made a disallowance of Rs. 2,46,614/- u/s 143(1)(iv) while processing intimation of assessment. The assessee segregated the sum of Rs. 2,46,614/- in two components and accordingly claimed before lower authorities, viz. (i) the auditors had wrongly reported 3 instances involving a sum of Rs. 2,10,005/- as late-payment although the assessee had made payments well in time before the due dates under PF/ESI laws; (ii) even the remaining sum of Rs. 36,609/- does not attract any disallowance as the same was though paid after due date under the PF/ESI laws yet before the due date for filing of return u/s 139(1). Regarding 1st component of Rs. 2,10,005/-, the assessee also filed documentary evidences in the form of a certificate of auditors, M/s Rakesh Kumar Associates, admitting the wrong-reporting in Form No. 3CD, the copies of challans and bank statements through which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake by auditors. Needless to mention that the Income-tax Act is a welfare legislation and taxable income of assessee has to be computed strictly in accordance with the provisions of Act. Therefore, we delete the disallowance to the extent of Rs. 2,10,005/-. 6. Regarding 2nd component of disallowance amounting to Rs. 36,609/- which is paid after due date under PF/ESI laws, we note that identical issue is recently decided against assessee by the Co-ordinate Bench of ITAT, Indore in ITA No. 171/Ind/2021 M/s Prashanti Engineering Works (P) Ltd. Vs. ADIT, CPC, Bangalore, order dated 22.02.2023, after taking into account the latest decision of Hon ble Supreme Court in Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC), the legal provision of section 143(1) of the Act and various judicial rulings. The order of Hon ble Co-ordinate Bench is extracted below: 5. The assessee is in appeal before us against the order passed by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that firstly, in the audit report, the auditor has not made any specific observation regarding inadmissibility of the claim u/s 36(1)(va) of the Act which was required to be made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of section 143(1) of the Act shows that the words used are (iv) disallowance of expenditure indicated in the audit report 6.1 Therefore, there is no specific requirement under section 143(1) of the Act that the auditor has to make a specific observation regarding admissibility/inadmissibility with regard to any claim of expenditure and all that is required under section 143(1) of the Act is that disallowance of such expenditure should be indicated in the audit report . Now, on going through the specific clauses of the Tax Auditors Report in Form Number 3CD issued under section 44AB of the Act, we observe that serial number 20(b) of Form Number 3CD, which is specific to allowability of claim of deduction u/s 36(1)(va) of the Act, does not require the auditor to make any specific observation regarding admissibility of the amount under section 36(1)(va) of the Act. At the same time, when we observe several other parts of the tax audit report viz. serial number 21(b)-amounts inadmissible under section 40(a), serial number 21(c)-amounts inadmissible under section 40(b)/40(a)(ia) of the Act (ba), serial number 21(e)- the provision for payment of gratuity not allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assesse - employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Assessee against order of High Court that where assessee-company failed to pay employees contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. Recently in the case of Ms. Nalina Dyave Gowda [2023] 146 taxmann.com 420 (Bangalore - Trib.) the assessee during, financial year 2018-19 (assessment year 2019-20) made payment of employees' contribution to ESI and PF beyond due date specified under relevant Act and claimed deduction of same under section 36(1)(va). The Assessing Officer made disallowance of employees' contribution to ESI and PF while electronically processing return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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