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TMI Blog2022 (5) TMI 1579X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. The amendment brought in Section 36(1)(va) of the Act is to be construed only as prospective in operation and cannot be applicable for the year under consideration. We find that the law prevailing prior to A.Y. 2021-22 would rule the field and the case laws rendered by various High Courts would rule the field. Prior to the amendment, the Hon ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transport Ltd.[ 2014 (10) TMI 402 - BOMBAY HIGH COURT] had held that employees contribution to PF ESI if remitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessing Centre Bengaluru while processing income tax returns under section 143(1) based on certain inputs from the tax audit reports of the assessee in question, in respect of the disallowance of Rs. 4,24,634 on account of delay in making the payment towards the employees' contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) of the Act, particularly when there are judgments of Hon'ble jurisdictional High Court permitting such a deduction. Learned representatives fairly agree that this is the short issue requiring our adjudication and what is raised as rather an elaborate set of grounds of appeal primarily consist of the arguments in support of this basic grievance. 2. The issue in appeal lies in a very narrow compass of common material facts. While processing the income tax return filed by the assessee, apparently, based on information contained in column 20(b) of the tax audit report under section 44AB(a), which was submitted online, there were certain delays in depositing the provident fund dues vis- -vis 'the due date for (such)payments'. The sum total of such, as perceived by the tax auditor, delayed payments, aggregating to Rs. 4,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance under section 143(1) is inherently very limited and only such a disallowance can be made under this statutory provision as can be conclusively held to inadmissible based on material on record. It is submitted that a claim backed by the binding judicial precedents of Hon'ble jurisdictional High Court- as in this case, at the minimum, cannot fall in this category. Our attention was invited to Hon'ble jurisdictional High Court's judgments in the cases of CIT v. Hindustan Organic Chemicals Limited [(2014) 366 ITR 1 (Bom)] and CIT v. Ghatge Patil Transports Ltd [(2014) 368 ITR 749 (Bom)]. What is on record, in this case, is an audit report which is prepared by a third party, i.e. an independent tax auditor, and a lapse in the tax audit report, as indeed in this case, cannot be put against the assessee for the purpose of a disallowance under section 143(1). For this short reason alone, according to the learned counsel, the impugned adjustment must be deleted. The next plea is that it is a settled legal position, in the light of the binding judicial precedents from the Hon'ble jurisdictional High Court, that as long as the payments towards provident fund dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that extent, is inconsistent with another entry, i.e. by way of the tax audit report input, and that, in any event, any disallowance of expenditure in question is indicated in the audit report but not taken into account in computing the total income in the return. He submits that the Assessing Officer CPC cannot be faulted for going by the information submitted by the tax auditor, appointed by the assessee, and that the tax audit report is an integral part of the income tax return filed by the assessee. The disallowance is thus justified for this short reason alone. As regards the legal position regarding the deductibility of payments in question even when it is paid after the due date under the relevant statute but as long as the same is made before the due date of filing of income tax return, learned Departmental Representative submitted that there are decisions on both the sides, i.e. in favour of the assessee as also against the assessee, and that, in any event, this analysis is irrelevant when the income tax return itself points out that there are payments beyond the due date which are clearly inadmissible under the statutory provisions. As regards the amendment having p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income tax return under section 139(1) cannot attract the disallowance for the reason of delay. Once again learned counsel has referred to and relied upon the decisions of the coordinate benches holding that the insertion of Explanations to Section 36(1)(va) and 43B, by the Finance Bill 2021, is prospective in nature, and, accordingly, so far as the period prior to 1st April 2021 is concerned, such a disallowance cannot come into play. We are thus once again urged to delete the impugned adjustment. 4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 5. In our considered view, it is quite evident, from a careful look at the related statutory provisions, that there is a material difference in the scheme of processing the income tax return under section 143(1)(a) as it stands now vis- -vis as it stood at the point of time when Khatau Junkar judgment (supra)by Hon'ble jurisdictional High Court was delivered. That was the time when incorrect claims could be disallowed only when such a deduction was on the basis of information available in such return, accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the processing of the income tax return in the manner that the total income or loss of the assessee is computed after making the adjustments for (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80- IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return . The adjustments under clause (vi) above are no longer permissible after 1 st April 2018. Clearly, thus, there is a significant paradigm shift in the processing of income tax returns under section 143(1), and the decisions rendered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi- judicial function that he is performing, and, in performing a quasi-judicial function, he has to set out his specific reasons for doing so. Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same. Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of Section 143(1)(a) , and has not even struck off the portion inapplicable. To put a question to ourselves, can such casually assigned reasons, which are purely on a standard template, can be said to be sufficient ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quality of justice brings legitimacy to the judiciary 7. These observations of Their Lordships apply equally, and in fact with much greater vigour, to the quasi-judicial functionaries as well. Viewed thus, reasons in a quasi-judicial order constitute the soul of the quasi-judicial decision. A quasi- judicial order, without giving reasons for arriving at such a decision, is contrary to the way the functioning of the quasi-judicial authorities is envisaged. A quasi- judicial order, as a rejection of the objections against the proposed adjustments under section 143(1) inherently is, can hardly meet any judicial approval when it is devoid of the cogent and specific reasons, and when it is in a standard template text format with clear indications that there has not been any application of mind as even the inapplicable portion of the template text, i.e. whether there was no response or whether the response is unacceptable, has not been removed from the reasons assigned for going ahead with the proposed adjustment under section 143(1). In any event, there is no dispute that the precise and proximate reasons for disallowance in all these cases admittedly are the inputs based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon'ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous. Learned Departmental Representative's contentions in this regard that the observations made in the tax audit report, in the light of the specific provisions of Section 143(1)(a)(iv), must prevail- more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While Section 143(1)(a)(iv) does provide for a disallowance based purely on the indication in the tax audit report, inasmuch as it permits disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return , and it is for the Hon'ble Constitutional Courts above to take a call on the vires of this provision, we are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the binding views of the Hon'ble jurisdictional High Court. To that extent, the provisions of Section 143(1)(a)(iv) must be read down. What essentially follows is that the adjustments under section 143(1)(a) in respect of disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return is to be read as, for example, subject to the rider except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above . That is where the quasi-judicial exercise of dealing with the objections of the assessee, against proposed adjustments under section 143(1), assumes critical importance in the processing of returns. It is also important to bear in mind the fact that what constitutes jurisdictional High Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, Rule 11(i) of the Central Processing of Returns Scheme 2011 states that Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort but not taking into account in the computation of total income in the return as is sine qua non for disallowance of Section 143(1)(a)(iv). 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. 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees' contributions retained by them, such contributions are taxed if these are deposited after the 'due date' of payment. 1.2 Here it is also necessary to refer to the Finance Minister's Budget speech while introducing the Finance Bill, 1987 wherein the object of the introduction of the sections 36(l)(va), 56(2)(ic) and 57(ia) was explained as under: Let me now come to the measures for the welfare of workers, members of armed forces and the handicapped. There are number of cases where the employers do not credit their own contribution or those of the employees to the credit of provident fund and State Insurance Fund, it is also unfortunate that a separate fund is not being kept by employers in respect of gratuity of workers. To prevent this anti labour practices, we propose to penalize such delinquent employers by providing that the contribution of employees to these funds will be taxed as income of the employer and allowed as a deduction only when they are made over to the separate accounts relating to these funds within the time allowed under the statute. 2. Further, the amendments to Section 36(l)(va) vide Finance Act 2021 are also applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only as prospective in operation and cannot be applicable for the year under consideration. Reliance in this regard is also placed on the decision of Chennai Tribunal in the case of Adyar Ananda Bhavan Sweets India Pvt. Ltd., vs. ACIT reported in 134 taxmann.com 56. We find that the law prevailing prior to A.Y. 2021-22 would rule the field and the case laws rendered by various High Courts would rule the field. Prior to the amendment, the Hon ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transport Ltd., reported in 368 ITR 749 had held that employees contribution to PF ESI if remitted within the due date prescribed u/s. 139(1) of the Act for filing the income tax returns, would be allowed as deduction u/s.43B of the Act. 3.3. We also find that this issue has been decided in favour of the assessee after considering various decisions of Hon ble Supreme Court, High Court and this Tribunal in the case of Force Point Software Consulting India P. Ltd., vs. ADIT CPC Bangalore in ITA No. 6/Mum/2022 for A.Y. 2019-20 dated 27/04/222. In view of the aforesaid judicial precedents in favour of the assessee, the grounds raised by the assessee are allowed. 3.4. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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