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TMI Blog2023 (8) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) erred in confirming disallowance of Rs.24,03,630/- on account of delayed payment of employee's contribution to ESIC & other welfare fund made by the A.O invoking Sec.36(1)(va). The disallowance made by the Ld. CIT(A) is arbitrary, baseless and not justified. 3. Without prejudice to above grounds, Ld.CIT(A) erred in confirming the disallowance made by the A.O without appreciating the fact that the adjustment made by AO/CPC is not permissible u/s. 143(1). 4. The appellant reserves the right to add, amend or modify any of the ground/s of appeal." 2. Succinctly stated, the assessee who is engaged in providing transport and logistic services had e-filed his return of income for A.Y.2018-19 on 28.09.2018, declaring an income of Rs.99,49,605/-. 3. Intimation u/s.143(1) of the Act dated 08.01.2020 was issued by the CPC, Bengaluru wherein two-fold adjustments were made to the returned income as under: 4. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without any success. Apropos the disallowance made u/s.36(1)(va) r.w.s. 2(24)(x) of the Act of the assessee's claim for deduction of delayed deposit of the employee's share of contributions toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present appeal lies in a narrow compass, i.e. as to whether or not the delayed deposit by the assessee of the employee's share of contributions towards ESI/PF could have been summarily disallowed by the AO prior to the judgment of the Hon'ble Apex Court in the case of Checkmate Services P. Ltd. Vs. CIT (SC) 143 taxmann.com 178 (SC) while processing his return of income vide intimation u/s.143(1)(a) of the Act dated 08.01.2020. As stated by the Ld. AR and, rightly so, the aforesaid issue had been looked into by the ITAT, SMC, Raipur in the case of Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur, ITA No.04/RPR/2023 dated 11.05.2023. The Tribunal while deliberating at length on the aforesaid issue had after drawing support from the orders of the ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (2022) 137 taxmann.com 475 (Mumbai) and P.R. Packaging Service Vs. ACIT (2023) 148 taxmann.com 153 (Mumbai), had held that no such disallowance of the delayed deposit of the employee's share of contribution towards labour welfare fund could have been made in the hands pf the assessee company while processing of its return of income u/s. 143(1)(a) of the Act. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when the return of income of the assessee was processed u/s. 143(1) of the Act, i.e. on 21.02.2020, the issue as to whether or not the delayed deposits of the employee's share of contributions towards labour welfare funds, which were though deposited by the assessee-employer beyond the due date prescribed under the relevant Acts but before the "due date" of filing of the return of income under sub-section (1) of Section 139 of the Act, could be held as the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, was highly debatable, therefore, the same clearly fell beyond the realm of a prima-facie adjustment under section 143(1) of the Act. The ld. A.R in order to buttress his aforesaid contention had drawn support from the following judicial pronouncements: (i) CIT Vs. M/s. Alom Extrusions Ltd. (2009) 185 Taxman 416 (SC) (ii) CIT Vs. Vinay Cement Ltd. (2007) 213 CTR 268(SC) (iii) Pr. CIT, Jaipur Vs. Rajasthan State Beverages Corporation Ltd. (2017) 84 taxmann.com 185(SC) (iv) CIT Vs. State Bank of Bikaner & Jaipur (2014) 43 taxmann.com 411 (Rajasthan) (v) Sagun Foundry Pvt. Ltd. Vs. CIT (Kanpur) (2017) 78 taxmann.com 47 (Allahabad) (vi) CIT Vs. Aimil Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me were saved by the provisions of Section 43B of the Act, i.e to the extent such deposits were made not later than the "due date" of filing of the return of income of the assessee as prescribed under sub-section (1) of Section 139 of the Act, was a highly debatable and had finally only recently been settled by the judgment of the Hon'ble Apex Court in the case of Checkmate Services (P) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC). On the date on which the return of income of the assessee was processed by the A.O u/s.143(1) of the Act, i.e. on 21.02.2020, the aforesaid issue, as observed by us hereinabove, was highly debatable. Apart from that, we find substance in the claim of the Ld. AR that the assessee's auditor in his audit report in Form 3CD r.w.s. 6G(2), as per the statutorily required, had only furnished the details of the contributions towards employee's share of contributions towards various funds as referred to in Section 36(1)(va) of the Act, and at no stage had offered the same as the income of the assessee. 13. On a conjoint perusal of the aforesaid facts, viz. (i). the issue as to whether the delayed deposit of employees share of contribution towards labour welfare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-à-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 or documents is prima facie inadmissible" [see Section 143(1)(a)(iii) as it then stood] and it was in this context that the connotations of the expression "prima facie inadmissible" came up for consideration before Hon'ble Courts above. While the expression used in section 143(1)(a)(i) is materially similar inasmuch as its wordings are "an incorrect claim, if such incorrect claim is apparent from any information in the return", there are two important things that one must bear in mind- (a) firstly, the expression "an incorrect claim, if such incorrect claim is apparent from any information in the return" is well defined in Explanation to Section 143(1), and; (b) secondly, and perhaps much more importantly, that is just one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 1st 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 context of old Section 143(1)(a) cease to be relevant. Learned counsel thus derives no advantage from the judgments rendered in the context of old Section 143(1)(a)- such as Hon'ble jurisdictional High Court's judgment in the case of Khatau Junkar (supra). To that extent, we must uphold the plea of the learned Departmental Representative. 6. Coming to the mechanism of application of Section 143(1), we find that the first proviso to Section 143 (1) mandates that "no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode" and, under the second proviso to Section 143(1), "the response received from the assessee, if any, shall be considered before making an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PC 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 justifications for a quasi-judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. It is important to bear in mind the fact that intimation under section 143(1) is an appealable order, and when consideration of objections raised by the assessee is an integral part of the process of finalizing the intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 tax audit report. The question then arises about the status and significance of the tax audit report. Can the observations in a tax audit report, by themselves, be justifications enough for any disallowance of expenditure under the Act? As we deal with this question, we are alive to the fact section 143(1)(a)(iv) specifically an adjustment in respect of "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return". It does proceed on the basis that when a tax auditor indicates a disallowance in the tax audit report, for this indication alone, the expense must be disallowed while processing under section 143(1) by the CPC. It is nevertheless important to bear in mind the fact that a tax audit report is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nevertheless required to interpret this provision in a manner to give it a sensible and workable interpretation. When the opinion expressed by the tax auditor is contrary to the correct legal position, the tax audit report has to make way for the correct legal position. The reason is simple. Under Article 141 of the Constitution of India, the law laid down by the Hon'ble Supreme Court unquestionably binds all of us, and the Hon'ble Supreme Court has, in numerous cases- including, for example, in the case of East India Commercial Co. Ltd. v. Collector of Customs 1962 taxmann.com 5, speaking through Hon'ble Justice Subba Rao observed, inter alia, as follows: ............Under article 215, every High Court shall be a Court of record and shall have all the powers of such a Court including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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)] having jurisdiction over the jurisdictional Assessing Officer". Then situs of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether the CPC is within the jurisdiction of Hon'ble Bombay High Court or not, as long as the regular Assessing Officer of the assessee and the assessee are located in the jurisdiction of Hon'ble Bombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon'ble Bombay High Court. In our considered view, it cannot be open to the Assessing Officer CPC to take a view contrary to the view taken by the Hon'ble jurisdictional High Court- more so when his attention was specifically invited to the binding judicial precedents in this regard. For this rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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