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TMI Blog2024 (1) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... ices Pvt. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT] CPC, Bengaluru was well within its right in disallowing the assessee s claim for deduction of delayed deposit of employees share of contributions towards ESI/PF vide an intimation issued u/s. 143(1) of the Act, remains the same, therefore, we follow the same. We, thus, in terms of our aforesaid observations, set-aside the order passed by the CIT(Appeals) wherein he had upheld the order passed by the CPC/A.O u/s. 154 of the Act, and thus, declined the assessee s claim for deduction of delayed deposit of employees share of contribution towards ESI/PF and vacate the addition made by the A.O. Appeal of the assessee company is allowed. - SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER For the Assessee : Shri G.S. Agrawal, CA For the Revenue : Shri Satya Prakash Sharma, Sr. DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 20.09.2023, which in turn arises from the order passed by the Centralized Processing Center (CPC)/A.O under Sec. 154 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced as under: 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. [Explanation 11 For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. [Explanation 2. For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the due date under this clause;] 7.3 From the above, it is clear that to avail deduction u/s 36(1)(va) the employer must remit the employee's contribution to the employee's PF account as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of income amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are thy heads of deduction per se in the form of statutory pay out. They are others income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. 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. [Para 54] (Emphasis given). 8. Hon'ble ITAT Kolkatta Bench in the case of Siddhi Vinayaka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 45/RPR/2023 dated 03.08.2023; and (ii) Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur, SMC Bench, ITA No. 04/RPR/2023 dated 11.05.2023. The Tribunal in its aforesaid orders had concluded that prior to the judgment of the Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 (supra), the aforesaid claim for deduction could not have been summarily disallowed u/s. 143(1) of the Act. For the sake of clarity, the observations of the Tribunal in the case of Gurmeet Singh Hora Vs. ACIT (supra) on the issue in hand are culled out as under: 10. Controversy involved in 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), Raipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20(b) of his audit report only furnished details of the employees shares of contribution as referred to in Section 36(1)(va), i.e the respective amounts a/w. dates of deposit. It was submitted by the ld. A.R that the A.O merely on the basis of the aforesaid details provided by the auditor could not have made an addition of the same to the assessee s returned income u/s. 143(1)(a) of the Act. Our attention was drawn by the Ld. AR to Sr. No. 20(b) of the audit report in Form 3CD. Carrying his argument further, it was submitted by the Ld. AR, that, even otherwise, on the date 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 adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid contentions of the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities, and have also considered the judicial pronouncements that have been pressed into service by them. 12. Admittedly, the issue as to whether or not, the delayed deposits of employees share of contribution towards labour welfare funds, i.e. ESI and EPF by the assessee-employer were liable to be held as the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, as was the view of the department; or the same 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the various facets of the aforesaid issue, had held, that no such addition of the delayed deposits of the employee s share of contribution towards labour welfare funds could have been made in the hands of the assessee while summarily processing its return of income u/s. 143(1)(a) of the Act, observing as under: 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 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 consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)] 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icative 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, I set-aside the order of the CIT(Appeals) and vacate the addition of Rs. 19,91,318/- made by the A.O u/s. 143(1)(a) of the Act. 11. As the facts and issues involved in the present appeal remains the same as were there before the ITAT, SMC Bench, Raipur in the aforesaid case i.e. Satpal Singh Sandhu Vs. DCIT, Circle-1(1), Raipur (supra), therefore, we respectfully follow the same. Accordingly, we set-aside the order of the CIT(Appeals) and vacate the addition of Rs. 24,03,630/- made by the A.O. 9. As the facts and issue involved in the present appeal on the first principle, i.e., as to whether or not prior to the judgment of the Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 (supra), the CPC, Bengaluru was well within its right in disallowing the assessee s claim for deduction of delayed deposit of employees share of contributions towards ESI/PF vide an intimation issued u/s. 143(1) of the Act, remains the same, therefore, we follow the same. 10. We, thus, in terms of our aforesaid observations, set-aside the order passed by the CIT(Appeals) wherein he had upheld the order passed by the CPC/A.O u/s. 154 of the Act, and thus, declined the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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