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TMI Blog2024 (5) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... notice was issued as specified in Proviso 1 to Section 143(1) before making such adjustments; (ii). Adjustments are made without passing a judicious order and not communicating the reasons of adjustments thus mandatory procedure given in Proviso 2 to section 143(1) not followed. Assessee-Appellant prays before the Hon'ble Tribunal to delete the adjustments made in the intimation dated 24/12/2019 because neither the mandatory procedures nor the Principles of Natural Justice was followed before making such adjustments. GROUNDS OF APPEAL RELATING TO MERITS AND FACTS OF THE CASE: 2. That on the facts, and in the circumstances of the case and in law, the CIT(A)-NFAC, Delhi [here in after referred as CIT(A)] erred in sustaining the addition of Rs. 4, 20, 77, 998/- made u/s. 36(1)(va) in the intimation without appreciating the fact that processing of return of income u/s. 143(1)(a) is not an 'assessment' and scope of adjustment in the intimation is limited thus Hon'ble Supreme Court decision in the case of "Checkmate Services Pvt Ltd Vs. CIT [2022] 143 taxmann.com 278 (SC)" held in the context where assessment was framed u/s. 143(3) may not be applicable to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hearing on several occasions and the issue involved in the present appeal is with respect to addition made under Section 36(1)(va) of the Act on account of delay in deposit of employees' contribution to PF and ESI, for the impugned year under consideration which has now been settled / clarified by the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC). Accordingly, we see no reason why the issue be kept pending and litigation be prolonged on this issue any further. 4. The brief facts of the case are that the assessee had filed return of income on 11.10.2018 declaring total income of Rs. 9, 38, 37, 480/-. The return of income was processed by CPC, Bengaluru and intimation under Section 143(1) of the Act dated 24.12.2019 was issued after making adjustments / increase in income of Rs. 4, 20, 77, 998/- on account of delay in deposit of employees' contribution to PF and ESI by reference to Tax Audit Report filed by the assessee. 5. The Ld. CIT(A) confirmed the adjustments / increase of income by relying upon the Hon'ble Supreme Court decision in the case of Checkmate Services Pvt. Ltd. 143 taxmann.com 178 (SC). 6. The assessee is in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts, decided the issue against the assessee with the following observations: "4. We observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. (supra) wherein the Supreme Court held that for assessment years prior to AY 2021-22, 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 held in trust by assessee-employer as per section 2(24)(x), 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. The Supreme Court observed that there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be born ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully following the decision of the Honourable Supreme Court in the case of Checkmate Services (P.) Ltd. (supra) and Harrisons Malayalam Ltd. (supra) and in the light of our observations, we hereby dismiss the assessee's appeal. 5. In the result, the appeal of the assessee is dismissed." 10. 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 income under Section 143(1)(a) of the Act. The ITAT held that disallowance under Section 143(1)(a) was valid in view of Supreme Court's decision in case of Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178 and the assessee will not be entitled to deduction of belated payment of ESI and PF of employees' share of contribution as per provisions of Section 36(1)(va) of the Act. 11. Again, recently Pune ITAT in the case of Cemetile Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 36(1)(va) of the Act, it would be useful to reproduce section 143(1) of the Act, which reads as under: "Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or loss shall be computed after making the following adjustments, namely:- (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 [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under 69[section 10AA or under any of the provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is allowable under Section 37 of the Act, we would like to refer to the decision of Hon'ble Jodhpur ITAT, in the case of Tarun Construction Company vs. ITO 157 taxmann.com 727 (Jodhpur - Tribunal) and the relevant extracts of the ruling are reproduced for ready reference:- "From the plain reading of the section it can be noted that 'due date' has been defined in the Explanation to mean the date by which assessee is required to credit the employees contribution in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The section nowhere provides that the due date means the date by which the amount is to be deposited under the relevant Statue. For this reason Hon'ble Karnataka High Court in case of CIT v. Sabari Enterprises (2008) 298 ITR 141 at para 12 & 13 of its order held as under:- "12. After hearing learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including the definition of sections 2(24)(x) and s. 36(1)(va) and 43B(b), which read thus : 2. (24) 'income' includes, - (x) any sum received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letters numbered as clause (a), or cl. (c) or cl. (d) or cl. (e) or cl. (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of s. 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under s. 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under s. 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in cl. (b) are paid within the due date under the respective statutory enactments by the assessees as contended by learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us. However, Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount 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 [s. 36(1)(va)]. The other important feature is that this distinction between the employers' contribution [s. 36(1)(iv)] and employees' contribution required to be deposited by the employer [s. 36(1)(va)] was maintained - and continues to be maintained. On the other hand, s. 43B covers all deductions that are permissible as expenditures, or outgoings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butions- which are deducted from their income. They are not part of the assessee employer's income, nor are they 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 s. 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. With utmost regard to the decision of Hon'ble Supreme Court, it is submitted that it did not take into consideration that Explanation to section 36(1)(va) nowhere provides that due date means the date by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deductions in computing the total income of the assessee. Further, section 36(1)(va) of the Act starts with the words "any sum received by the assessee" hence the restriction on the expenditures covered under section 30 to 36 of the Act, which is provided in section 37 of the Act is not applicable to section 36(1)(va) of the Act which deals with employees contribution to PF and ESI. In other words, allowance of an expenditure is provided in section 37 of the Act and in section 36 of the Act, few deductions are provided. The other conditions of section 37 of the Act i.e. not being personal or capital in nature and being expended wholly and exclusively and for the business of the assessee are fulfilled and therefore the amount contributed by the assessee being employees' contribution to PF/ESI is allowable as a deduction 37 of the Act. Reliance in this regard is placed on the following cases as well:- M/s BBG Metal Syndicate Pvt. Ltd. v. DCIT in ITA No. 112/CTK/2022 order dated 17-11- 2022 (Cuttack) (Trib.): The Hon'ble ITAT after considering the decision of Hon'ble Supreme Court in case of Checkmate Services Pvt. Ltd. v. CIT 218 DTR 401, at Para 6 & 7 of the order he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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