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TMI Blog2023 (6) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees share to the relevant funds beyond the date prescribed under the respective Acts. - Decided against assessee. Addition of club expenses u/s 37 - expenditure being incurred as fee subscription under form 3CD at tax audit report - HELD THAT:- While processing of return of income, adjustment could be made of the disallowance of expenditure indicated in the audit report but which is not taken into account in computing the total income in the return. In the present case, we find force with the argument of AR as the copy of the tax audit report placed reveals that the auditor has given the details of payment made to various clubs during the year under consideration which are in the nature of subscription and the auditor has nowhere pointed that the expenditure is disallowable. In such a situation, we are of the view that no adjustment with respect to the disallowance payment made to club could have been made by AO. We, therefore, set aside the order of CIT(A) on this ground. Decided in favour of assessee. - SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. CHANDRA MOHAN GARG, JUDICIAL MEMBER For the Appellant : Shri Gaurav Jain, Adv and Shri Sudarshan Roy, AR For the Respondent : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation of the principles of natural justice, as passed without providing any opportunity to the appellant assessee to meet the merits of its case. 5. Ground No.1 is with respect to the PF/ESI adjustment of Rs. 1,23,57,656/- u/s 36(i)(va) of the Act on account of non-deposit of PF/ESI. 6. Before us, Learned AR reiterated the submissions made before the AO and CIT(A) and further submitted that CIT(A) was not justified in upholding the action of AO whereby the adjustments of Rs. 1,23,57,656/- were made on account of delayed deposit of employees share of Provident Fund ESI dues as the same was deposited before the due date of filing of the return of income u/s 139(1) of the Act. He further submitted that CIT(A) was not justified in making the addition as the aforesaid addition does not fall within the purview of Section 143(1) as it is a debatable issue and in support of his contention he relied on the decision of Bombay Tribunal in the case of M/s. P.R. Packaging Service vs. ACIT (ITA No.2376/Mum/2022 order dated 07.12.2022) and other decisions. He further submitted that the information provided in tax audit report would cease to be relevant if the issue is debatable and for the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such payments before the due date as per section 139(1) of the Act amounts to sufficient compliance of the provisions in terms of section 43B of the Act, not calling for any disallowance. Per contra, the Department has set up a case that the disallowance is called for because of the per se late deposit of the employees share beyond the due date under the respective Act and section 43B is of no assistance. 4. Before proceeding further, it would be apposite to take note of the relevant statutory provision in this regard. Section 2(24) provides that income includes: (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees . Thus, contribution by employees to the relevant funds becomes income of the employer. Instantly, there is no dispute as to the taxability of such income in the hands of the assessee. Once such an amount becomes income of the employer-assessee, then section 36(1)(va) comes into play for providing the deduction. This provision provides that: (va) any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the payment is made before the due date of furnishing the return u/s 139(1) of the Act for that year. The claim of the assessee is that the deduction becomes available in the light of section 36(1)(va) read with section 43B on depositing the employees share in the relevant funds before the due date u/s 139(1) of the Act. This position was earlier accepted by some of the Hon ble High Courts holding that the deduction is allowed even if the assessee deposits the employees share in the relevant funds before the date of filing of return u/s. 139(1) of the Act. This was on the analogy of treating the employee s share as having the same character as that of the employer s share, becoming deductible u/s 36(1)(iv) read in the hue of section 43B(b). Recently, the Hon ble Supreme Court in Checkmate Services P. Ltd. Ors. VS. CIT Ors. (2022) 448 ITR 518 (SC) has threadbare considered this issue and drawn a distinction between the parameters for allowing deduction of employer s share and employees share in the relevant funds. It has been held that the contribution by the employees to the relevant funds is the employer s income u/s. 2(24)(x), but the deduction for the same can be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or increase in income indicated in the audit report but not taken into account in computing the total income in the return 8. Sub-section (1) of section 143 states that a return shall be processed to compute total income by making six types of adjustments as set out in sub-clauses (i) to (vi). As noted supra, we are concerned only with the examination of two sub-clauses, viz., (ii) and (iv). Sub-clause (ii) talks of an incorrect claim, if such incorrect claim is apparent from any information in the return . The expression an incorrect claim apparent from any information in the return has not been generally used in the provision. Rather, it has been specifically defined in Explanation (a) to section 143(1) as under: Explanation. For the purposes of this sub-section, (a) an incorrect claim apparent from any information in the return shall mean a claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport gives the Sum received from employees at Rs. 21,800/-. Due date for payment has been reported as 15-07-2017 and The actual date of payment to the concerned authorities has been given as 20-07- 2017. Similar is the position regarding other items disallowed u/s. 36(1)(va) having The actual date of payment after the Due date for payment . Thus, it is manifest that the audit report clearly points out that as against the due date of payment of the employees share in the relevant fund on 15.7.2017 for deduction u/s 36(1)(va), the actual payment is delayed and deposited on 20.7.2017. The legislature, for the disallowance under sub-clause (iv) of section 143(1)(a), has used the expression indicated in the audit report . The word indicated is wider in amplitude than the word reported , which envelopes both the direct and indirect reporting. Even if there is some indication of disallowance in the audit report, which is short of direct reporting of the disallowance, the case gets covered within the purview of the provision warranting the disallowance. However, the indication must be clear and not vague. If the indication in the audit report gives a clear picture of the violation of a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The actual date of payment to the concerned authorities . The column (i) having details of the amounts received from employees indicates about the increase in income as per sub-clause (iv) of section 143(1)(a) if the assessee does not take this sum in computing total income. The columns (ii) and (iii) having details of due date for payment and the actual date of payment indicate about disallowance of expenditure if the assessee does not make suo-motu disallowance in computing total income. Right now, there is no case of increase in income because the AO did not make adjustment for non-offering of income of the Sums received from employees , but made the adjustment for disallowance of expenditure with the remarks that : Amounts debited to the profit and loss account, to the extent disallowance under section 36 due to non-fulfilment of conditions specified in relevant clauses . Thus, it is evident that it is a case of disallowance of expenditure and not increase of income . Further, the entire challenge by the assessee throughout has been to the disallowance of expenditure made by the AO. It set up a case before the authorities below, including the ld. CIT(A), taking shelter of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t month's salary. Thus, contribution to the relevant fund towards the salary for the month of October-ending should be deposited before 15th November. 15. In view of the foregoing discussion, we are satisfied that the ld. CIT(A) was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made in these cases for late deposit of employees share to the relevant funds beyond the date prescribed under the respective Acts. 16. Both the sides are agreeable that the facts and circumstances of all the appeals except the two, which will be taken up hereinafter, are similar. We, ergo, countenance the disallowance. 17. The first case which involves some different facts is IT Cube Solutions Pvt. Ltd. (ITA No.702/PUN/2022). The ld. AR submitted that the information in audit report in point 20(b) was wrongly given pertaining to preceding year. He pointed out this fact from the audit report for the financial year 2016-17, which refers to due date of payment as 15-05-2015 and the actual date of payment as 12-05- 2016. This shows that inadvertently the auditor recorded due dates for payment as pertaining to the preceding year and actual date of payment for the current year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e copy of the Annexure of Form 3CD which is placed at page 107 of the paper book to support its contention that the auditor had only given the details that the payment made to club and had not stated that the payments are not allowable. He, therefore, submitted that in such a situation, no adjustment could have been made in the intimation issued u/s 143(1) of the Act. Learned DR on the other hand supported the order of CIT(A). 12. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the adjustment made of Rs. 3,43,817/- in the intimation u/s 143(1) of the Act. We find that CIT(A) while upholding the intimation u/s 143(1) of the Act had relied on the provision of Section 143(1)(a)(iv) of the Act. For ready reference the relevant portion is reproduced hereunder: 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 less shall be computed after making the following adjustments, namely:- ........... (iv) disallowance of expenditure [or increase in inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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