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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI KULDIP SINGH, JM
Virtex engineers, Mumbai against the order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 23rd November, 2021, wherein the appeal filed by the assessee against the rectification order passed under Section 154 of the Income-tax Act, 1961 (the Act) by the Central Processing Centre, Bangalore, on 16th April, 2019 for A.Y. 2017-18, was party allowed.
The assessee is aggrieved with the appellate order and has preferred the above appeal raising following grounds of appeal:-
“1. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in upholding the disallowance of Rs.2,90,748/- made by CPC, Bangalore under section 36(1)(va) in respect of Employees' Contribution to Recognized Provident Fund and
2. Learned CIT(Appeals), NFAC's Order is silent in deciding as to whether the CPC, Bangalore can pass orders u/s. 154 and making additions of Rs.2,90,748/- when it had already accepted online response filed by the Appellant and accepting the Total Income as declared by the Appellant passing order u/s. 143(1) dated 05- 12-2018.
The Learned CIT (Appeals), NFAC's Order is silent in deciding as to whether the CPC, Bangalore can make additions u/s. 154 without giving proper show cause notice to the Appellant and giving him reasonable opportunity of being heard, as required under the general provisions of law.
The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in coming to conclusion that the additions u/s. 36(1)(va) can be made both in respect of Employee's Contribution as well as Employer's Contribution to the Recognized Provident Fund (EPF) and Employee State Insurance Contribution (ESIC).
5. The Learned CIT (Appeals), NFAC has erred in law and on facts and circumstances of the case in not following the decisions of Jurisdiction High Court and quoting decisions of other High Courts which are not applicable to the Appellant
6. The Learned CIT(Appeals), NEAC has erred in law and on facts and circumstances of the case in coming to conclusion that the explanation 2 to clause (va) to sub-section (1) of section 36, and explanation 5 to section 43B inserted by Finance Act, 2021 with effect from 01-04-2021, is retrospective and not prospective in operation.
7. The Appellant craves leave to add to alter or modify any of the above Grounds of Appeal.”
for A.Y. 2018-19 is filed by the assessee against the appellate order passed by the National Faceless Appeal Centre (NFAC), Delhi dated 23rd November, 2021 for A.Y. 2018-19, wherein the appeal filed by the assessee against intimation dated 18th June, 2019 passed under Section 143(1) of the Income-tax Act, 1961 (the Act) by the Central Processing Centre, Bangalore was partly allowed.
“1. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in upholding the disallowance of Rs.2,48,477/- made by CPC, Bangalore under section 36(1)(va) in respect of Employees' Contribution to Recognized Provident Fund and Employees' State Insurance Contribution, by exercising powers u/s. 143(1)(a) of the Act.
2. The Learned CIT (Appeals), NFAC has erred in law and on facts and circumstances of the case in coming to conclusion that the CPC, Bangalore was justified in making additions u/s. 36(1) (va) while passing orders u/s. 143(1) and that the provisions of clause (ii) and clause (iv) of sub-section (1) of section 143 can be applied.
3. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in coming to conclusion that the additions u/s. 36(1)(va) can be made both in respect of Employee's Contribution as well as Employer's Contribution to the Recognized Provident Fund (EPF) and Employee State Insurance Contribution (ESIC).
4. The Learned CIT (Appeals), NFAC has erred in law and on facts and circumstances of the case in not following the decisions of Jurisdiction High Court and quoting decisions of other High Courts which are not applicable to the Appellant.
The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in coming to conclusion that the explanation 2 to clause (va) to sub-section (1) of section 36, and explanation 5 to section 43B inserted by Finance Act, 2021 with effect from 01-04-2021, is retrospective and not prospective in operation.
6. The Appellant craves leave to add to alter or modify any of the above Grounds of Appeal.”
5. We have noted that in both these appeals, the issue is with respect to the disallowance of employees contribution deposited beyond the due dates prescribed in
The facts for A.Y. 2017-18 shows that the assessee is a partnership firm engaged in the business. It filed its return of income on 27th October, 2017 at a total income of ₹57,60,687/-. The central processing Centre raised a query on 10th July, 2018, with respect to the disallowance of ₹2,90,748/- being PF and ESIC contribution not paid before the respective due date of the respective Act.
The assessee submitted that the amount of employees contribution to the Provident Fund is ₹1,09,481/- and to ESIC is only ₹16,018/- totaling to ₹1,25,499/-, the balance amount is with respect to the employees contribution which has been paid before the due date of filing of the return.
Despite this fact, the central processing Centre passed an order making the addition with respect to both these amounts i.e. employers contribution and as well as employees contribution.
The assessee preferred the appeal before the National Faceless Appeal Centre which confirmed the disallowance under the pretext that the total amount of ₹2,90,748/- pertains to employee’s contribution. Therefore, assessee is aggrieved and is in appeal before us.
We have carefully heard the rival contentions and perused the orders of the lower authorities. We find that the assessee has categorically stated that out of the disallowance of ₹2,90,748/- only the sum of ₹1,25,499/- relates to the employees contribution whereas ₹1,65,249/- is employers contribution which is paid before the due date of filing of the return of income.
The Hon'ble Supreme Court in Checkmate Services (P.) Ltd. Vs. CIT [2022] 143 taxmann.com 178 (SC), has categorically held that in case of employees contribution if not paid within the due dates prescribed under the respective Act of provident fund and ESIC, they become the income of the assessee under Section 2(24) (x) read with section 36(1) (va) of the Income-tax Act, 1961 (the Act) and are disallowable. Therefore, the amount of disallowance of ₹1,25,499/- is clearly covered against the assessee by the above decision of the Hon'ble Supreme Court. To that extent, we do not find any infirmity in the order of the learned CIT (A).
However, with respect to the balance sum of ₹1,65,249/-, as it has been claimed before us that same is employer's contribution paid before the due date of filing of
Accordingly, the appeal of the assessee for the A.Y. 2017-18 is partly allowed.
Coming to the appeal of the assessee for A.Y. 2018-19, the facts are identical, wherein the sum of ₹2,48,477/- is disallowed. The claim of the assessee is that out of the above sum amount disallowable of ₹97,556/- on account of provident fund and ₹14,244/- on account of Employees State Insurance Scheme is with respect to Employees' Contribution. Therefore, the total disallowance would be only ₹1,11,800/-. The assessee has submitted a detailed chart.
On careful perusal of the detailed chart it is apparent that amount disallowable under Section 36(1) (va) of the Act with respect to the Provident Fund is ₹97,556/- being employee's contribution to PF and only ₹14,244/- is with respect to the employee’s contribution of ESIC. Therefore, as per the decision of Hon'ble Supreme Court, the above sum is disallowable.
The balance sum if it relates to employees contribution to provident fund same is required to be deleted as it is paid before the due date of filing of return of income. Accordingly, for A.Y. 2018-19, the disallowance of ₹2,48,477/- is to be restricted only to the extent of ₹1,11,800/-. The balance sum is paid before the due date of return of income and therefore, the disallowance to that extent deserves to be deleted. Accordingly, we direct the learned Assessing Officer to restrict the disallowance for this year to the extent of ₹1,11,800 only.
Accordingly, the appeal of the assessee for A.Y. 2018-19 and 2017-18 are partly allowed.
Order pronounced in the open court on 09.02.2023.