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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.545/Bang/2023 Assessment Year : 2019-20
Smt. Vasanthi Padmanabha Sherugar, Vs. The DCIT, Sri Girija Venkata Nilaya, Circle – 1, Near Vijayalakshmi Talkies Torannagallu, Bellary. Bellary – 583 123. PAN : BCNPS 7166 K APPELLANT RESPONDENT Assessee by : Shri. Sandeep Huilgol, Advocate Revenue by : Shri. Sridharan P, Addl. CIT(DR)(ITAT), Bengaluru. Date of hearing : 18.09.2023 Date of Pronouncement : 21.09.2023
O R D E R Per George George K, Vice President:
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 25.04.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2019-20.
There is a delay of 39 days in filing this appeal. Assessee has filed a petition for condonation of delay and also an affidavit stating therein the reasons for belated filing of the appeal. On perusal of the reasons stated in the affidavit filed by the assessee, we notice that there is a reasonable cause for the delay in filing this appeal and no latches can be attributed to the assessee. Hence, we condone
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the delay of 39 days in filing this appeal and proceed to dispose off the same on merits.
The grounds raised read as follows:
That the order of the Commissioner of Income-tax (Appeals), National Faceless Appeals Centre (NFAC), ("CIT(A)" for short), is opposed to the applicable laws and facts of the case. 2. The CIT(A) erred in upholding the order under Section 154 read with Section 143(1) passed by the Assistant Director of Income-tax, Centralized Processing Center ("AO" for short) by holding that the adjustment of Rs. 43,18,915/- made to the Appellant's returned income by applying the provisions of Section 36(1)(va) read with Section 43B was valid and proper in law. 3. That the CIT(A) failed to appreciate that the adjustment of Rs. 43,18,915/- was made to the Appellant's income by way of an intimation under Section 143(1), which is impermissible in law and unsustainable. 4. That the CIT(A) failed to appreciate that the nature of the adjustment made by way of the intimation under Section 143(1) does not fall within the permissible adjustments enumerated under Section 143(1)(a), and is therefore improper and erroneous. 5. That the CIT(A) grossly erred in not applying the settled position of law that adjustments under Section 143(1) cannot be made where the issue arising in the appeal is a debatable one. 6. That the CIT(A) failed to consider that the issue arising in the Appellant's case is evidently a debatable one, considering the fact that the issue of claim of deduction of a sum deposited towards ESI and PF before the due date of filing a return of income was examined by several High Courts and carried in appeal till the Hon'ble Apex Court, and what is more, the Central Board of Direct Taxes ("CBDT" for short) itself issuing circulars clarifying the position of law and the provisions related thereto itself undergoing retrospective amendments. 7. That the CIT(A) failed to consider that if such adjustments are permitted, the provisions of Section 143(3) and the entire mechanism set out for scrutiny assessments, including the procedural safeguards thereunder, would be rendered otiose and redundant.
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That the CIT(A) gravely erred in upholding the order under Section 154 passed by the AO despite the same being without reasons and is thus not a speaking order, and merely confirming the intimation issued under Section 143(1), and therefore, being violative of the principles of natural justice. 9. That the reliance placed by the CIT(A) on the decisions cited in the impugned order is wholly misplaced as the facts involved and the ratio emerging from the said decisions are not applicable to the facts of the instant case. 10. That, therefore, the CIT(A) erred in holding that there was no infirmity in the orders of the AO under Sections 143(1) and 154 of the Act. 11. That, even on merits, the impugned disallowance is not in accordance with law. 12. That the order of the CIT(A) is otherwise unsustainable in law and on facts and is thus liable to be set aside by this Hon'ble Tribunal.
Brief facts of case are as follows:
For the Assessment Year 2019-20, the return of income was filed by the assessee declaring a total income of Rs.51,30,670/-. The return was processed by the Centralized Processing Centre (CPC) vide intimation under section 143(1) of the Act, by disallowing a sum of Rs.43,18,915/-, being the delayed payment of employees’ contribution to PF and ESI under respective Acts. The assessee filed an rectification application under section 154 of the Act and the same was rejected.
Aggrieved, the assessee filed an appeal before the First Appellate Authority. The CIT(A), by relying on the judgment of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT-1 (in Civil Appeal No. 2833/2016 vide its judgment dated 12 October 2022) reported in [2022] 143 taxmann.com 178 (SC) decided the issue against the assessee.
Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR submitted that the addition by way of
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adjustment and intimation under section 143(1) of the Act on debatable and controversial issues and on the basis of the retrospective amendment to the Act is beyond the scope of section 143(1) of the Act (i.e., on the date of the intimation). In support of the contention, the learned AR relied on the order of the Delhi Benches of the Tribunal in the case of Chintoo Creations Vs. DCIT reported in 195 ITD 192.
The learned DR strongly supported the order of the CIT(A) and relied on the judgment of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT-1 (supra).
We have heard the rival submissions and perused the material on record. The solitary issue for our adjudication is whether employees’ contribution to the ESI and PF account paid by the assessee belatedly [i.e., beyond the period prescribed under the respective Acts however paid within the due date for filing return of income under section 139(1) of the Act] is to be allowed as a deduction. The said issue is no long res integra in light of the judgments of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT-1 (supra) wherein it has been categorically held that employees’ contribution to ESI/PF beyond the period prescribed under the respective Act, is not entitled for any deduction.
The learned AR, however, had strongly relied on the order of the Delhi Bench of the Tribunal in the case of Chintoo Creations Vs. DCIT (supra). The said order of the Delhi Bench of the Tribunal is distinguishable on facts. The order of the Delhi Bench of the Tribunal was rendered prior to the Hon’ble Apex Court’s judgment in the case of Checkmate Services Pvt. Ltd., (supra). With the aforesaid judgment of the Hon’ble Apex Court, the position of law from the date of enactment of section 36(1)(va) of the Act is that employees’ contribution to
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PF/ESI paid after the due date as per PF/ESI laws will not be allowable as a deduction. Therefore, the issue in question is not debatable or controversial as held in the order of the Delhi Bench of the Tribunal in the case of Chintoo Creations Vs. DCIT (supra) in view of the aforesaid judgment of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., (supra). Similarly, the issue as to whether the judgment based on retrospective amendment can be made under section 143(1) of the Act need not be decided since the Hon’ble Apex Court had interpreted section 36(1)(va) of the Act prior to its amendment that employees’ contribution to PF/ESI paid after the due date as per PF/ESI laws will not be allowable as deduction. In view of the aforesaid reasoning, the order of the Delhi Bench of the Tribunal in the case of Chintoo Creations (supra) is distinguishable.
The Co-ordinate Bench of the Bangalore Benches of the Tribunal in the case of ADIT Vs. Rapid Global Business Solutions India Pvt. Ltd., in MP No.148/Bang/2022 (order dated 04.01.2023), had allowed the MA filed by the Revenue and rectified the order of the Tribunal by holding that the employees’ contribution to PF/ESI paid after the due date as per PF/ESI laws will not be allowable as a deduction. Consequently, it was held that no deduction was allowable in respect of payment of employees’ contribution to PF/ESI after the due date as per the PF/ESI law. The relevant finding of the Bangalore Bench of the Tribunal in the case of Rapid Global Business Solutions India Pvt. Ltd., (supra) reads as follows:
"4. The Hon'ble Supreme Court in the case of C1T Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that non- consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 25412) of the Act be Honda Siel Power Products Ltd. r. CIT 295 ITR 466. the Hon’ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows:
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"Scope of the Power of Rectification 12. As stated above, in this case we are concerned with the application under section 2540 of the 1961 Act. As stated above, the expression "rectification of mistake from the record" occurs in section 154. It also finds place in section 254(2). The purpose behind enactment of section 254(2) is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003 allowing the Rectification Application has given a finding that Samtel Color Ltd. (supra) was cited before it by the assessee but through oversight it had missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record. 13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case." 5. Article 141 of the Constitution of India provides that the law declared by Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is
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deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. 6. In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon 'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to he rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. 7. The learned Counsel .for the assessee submitted that the Hon 'ble ITAT Mumbai Bench, in the case of M/s. P R Packaging Services Vs. ACIT in 17'A No.2376/Mum/2022, .for Assessment Year 2019-20, order dated 07.12.2022 has taken the view that while processing return under section 143(1) of the Income Tax Act, 1961 (hereinafter called 'the Act'), the CPC cannot disallow employees' contribution to PF and ESI which are paid beyond the due dates .for payment under the relevant laws relating to ESI and PF contribution while processing return under section 143(1) of the Act. In this regard, we find that the Hon'ble ITA T had taken the aforesaid view on the basis that the CPC has made the addition based on the provisions of section 143(1)(a)(iv) of the Act which lays down that "disallowance of expenditure (or increase in income) indicated in the audited report but not taken into account in computing the total income in the return." The Tribunal in coming the aforesaid conclusion placed reliance on another Co-ordinate Bench in the case of Kalpesh Synthetics Pvt Ltd Vs. DCIT 195 17'D 142 (Mumbai) wherein the ITAT, Mumbai Bench took the view that where CPC while processing return u/s.143(1)(a) cannot disallow Employee's contributions (PF/ESI) claimed as deduction by an assessee-employer in respect of employee's contribution towards PF by invoking section 143(1)(iv)(a). The Tribunal held that the said disallowance was based on observations made by tax auditor in audit report which stated that payments of employee contribution were made by assessee after due date specified under respective acts as judicial decisions have taken the view that said disallowance would not come into play when payment was made well before due date of filing income tar return under section 139(1) and therefore information provided in tar audit report would cease to be relevant and no disallowance can be made during assessment proceedings under section 143(1(iv)(a).
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On the aforesaid argument, the first aspect which we notice is that no such argument was advanced on behalf of the assessee when the appeal was argued before the Tribunal. Also, the decision was rendered by the ITAT Mumbai Bench in the case of Kalpesh Synthetics (P) Ltd. (supra) on 27.4.2022 prior to the decision of the Hon 'ble Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) and therefore not applicable. The decision rendered by ITAT Mumbai Bench in the case of M/s. P. R. Packaging Services, follows the decision in the case of Kalpesh Synthetics (supra). In paragraph 5 of the order; a reference has been made to the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) but has been distinguished on the ground that the said decision was rendered in the context of assessment framed u/s.143(3) of the Act and therefore not relevant for processing returns u/s.143(1) of the Act. If the basis of decision of ITAT Mumbai in the case of Kalpesh Synthetics (supra) is that clause (iv) of Sec.143(1)(a) cannot be invoked to disallow delayed payment of employee's contribution to ESI and PF made by the assessee beyond the due date as prescribed under the relevant law relating to ESI and PP' for deposit of employees share of contribution, by invoking the provisions of section 36(1)(va) of the Act, if the said contributions are paid within the due date for filing return of income u/s.139(1) of the Act, owing to decision of High Court in favour of the assessee and U. those decisions of High Courts stand overruled by decision of Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) with retrospective effect, then the very basis of the decision rendered in the case of Kalpesh Synthetics(supra) no longer survives. Alternatively, the adjustment can be justified on the basis of the provisions of section 143(1)(a)(ii) of the Act which lays down that adjustment can be made to the total-income in the event of "an incorrect claim, if such incorrect claim is apparent from any information in the return". The firm of return contains clause with regard, to amounts disallowable u/s.36 of the Act. The aforesaid view ,of ours is also supported by a decision rendered by the ITAT, Bengaluru Bench in the case Itek Packz Vs. ITO ITA No.995/Bang/2022, order dated 28.12.2022. In that decision, the Tribunal, after considering the decision rendered in the case of P R Packaging (supra) held following the decision of Cemetile Industries Vs 17'0 in I7'A No.693/Pun/2022, order dated 23.11.2022 that disallowance can be made under section 143(1)(a) of the Act of employees' share of ESI and PF paid beyond the due date under the relevant law relating to PF contribution and ESI contribution. The Tribunal has placed reliance on the decision of the Hon 'bk Madras High Court in the case of Veerappampalayam Primary Agricultural Cooperative Credit Society Vs. DC.17' (2022) 138 taxmann.com 571. The Hon'ble Madras High Court took the view that while processing a return under section 143(1)(a) of the
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Act, apparent incorrect claim can he disallowed. We are of the view that the decisions cited by the learned Counsel 16r the assessee proceed on the assumption that the disallowance of employees' share of PP and 1;S7 paid beyond the due dates under relevant law has been made only under section 143(1)(a)(iv) of the Act, while in the intimation under section 143(1)(a) of the Act, no such basis has been given and therefore the disallowance can he justified even in terms of section 143(I)(a)(ii) of the Act. In that view of the matter, we are of the view that the order of the Tribunal requires to be modified. Consequently, the appeal by the assessee will stand dismissed. The order of the Tribunal will stand modified/rectified accordingly. 9. In the result, MP stands allowed." 11. Moreover, the Bangalore Bench of the Tribunal in the case of MTR Maiya’s Vs. ITO reported in (2023) 152 taxmann.com 189 (Bangalore – Trib.) had held that disallowance under section 143(1) of the Act towards employees’ contribution to PF/ESI is justifiable. The Bangalore Bench of the Tribunal had followed the judgment of the Hon’ble Madras High Court in the case of Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd., Vs. DCIT reported in [2022] reported in 138 taxmann.com 517. The relevant finding of the Bangalore Bench of the Tribunal reads as follows:
“11. Heard both the sides, perused the entire material on record and the orders of the lower authorities. As far as the contention of the assessee that no disallowance can be made u/s. 143(1)(a) of the Act towards employees contribution to EPF and ESI is concerned, we find that this issue is settled by the Hon'ble Madras High Court in the case of M520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. v. Dy. C1T [2022] 138 taxmann.com 571 wherein it was held as under:— "7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the. scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main
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thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act." 12. In view of the above judgment, the contention of the assessee that no disallowance could be made u/s. 143(1)(a) of the Act towards employees contribution to EPF and ESI is rejected.”
In light of the aforesaid reasoning and the judicial pronouncements cited supra, the appeal filed by the assessee is rejected. It is ordered accordingly.
In the result, appeal filed by the assessee is dismissed.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (LAXMI PRASAD SAHU) (GEORGE GEORGE K) Accountant Member Vice President
Bangalore. Dated: 21.09.2023. /NS/*
Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR, ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore.