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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 07.12.2022 and pertains to assessment year 2018-19.
:-2-: ITA. No: 113/Chny/2023 2. The assessee has raised the following grounds of appeal: “The appellant objects to the Commissioner (appeals) [CIT(A)] upholding the: i) 'adjustments' u/s 143(1)(a)(ii) by way of- a. Disallowance of ESI Rs.25884 u/s 36; b. Disallowance of EPF Rs.161814 u/s 36 & c. Disallowance of deduction of Rs.426197 u/s 80JJAA; ii) Consequent levy of additional tax, surcharge and cess; iii) Computation of interests u/s 234A; 2348 & 234C for 2018- 19 a/y on the following grounds:
1. The CIT(A) erred in upholding the legality of the intimation u/s 143(1) making 'adjustments' to the Total income, which is against Law and the facts of the case. 2.1 The CIT(A) failed to appreciate that the 'adjustment' (disallowance) ESI, Rs.25884 & EPF Rs.161814, totaling to Rs.187698, u/s 143(1)(a)(iv) is illegal and beyond powers conferred on CPC under clause 8 of the Central Processing of Returns Scheme, 2011, formulated uls 143(1A). 2.2 The 'adjustment" (disallowance) of ESI, Rs.17803 & EPF Rs.175776, totaling to Rs.193579 & denial of deduction of Rs.426197 u/s 80JJAA, could not have been made u/s 143(1)(a)(iv) & (ii), respectively, as held by the Madras Tribunal in Tangar exports LLP vs ADIT, dt.7.12.2022. 3.1 The CIT(A) failed to appreciate that the 'adjustment' (disallowance) of deduction of Rs.426197 u/s 80JJAA for delayed filing of return cannot be made, u/s 143(1)(a)(ii) is illegal and beyond powers conferred on CPC under clause 8 of the Central Processing of Returns Scheme, 2011, formulated u/s 143(1A). 3.2 The CIT(A) erred in rejecting the submission that the 'adjustment' by way of disallowance of deduction of Rs.426197 u/s 80JJAA for delayed filing of return cannot be made for 2018-19 a/y, as section 143(1)(a)(V) [which enlists exhaustive list of sections to which the sub clause will apply] does not provide for it, on the basis of subsequent amendment to sec.143(1)(a)(v) by F.A.2021 w.e.f 1.4.2021. 3.3 The 'adjustment (disallowance of deduction u/s 80JJAA) of Rs.426197 could not have been made u/s 143(1)(a)(ii), when :-3-: ITA. No: 113/Chny/2023 there is a specific clause in sec.143(1)(a)(v) providing for disallowance of deductions when return is filed beyond the due date and as it is neither an 'incorrect 'CLAIM' nor an 'incorrect 'CLAIM which is apparent from any information in the return'. 3.4 The reason for denying deduction u/s 80JJAA, viz., that the return was not filed within the due date, is also erroneous as the said condition in sec.80AC(ii) is only in respect of "Deductions in respect of certain INCOMES" and sec.80JJAA allows a "deduction in respect of an EXPENDITURE".
4. As a corollary, the levy of additional tax, surcharge and cess are all bad in Law.
5. The interests charged u/s 234A; 2348 & 234C require recomputation consequent to the above. On these grounds and on such other grounds as may be put forth at the time of hearing, the appellant prays that: i) 'adjustments' u/s 143(1)(a)(ii) by way of a. Disallowance of ESI Rs.25884 u/s 36 & b. Disallowance of EPF Rs.161814 u/s 36 Be deleted; ii) Disallowance of Deduction of Rs.426197 u/s 80JJAA be deleted; iii) Additional tax, surcharge and cess levied on account of the above disallowances be deleted; iv) Interests u/s 234A; 2348 & 234C be recomputed”
3. The brief facts of the case are that, the appellant is an individual and engaged in the business of Physiotherapy and rehabilitation centers all over India. The appellant filed her return of income for the assessment year 2018-19 on 31.12.2018, declaring total income of Rs. 2,99,27,500/-. The return of income filed by the assessee has been processed u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 25.10.2019 and determined total income of Rs.
:-4-: ITA. No: 113/Chny/2023 3,05,41,400/-, by making disallowance towards deduction claimed u/s. 80JJAA of the Act for Rs. 4,26,197/- and disallowance of employees contribution to PF & ESI u/s.36(1)(va) r.w.s. 43B of the Act for Rs. 1,87,698/-. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The Ld. CIT(A), for the reasons stated in their appellate order dated 07.12.2022, rejected arguments of the assessee and sustained additions made towards PF & ESI u/s. 36(1)(va) of the Act and disallowance of deduction claimed u/s. 80JJAA of the Act. Aggrieved by the CIT(A) order, the assessee is in appeal before us.
The first issue that came up for our consideration from grounds of appeal filed by the assessee is disallowance of belated payment of employees contribution to PF& ESI amounting to Rs. 1,87,698/- while processing return of income u/s. 143(1)(a) of the Act. The ld. Counsel for the assessee, referring to provisions of section 143(1)(a)(iv) of the Act, submitted that the AO, CPC ought not to have disallowed PF & ESI contribution while processing return of income u/s. 143(1)(a) of the Act, contrary to procedure laid down by the :-5-: ITA. No: 113/Chny/2023 CBDT for processing return of income. He, further submitted that the disallowance made by the AO towards PF & ESI is neither expenditure debited into P&L account nor in income as prescribed under sub clause (iv) of section 143(1)(a) of the Act and thus, the question of disallowance does not arise.
The Ld. DR, on the other hand supporting the order of the CIT(A) submitted that, the issue is squarely covered in favour of the revenue by the decision of the Hon’ble Supreme Court in the case of Checkmate Services P Ltd vs CIT [2023] 290 Taxman 19 (SC), where it has been held that belated payment of employees contribution to PF & ESI cannot be allowed as deduction u/s. 36(1)(va) r.w.s. 2(24)(x) and 43B of the Act.
We have heard both the parties and considered relevant submissions of the either parties and we find that the issue is squarely covered in favour of the revenue by the decision of Hon’ble Supreme Court in the case of Checkmate Services P Ltd vs CIT (Supra), where it has been held that belated remittance of employee’s contribution towards PF & ESI cannot be allowed by virtue of section 36(1)(va) r.w.s. 2(24)(x) of the :-6-: ITA. No: 113/Chny/2023 Act. The relevant findings of the Hon’ble Supreme Court are as under: “Section 36(1)(va), read with sections 2(24)(x) and 438, of the Income-tax Act, 1961 Employee's contributions (PF/ESI) - Whether there is a marked difference between nature am character of assessee-employer's contribution and amounts retained by assessee from out o employee's income by way of deduction wherein one is liability to be paid by employer am second is deemed income as per section 2(24)(x) which is held in trust by assessee- employe1 thus, said marked difference was to be borne while interpreting obligation of assessee employer under section 438 - Held, yes - Whether non obstante clause under section 431 could not apply in case of amounts which were held in trust as was case of employee': contribution which were deducted from their income and was not part assessee-employer': income, 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 - Held, yes [Para: 53 and 54] [In favour of revenue]”
In so far as the arguments of the assessee that disallowance made by the AO towards PF & ESI is neither expenditure debited into P&L account nor in the nature of income as prescribed under sub clause (iv) of section 143(1) of the Act and thus, it cannot be disallowed u/s. 143(1)(a) of the Act, we find that, when tax auditor reported belated remittances of contribution to respective funds on or before due date prescribed under said laws, then it is the duty of the assessee to take note of such observations and compute its :-7-: ITA. No: 113/Chny/2023 income in accordance with law. Since, the deduction claimed by the assessee towards belated remittance of PF & ESI is contrary to provisions of section 36(1)(va) r.w.s. 2(24)(x) and 43B of the Act, in our considered view, said claim comes under sub clause (ii) of section 143(1) of the Act, which says that incorrect claim, if such incorrect claim is apparent from any information in the return, it needs to be adjusted while computing income u/s. 143(1)(a) of the Act. Therefore, we reject the argument of the assessee.
In this view of the matter and considering facts and circumstances of this case and also by following the decision of Hon’ble Supreme Court in the case of Checkmate Services P Ltd vs CIT (Supra), we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the assessee.
The next issue that came up for our consideration from grounds of appeal filed by the assessee is disallowance of deduction claimed u/s. 80JJAA of the Act. The ld. Counsel for the assessee, submitted that deduction u/s. 80JJAA of the Act cannot be disallowed just because the return is filed beyond the due date of filing return of income u/s. 139(1) of the Act,
:-8-: ITA. No: 113/Chny/2023 because as per sub clause (v), deduction claimed under Chapter VI-A(C) can be adjusted while processing return of income u/s. 143(1)(a) of the Act from assessment year 2021- 22 onwards.
The Ld. DR, on the other hand submitted that from the assessment year 2018-19 onwards, any deduction is admissible under any provisions of Chapter VI-A under the head ‘C- deduction in respect of certain income’ and can be allowed only if return of income is filed on or before due date prescribed u/s. 139(1) of the Act. Since, the assessee has filed return of income beyond due date prescribed u/s. 139(1) of the Act, the AO has rightly disallowed said claim and their order should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee has filed return of income beyond due date prescribed u/s. 139(1) of the Act. As per provisions of section 80AC of the Act, if return of income is not filed on or before due date prescribed u/s. 139(1) of the Act, then deduction
:-9-: ITA. No: 113/Chny/2023 provided under Chapter VI A-C cannot be allowed. But if you go by provisions of section 143(1)(a) of the Act, sub clause (v) has been amended by the Finance Act, 2021 w.e.f. 01.04.2021 and inserted Chapter VI-A deduction for the purpose of making adjustments while computing income u/s. 143(1)(a) of the Act. From the above, it is very clear that up to assessment year 2020-21, there is no provisions u/s. 143(1)(a) of the Act to make any adjustments towards Chapter VI-A deductions while processing return of income u/s. 143(1)(a) of the Act. Therefore, we are of the considered view that even if assessee does not file return of income on or before due date prescribed u/s. 139(1) of the Act, then no adjustment can be made towards Chapter VI-A deductions under the head C- deductions in respect of certain income. Since, deduction u/s. 80JJAA comes under Chapter VI-A under the head C, in our considered view, while processing return of income for the assessment year 2018-19, the AO cannot make any adjustments while processing return of income u/s. 143(1)(a) of the Act. Therefore, we are of the considered view that the AO is erred in making additions towards deduction claimed u/s. 80JJAA of the Act, while processing return of income u/s. 143(1)(a) of the Act, and thus, we direct the AO to delete
:-10-: ITA. No: 113/Chny/2023 additions made towards deduction claimed u/s. 80JJAA of the Act.