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Income Tax Appellate Tribunal, “RANCHI BENCH, RANCHI
Before: Shri Sanjay Garg & Shri Rajesh Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL “RANCHI BENCH, RANCHI VIRTUAL HEARING AT KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Rajesh Kumar, Accountant Member Assessment Year: 2018-19 Nepal Chandra Dey.……....…...………………......................……...…..….. Appellant 58, Tatisilwai, Gandhi Nagar, Ranchi – 835103. [PAN: AGRPD0835D] vs. ACIT/DCIT, Circle-1, Ranchi.…..…..………..…….……….…………….. Respondent Appearances by: None appeared on behalf of the appellant. Shri Pranob Kumar Koley, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : March 02, 2023 Date of pronouncing the order : May 15, 2023 ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 15.06.2022 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
No one has put in appearance on behalf of the assessee at the time of hearing despite notice. However, later an written submissions have been received by email from Shri Ankit Jain, CA, Ld. AR of the assessee.. Therefore, we proceed to decide the appeal after considering the oral submissions of the ld. DR and written submissions of ld. AR and going through the record.
Assessment Year: 2018-19 Nepal Chandra Dey
The assessee in this appeal has taken the following grounds of appeal:
1. The CPC and ld.CIT(A) have not followed the various judgment of the Hon'ble High Courts as stated in the following paragraphs, to allow employee contribution paid before filing of income tax returns.
2. The CPC and Ld.CIT(A) have not appreciated the fact that the amendment to section 36(1)(va) is not applicable retrospectively in so far the memorandum explaining the provision of Finance Bill, 2021 clearly stated that the amendment to section 36(1)(va) is applicable from 1st April 2022, hence applying the same to AY 2018-19 is not correct. 3. That the delays in depositing the PF/ESI amounts were duly disclosed in Tax audit report filed with the income tax Return. Keeping in view that penalty for late deposit is already being charged by the EPF act, additional disallowance by IT act becomes burdensome and creates a liability on the assessee and causes undue hardship to the assessee. 4. The assessee has duly deposited the contributions with interest and penalty to the concerned department and at the same time these contributions have been deposited well within the due date of filing of Income Tax return.” 4. The statement of facts as furnished by the assessee along with appeal Form 36 is reproduced as under:
“1. Nepal Chandra Dey is a contractor supplying workers/Man force to business entities mainly Ms. Usha Martin Itd.
2. He had filed his ROI vide ACK no 333274471121018 dated 12.10.2018 disclosing a total income of 10,80,561.00 3. He received an intimation under 143(1)(a) from CPC Bangalore as to why the following sum of Rs. 678077.00 should not be disallowed keeping in view the provision where "Any sum received from employees as contribution to any provident fund or superannuation fund or any fund set up under ESI Act or any other fund for the welfare of employees to the extent not credited to the employees account on or before the due date [36(1)(va)].
Reply was submitted citing relevant judgments, however CPC passed the order adding the same to the Income of the assessee thereby 2
Assessment Year: 2018-19 Nepal Chandra Dey creating a total tax liability of Rs. 298812.00 against the assessed tax liability of 98151.00.
As a result of order under section 143(1) a net refund of Rs. 72257.00 was raised against the total refund of 272920.00 6. Appeal was preferred with CIT(A) through NFAC, citing the recent memorandum explaining the provision of Finance Bill, 2021 clearly states that the amendment to section 36(1)(va) is applicable from 1st April 2022, but the same was not taken into consideration and the appeal was rejected.”
5. A perusal of the above grounds of appeal and statement of facts would show that the only issue raised in this appeal is relating to the disallowance of employees’ contribution to PF/ESI u/s 36(1)(va) read with section 2(24)(x) of the Act.
Admittedly, the issue on merits has been set at rest by the recent decision of the Hon’ble Supreme Court in bunch of appeals with the lead case in ‘Checkmate Services Pvt. Ltd vs. CIT’ in Civil Appeal No.2833 of 2016 dated 12.10.2022. Earlier, there were divergent opinions of various High Courts. The High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi were of the view that if the employer’s as well as employee’s contribution to PF/ESI is deposited before the due date of filing of Income Tax Return, the same was an allowable expenditure u/s 36(1)(va) of the Act taking the due date as per the provisions of section 43B of the Act, whereas, the High Courts of Kerala and Gujarat ruled in favour of the Revenue holding that the due date of filing of return u/s 43B would be applicable in respect of employer’s contribution only and not in respect of failure of the employer to deposit the funds deducted/collected from the employees, to say it in other words, the benefit of extended date i.e. last date of filing of return, would not be available in respect of employees’ contribution and the same will not be allowed as deduction 3
Assessment Year: 2018-19 Nepal Chandra Dey of expenditure if deposited after due date as prescribed by the relevant statutes irrespective of the fact that the same was deposited by the employer before the due date of filing of return of income u/s 139(1) of the Income Tax Act. The Hon’ble High Courts which ruled in favour of the assessee held that the provisions of section 43B(b) prescribing the due date as the last date for furnishing of return of income will not only apply to employers’ contribution towards ESI/PF of employee but also to the employees’ contribution which have been deducted by the employer and deposited by the employer as prescribed u/s 36(1)(va) of the Act. However, the Hon’ble Supreme Court in the case of ‘Checkmate Services Pvt. Ltd vs. CIT’ (supra) has held that by virtue of section 2(24)(x) of the Act, the amounts received or deducted by an employer u/s 36(1)(va), it retains its character as an income (albeit deemed) by virtue of section 2(24)(x), unless the condition stipulated by Explanation to section 36(1)(va) are satisfied i.e. depositing such amount received or deducted from the employee on or before the due date. The Hon’ble Supreme Court held that there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income, whereas, the second is deemed an income, by definition, since it is the deduction from the employee’s income and held in trust by the employer. The Hon’ble Supreme Court thus held that the conditions of section 43B prescribing the due date as the date of filing of return of income in case the employers’ contribution towards ESI/PF would not be applicable in case the employees’ contribution as provided u/s 36(1)(va) of the Act and that the due date in respect of deposit of employees’ contribution would be such as prescribed u/s 36(1)(va) of the Act.
Assessment Year: 2018-19 Nepal Chandra Dey
It has been held time and again that law declared by a court will have retrospective effect, if not otherwise stated to be so specifically. It is also well settled proposition that whenever, a previous decision is overruled by a larger bench of the Supreme Court, the previous decision is completely wiped out and Article 141 will have no application to the decision which has already been overruled and the court would have to decide the cases according to the law laid down by the latest decision of the Hon’ble Supreme Court and not by the decision which has been expressly overruled. The above reasoning stems from the principle that when a court decides a matter, it is not as if it is making any new law but it is as if it is only restating what the law has always been. The reliance in this respect can be placed on the decision of the Hon’ble Supreme Court in the case of “Ramdas Bhikaji and Choudhary vs. Sadananda” (1980) 1 SCC 550 and on the recent decision of the Hon’ble Supreme Court in the case of “Manoj Parihar and Ors. Vs. State of Jammu & Kashmir and Ors” SLP(C) No.11039 of 2022 vide order dated 27.06.2022; “PV Goerge vs. State of Kerala” (2007) 3 SCC 557; Assistant Commissioner vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 14 SCC 171, wherein, the Hon’ble Supreme Court has held that judges do not make law, they only discover and find the correct law. Even, that where an earlier decision of the court operate for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which were earlier not correctly understood.
In view of the above stated legal position, the law declared by the Hon’ble Supreme Court will be retrospectively applicable and it will be treated that earlier decisions of different High Court favouring the assessee would be of no benefit of assessee at this stage as the said 5
Assessment Year: 2018-19 Nepal Chandra Dey decisions of the High Courts are treated to be never existed or to say are wiped out by the aforesaid decision of the Hon’ble Supreme Court.
The assessee, herein, has not disputed the aforesaid legal position. However, at this stage, the contention as canvassed through written submissions is that the Assessing Officer could have disallowed the aforesaid employees’ contribution to ESI/PF being deposited after the due date under the relevant statute, only in an assessment carried out u/s 143(3) of the Act. That the Assessing Officer did not have any power or jurisdiction to disallow the aforesaid amount while processing the return u/s 143(1)(a) of the Act. The ld. Counsel for the assessee, in his written submissions, in this respect, has relied upon the recent decision of the Coordinate Mumbai Bench of the Tribunal in the case of ‘M/s P R Packaging Service vs. ACIT’ in order dated 07.12.2022, wherein, the Coordinate Bench of the Tribunal has held that as per the provisions of section 143(1)(a)(iv) of the Act, the Assessing Officer while processing the return u/s 143(1) of the Act could have made the disallowance of expenditure if, the same was indicated in the audit report but not taken into account in computing the total income in the return. The Coordinate Bench of the Tribunal is of the view that the tax auditor in the audit report had merely mentioned the due date for remittance of provident fund as per the Provident Fund Act and the actual date of payment made by the assessee. That the tax audit had not contemplated to disallow the employees’ contribution to PF, wherever, it is remitted beyond the due date prescribed in the Provident Fund Act. That it was merely recording of facts and a mere statement made by the tax auditor in his tax audit. That the provisions of section 143(1)(a)(iv) of the Act would come into operation when the tax auditor 6
Assessment Year: 2018-19 Nepal Chandra Dey had suggested for a disallowance of expenses or increase in income, but the same has not been carried out by the assessee while filing the return of income. The Coordinate Bench thus observed that the tax auditor in the said case had not said to disallow the employees’ contribution to PF, wherever, it is remitted beyond the due date under the respective Act. The Coordinate Mumbai Bench of the Tribunal in the case of M/s P R Packaging Service (supra), therefore, held that the said action of the ld. CPC, Bangalore/Assessing Officer in disallowing the employees’ contribution to PF while processing the return u/s 143(1) of the Act was against the provisions of the Act as it did not fall within the ambit of prima facie adjustment. The Coordinate Bench of the Tribunal to fortify its view has further relied upon the another decision of the Coordinate Mumbai Bench of the Tribunal in the case of ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ reported in 195 ITD 142(Mum). The relevant part of the order of the Coordinate Mumbai Bench in the case of M/s P R Packaging Service (supra), for the sake of ready reference, is reproduced as under:
“3. We have heard the rival submissions and perused the materials available on record. It is not in dispute that assessee had remitted the employees contribution to Provident Fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income under section 139(1) of the Act. This fact of remittance made by the assessee with delay had been reported by the Tax Auditor in the Tax Audit Report. The copy of the Tax Audit Report is placed on record by the Ld.AR before us together with its annexures. On perusal of the same, we find that the Tax Auditor had merely mentioned the due date for remittance of Provident Fund as per the Provident Fund Act and the actual date of payment made by the assessee. The Tax Auditor had not even contemplated to disallow the employees’ contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. Hence, it is merely recording of facts and a mere statement made by the Tax Auditor in his audit report. The Ld.CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of 7
Assessment Year: 2018-19 Nepal Chandra Dey the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. For the sake of convenience, the relevant provisions 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 loss shall be computed after making the following adjustments, namely:- (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.”
4. From the aforesaid provisions, it is very clear that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income. As stated supra, the tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, in our considered opinion, the said action of the Ld.CPC Bangalore in disallowing the employees’ contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt. Ltd vs. DCIT reported in 195 ITD 142 (Mum).”
At this stage, it will be relevant to reproduce the relevant provisions of section 143(1) of the Act which is as under:
“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; 8
Assessment Year: 2018-19 Nepal Chandra Dey
(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80- IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:] ... 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 exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;”
A perusal of clause (iv) to section 143(1)(a) of the Act would show that it provides for disallowance of expenditure indicated in the audit report, but not taken into account in computing the total income in the return.
9. As per the prescribed form 3CD, the following information is required to be given by the auditor:
Assessment Year: 2018-19 Nepal Chandra Dey
“20.(b) Details of contributions received from employees for various funds as referred to in section 36(1)(va): Sl. No. Nature of Sum Due date The The actual fund received for actual date of from payment amount payment to employees paid the concerned authorities
The contention raised on behalf of the assessee is that in the audit report, the auditor is required to report only the facts of due date of payment and the actual date of payment. That nowhere the auditor is required to indicate the amount of disallowance of expenditure on the above accounts. It has, therefore, been pleaded that when the CPC makes the adjustment by disallowing the late payment then it can be said that the revenue was not justified in invoking the provisions of section 143(1)(a)(iv) of the Act on the fallacy of presumption that the auditor has disallowed employees’ contribution to ESI/PF.
11. Before proceeding further, it can be noted that the relevant word is ‘indicated in the audit report’. Now, what does the word ‘indicate/indicated’ means? As per Collins dictionary, the word ‘indicate’ has been explained as ‘if one thing indicates another, the first thing shows that the second is true or exists. Synonyms of word ‘indicate’ have been mentioned as: show, suggest, reveal, display, imply, hint etc. As per the Oxford Advance Learners dictionary, ‘indicate’ means to show that something is true or exists, viz. Record profits in the retail market indicate in a boom in the economy. Synonyms have been mentioned as: suggest – to be a sign of Assessment Year: 2018-19 Nepal Chandra Dey something; to show that something is possible or likely; mention - to mention something especially in an indirect way; point to - to make somebody notice somebody/something especially by pointing or moving your head; give information - to represent information without using words viz. The results are indicated in Table. Further, the word ‘indication’ has been explained as remark or sign that shows something happening or what somebody is thinking or feeling. Further the ‘indicative’ has been explained as showing or suggesting something.
In the light of the above meaning or expression of the word ‘indicate’, when we look into the facts of the case, we note that there is a prescribed form for furnishing of audit report and the auditor is supposed to furnish the information as per the prescribed columns of the Form 3CD. Under section 44AB of the Act, if the sales/turnover or the gross receipts, as the case may be, of an assessee carrying on business exceeds the prescribed threshold, it has been made mandatory for him to get his books of account audited. The object is to get a clear picture of the assessee’s accounts so as to enable the Income Tax authorities to assess true and correct income of the assessee. The information furnished by the auditor in the prescribed form enable the Assessing Officer/CPC to make the required adjustments into the returned income of the assessee.
We note that under clause 20B of the prescribed form, the auditor is supposed to furnish the information in respect of nature of fund, sum receipts from employee, due date for payment, the actual amount paid and the actual date of payment to the concerned authorities. This information is available to the CPC/Assessing Officer for processing
Assessment Year: 2018-19 Nepal Chandra Dey the return of the assessee and this information itself indicates the allowance or disallowance which is required to be made while processing the return of the assessee. The auditor is not required in the prescribed form to specifically mention as to the what disallowance or to say as to what amount of disallowance is required to be made u/s 36(1)(va) of the Act, rather, the auditor is required to furnish the information and the said information is when correlated with the statutory provisions applicable, it may indicate for certain adjustment of disallowance which may be attracted in the case of the assessee.
The information in the return of income/audit report is also required to be uploaded on line. The said online information of return of income/audit report is automatically compared with the prefeeded data relating to statutory provisions/compliances etc. as provided u/s 143(1) of the Act, and wherever the return/audit report data suggests of non-compliance etc., the software automatically picks the said default and report accordingly. However, before making such disallowance as is indicative from the tax audit report, the proviso to section 143(1) provides that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or electronic mode and it has been further provided that the response received from the assessee, if any, shall be considered before the making any adjustment. Therefore, the adjustment u/s 143(1) of the Act may be made only after giving opportunity to the assessee to file response/objection to such adjustment and before making such adjustment such response/objection of the assessee is required to be considered by the Assessing Officer/CPC. Hence there is no violation of the principles of natural justice while making adjustments u/s 143(1) of the Act. 12
Assessment Year: 2018-19 Nepal Chandra Dey
In view of the above facts, “as indicated in the audit report”, in our humble view, would mean that where the information in the audit report is suggestive of some disallowance but not taken into account by the assessee in computing the total income in the return, the Assessing Officer/CPC would give intimation to the assessee of such proposed adjustments and whereupon the assessee has the right to file response/objection to such adjustment and the Assessing Officer/CPC is required to consider such response/objection before making the adjustments. Therefore, the word ‘indicate’ does not mean that the auditor is required to specifically mention that such and such disallowance is required to be made in the case of the assessee, rather, correct view would be that the auditor is required to furnish the information and that information can be compared and considered by the Assessing Officer/CPC in the light of the relevant statutory provisions as well as relevant laws and if such information is suggestive of any adjustment of disallowance, the Assessing Officer will make such disallowance after giving opportunity to the assessee to rebut the same.
We have come across of the another decision of the Coordinate ‘Chennai Bench’ of the Tribunal passed in bunch of appeals with the title case of “M/s Electrical India vs. ADIT, CPC” in and Ors vide order dated 04.11.2022, wherein, on the identical issue as to the jurisdiction of the Assessing Officer/CPC to make adjustment while processing the return u/s 143(1) of the Act in respect of late deposit of employees’ contribution by the employer to the ESI/PF fund, the Coordinate bench after deliberating in length upon the respective contentions of the ld. representatives of the parties has upheld the adjustment made by the Assessing Officer/CPC 13
Assessment Year: 2018-19 Nepal Chandra Dey u/s 36(1)(va) of the Act on account of late deposit of employees’ contribution to ESI/PF. The Coordinate Chennai Bench has observed that the purpose of the audit is to enable the revenue to make correct computation of assessee’s income. That a proper audit would, inter alia, ensure that the claims for deduction are correctly made. That the report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. That the reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return. The relevant part of the order of the Coordinate Bench of the Tribunal in the case of M/s Electrical India (supra) is as under:
“We find that the provisions of Section 2(24) enumerate different components of income. The income as defined therein includes 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. It is thus clear that as soon as the Employer receives any contribution from its employees towards provident fund or ESI by way of deduction or otherwise, then the same is treated as income of the assessee. If the assessee deposit the same as per the mandate of Sec. 36(1)(va), the deduction of the same is allowed to the assessee otherwise the right to claim the deduction is lost forever. In other words, the contribution is first treated as deemed income of the assessee and thereafter, the deduction of the same is allowed to the assessee if the conditions of Sec.36(1)(va) are met. The CPC, as is evident, has denied this deduction to the assessee since the assessee did not fulfil the mandate of Sec.36(1)(va). It could also be seen that this is not an increase in income but disallowance of expenditure, the adjustment of which is covered u/s 143(1)(a)(iv) which provide that the disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return could be made while processing the return of income. The amendment made w.e.f. 01.04.2021 by insertion of words 'increase in income' would have no impact on such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv). 14
Assessment Year: 2018-19 Nepal Chandra Dey
8. The impugned adjustment, in our opinion, would also fall u/s 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per statutory mandate, the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. The purpose of the audit is to enable the revenue to make correct computation of assessee's income. A proper audit would, inter-alia, ensure that the claims for deduction are correctly made. The report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return. As noted earlier, the contribution is first treated as income of the assessee and thereafter, the deduction of the same has to be claimed by the assessee. Therefore, the columns in the Profit & Loss Account in the return of income has to be filled in this manner only i.e., the contribution is to be first added to the income of the assessee and thereafter, the deduction of the same would be claimed by the assessee. In other words, the assessee would first add the same to its income and thereafter, it would claim deduction after crossing the hurdle of Sec.36(1)(va). Since the claim made by the assessee is inconsistent with the reporting made by Tax Auditor, it was an incorrect claim which CPC has rightly disallowed.
Another argument is that the debatable issues could not be subject matter of adjustment u/s 143(1). However, so far as the revenue is concerned, this issue is not debatable for the revenue. The revenue has always maintained a position that the claim is allowable to assessee only when the contribution is deposited as per the mandate of Sec.36(1)(va) otherwise not. Therefore, it is incorrect to say that the issue is debatable one. The Hon'ble Supreme Court has upheld the stand of the revenue. 10. The Hon'ble High Court of Madras in Southern Industrial Corporation vs. CIT (258 ITR 481) held that when a statutory provision is interpreted by the Apex Court in a manner different from the interpretation made in the earlier decisions by a smaller Bench, the order which does not conform to the law laid down by the larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. Therefore, in the present case, the law laid down by Hon'ble court is to be regarded as law of land and it was to be presumed that the law was always like that. 15
Assessment Year: 2018-19 Nepal Chandra Dey
The case law of Hon'ble Supreme Court in Kvaverner John Brown Engg. (India) P. Ltd. V/s ACIT (305 ITR 103), as referred on behalf of assessee, deal with deduction u/s 80-O for which two interpretations were possible viz. the deduction could be computed at gross value or the same could be computed on net value. The same is not the case here. The action of revenue is in accordance with the law laid down by Hon'ble Supreme Court in the cited decision. In fact, Hon'ble High Court of Madras in Tamilnadu Magnesite Ltd. vs DCIT (303 ITR 71) held that where the amount was inadmissible in view of Sec.43B which overrides section 36(1) of the Act, the revenue was well within its power to make a prima facie adjustment in the computation of taxable total income while processing return of income under Section 143(1)(a) of the Act. The aforesaid decision supports our view.
The decision of Hon'ble High Court of Bombay in Bajaj Auto Finance Ltd. vs. CIT (93 Taxmann.com 63) as referred before us deals with case of debatable issue and hence distinguishable. The case law of Chandigarh Tribunal in Lanjani Co-operative Agri Service Society Ltd. vs DCIT (ITA No.332/Chd/2021 dated 30.08.2022) relates with adjustment u/s 143(1)(a)(v) which is not the case here. The case law of Visakhapatnam Tribunal in S.V.Engineering Constructions India (P.) Ltd. vs DCIT (ITA No.130/Viz/2021 dated 23.09.2021) relies on another decision of Tribunal in Andhra Trade Development Corp. Ltd. (ITA No.434/Viz/2019 dated 05.05.2021) which deal with set-off of losses. In this decision, the bench also dealt with the merits of the case by following earlier view which has now been reversed by Hon'ble Supreme Court. The decision of Delhi Tribunal in SVS Guarding Services Pvt. Ltd. vs ITO (ITA No.231/Del/2022 dated 24.05.2022) held that the issue whether the amendment made by Finance Act, 2021 was retrospective or prospective was debatable and controversial and consequently, the adjustment was beyond the scope of Sec.143(1). Further the bench did not specifically examine the applicability of clauses (ii) and (iv) of Sec.143(1)(a) in that decision. The subsequent decision of the bench in 360 Realtors LLP vs. ADIT (ITA No.303/Del/2022 dated 26.09.2022) is substantially on same lines. All these case laws have been rendered before the recent decision of Hon'ble Supreme Court which has settled the law since its inception. Therefore, all these case laws do not render any assistance to the case of the assessee. 16. It is further noted that the aforesaid order of the Chennai Bench of the Tribunal in the case of M/s Electrical India has been further followed by the Hyderabad ‘SMC’ Bench of the Tribunal in the case of Sudhakar Rao Dondapati vs Ito vide order dated 21.03.2023. 16
Assessment Year: 2018-19 Nepal Chandra Dey
So far as the reliance of the Mumbai Bench of the Tribunal in the case of ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ (supra) is concerned, we find that the observations made by the Coordinate Mumbai Bench are not relevant in any manner for the purpose of adjudication of the issue under consideration. In the case of ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ (supra), the Tribunal has held that before making adjustments u/s 143(1) of the Act, the CPC/Assessing Officer should give opportunity to the assessee to file objections against such adjustments and the Assessing Officer/CPC has to depose of such objections before proceeding further in the matter. Thereafter, the Tribunal goes on to hold that the views expressed by the tax auditor may not be binding on the auditee; that the tax audit reports are mere opinions and these opinions flag the issues which are required to be considered by the stakeholders; that these audit reports are inherently even less relevant, more so, when the reports require reporting of a factual position rather than express an opinion about legal implication of that position. The Coordinate Mumbai Bench further goes on to hold that when the law enacted by the legislature has been construed in a particular manner by the Hon’ble Jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read it in any other manner than as read by the Hon’ble Jurisdictional High Court. That, hence, the views expressed by the tax auditor in such a situation, cannot be the reason enough to disregard the binding views of the Jurisdictional High Court. The Coordinate bench, therefore, goes on to read down provisions to section 143(1)(a)(iv) and to hold that “what essentially follows is the adjustments under section 143(1)(a) in respect of "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return" is to 17
Assessment Year: 2018-19 Nepal Chandra Dey be read as, for example, subject to the rider "except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above”.
The crux of the entire decision of the Tribunal in the case of ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ (supra) is that even when the factual information given in the audit report indicates the disallowance u/s 36(1)(va), however, that is subject to the law laid down by the courts and if the Jurisdictional High Court has interpreted the provisions in any other manner then the decision of the Hon’ble High Court would prevail over the indication given in the tax audit report. The above views of the Coordinate bench of the Tribunal in ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ (supra) in no manner is suggestive that the adjustment u/s 36(1)(va) cannot be made while processing the return u/s 143(1) of the Act, rather, the above view is limited to the proposition that if the law laid down by the High Court/Supreme Court is otherwise as compared to the factual information given in the audit report, then the law laid down by the Hon’ble High Court/Supreme Court would prevail over the tax audit report. Therefore, the Coordinate Mumbai Bench in the said case of “Kalpesh Synthetics Pvt. Ltd. vs. DCIT” (supra) has also mentioned time and again that in the audit report factual information is given, whereupon the Assessing Officer has to apply the prevailing law. As observed above, the law has been settled by the Hon’ble Supreme Court on the issue in the case of Checkmate Services Pvt. Ltd. (supra). The law declared by the Hon’ble Supreme Court is to be treated as if the same was the right interpretation since the date of the inception of the relevant provision and, therefore, even as per the decision of the Coordinate Bench of the Tribunal in ‘Kalpesh Synthetics Pvt. Ltd. vs. 18
Assessment Year: 2018-19 Nepal Chandra Dey DCIT’ (supra), the issue is required to be decided in favour of the Revenue and against the assessee. In view of this, it is held that the Assessing Officer/CPC was justified in making the adjustment u/s 36(1)(va) of the Act for disallowance of expenditure on account of late deposit of employees’ contribution collected/deducted by the employer into the relevant fund i.e. PF/ESI fund.
In the result, the appeal of the assessee stands dismissed.