SOHAN LAL TAMBI,JAIPUR vs. ITO, WARD1(4), JAIPUR

That the order passed by ld. CIT(A) is bad in law as he failed to appreciate that disallowance under section 36(1)(va) is highly debatable issue and hence such adjustment is not permissible while processing the return under section 143(1) of the Income Tax Act, 1961.

In ground No. 2, the assessee has challenged the addition by way of adjustment as not permissible while processing the return U/s 143(1)(a) of the IT Act.

It was submitted by the ld AR that this ground was not taken before the Ld. CIT (A) due to inadvertent mistake. However, a request has been made to admit this ground being purely legal in nature and which goes to the root of the matter and is covered with the judgment of the Hon’ble Supreme Court in the case of NTPC 229 ITR 383.

It was submitted that provisions of section 143(1)(a) allows following types of adjustments to be made while processing the return of income:- i. Any arithmetical error ii. Any incorrect claim, if same is apparent from any information in return iii. Claim of set off of carried forward loss, if the return for the year of loss was furnished beyond stipulated date u/s 139(1) iv. Disallowance of expenditure indicated in the audit report but not taken in return v. Disallowance of deduction claimed u/s 10AA, 80-IA, 80-IAB, 80- IB, 80-IC, 80-ID or 80-IE if return furnished beyond stipulated date u/s 139(1) 6. It was submitted that the adjustment as proposed by CPC can be categorized in point no. ii or point no. iv above. However in point no. iv, it is mentioned that such claim must be as indicated by the auditor. In case of audit report u/s 44AB, the auditor only submits a factual position about contributions of employees towards welfare funds and its deposit into respective fund account and no comment is mentioned by the auditor about its allowability as the same is not sought from the auditor. Therefore this adjustment is not permissible as per point no. iv. In case of point no. ii, the disallowance must be apparent from the information in the return. So far as disallowance of any expenditure is concerned, apparent means one which is clearly admissible as per provisions of law as supported by judicial pronouncements. As the judicial pronouncement, this expenditure is in favour of the assessee as per jurisdictional High Court and hence such adjustment is not permissible. Therefore under both the above said points, such adjustment as done by CPC is not permissible and therefore the action of the CPC is illegal and unjustified and deserves to be quashed.

It was submitted that proceedings u/s 143(1)(a) are akin to proceedings u/s 154 of the Income Tax Act, 1961. This fact is verifiable from circular no. 581 dated 28.09.1990 issued by CBDT wherein it was stated that disallowance of deductions claimed u/s 43B of the Income Tax Act, 1961 while processing the return in view of non submission of proof of payment were not amenable for rectification u/s 154 and it was held that subsequent furnishing of proof of payment prior to date of furnishing ITR could not have rectified the action taken u/s 143(1)(a). However immediately a clarification was issued by the Board wherein the above version was reversed and it was stated that if the assessee furnishes proof of payment subsequent to order u/s 143(1)(a), action u/s 154 can be taken. This shows that CBDT also considers the proceedings u/s 154 and u/s 143(1)(a) as one and same thing. It was submitted that the rectification proceedings u/s 154 cannot be taken in debatable issues as held by a large number of judicial rulings. Since the matter of allowance of employees contribution to welfare funds is highly debatable issue and hence such disallowance could not have been made u/s 143(1)(a) while processing the return u/s 143(1)(a). There are various High Courts including the jurisdictional High Court of Rajasthan wherein it has been held that employees contribution to welfare payment is allowable deduction if deposited prior to prescribed date of filing ITR u/s 139(1) whereas there are certain High Courts including Gujarat High Court who have held such sums to be not deductible if deposited after the prescribed date under respective statute. Therefore the action of disallowing such amounts while processing the return is not accordance with law and requires to be reversed.

In ground No. 3, the assessee has challenged the sustenance the disallowance made by AO for Rs. 1,61,099/-. It was submitted that the ld. CIT (A) has relied on the case of Hon’ble Madras, Gujarat and Kerala High Court for sustaining the disallowance made by the CPC while processing the return. The Ld. CIT (A) forgot to take into consideration the reply filed by the assessee on the communication issued by CPC for making the disallowance on account of employees contribution to welfare funds. In the reply filed by the assessee, the assessee had mentioned about the binding judgments of the Hon’ble Rajasthan High Court in the case of CIT v/s Udaipur Dugdh Utpadak Sahkari Sangh and CIT v/s SBBJ . The approach so adopted by the ld. CIT (A) is against the law and unjustified.

It was submitted that recently, a similar matter came before the Hon’ble ITAT, Agra Bench in the case of Mahadev Cold Storage v/s AO, Aligarh (ITA No. 41 & 42/Agr/2021 dated 14.06.2021) wherein also the issue was exactly similar that the AO while processing the return made disallowance of contribution received from employees which was deposited lately than prescribed dates in respective statute but deposited prior to the scheduled date of filing return u/s 139(1). The matter was carried in appeal before the ld. CIT (A) who in faceless proceedings sustained the action of the AO relying on the judgment of the Hon’ble Gujarat High Court in the case of State Road Transport Corporation - 366 ITR 170 and ignoring the decision of the jurisdictional High Court of Allahabad rendered in the case of Sagan Foundry P Ltd. v/s CIT (145 DTR 265). The Hon’ble ITAT, Agra Bench decided this issue in favour of the assessee and relevant findings reads as under:

It was submitted that in the instant case, the ld. CIT (A) was bound to follow the binding judgment of the Hon’ble Rajasthan High Court and was supposed to allow the appeal of the assessee. On this issue, the assessee relies on judicial pronouncements of the Hon’ble Rajasthan High Court in case of CIT vs. SBBJ 363 ITR 70, CIT vs. Rajasthan State Beverages Corp. Ltd. 393 ITR 421 and PCIT vs. Rajasthan Renewable Energy Crop. Ltd. (DBIT Appeal No. 49/2019 dated 06.08.2019) wherein it has been held that contribution received from employees for welfare funds as per section 36(1)(va) is allowable as deduction if the assessee has deposited the sum so collected before due date of filing the return u/s 139(1) of the Income Tax Act, 1961. It was submitted that the above decisions of the Hon’ble jurisdictional High Court of Rajasthan clearly lays down the proposition that employees contribution to PF/ESI deposited lately than prescribed dates under respective statute but deposited prior to date u/s 139(1) is an allowable deduction.

Per contra, the ld. DR objected to the raising of the additional ground of appeal and it was submitted that the assessee has failed to raise the same before the ld CIT(A) and hence, the same may not be entertained at this stage of the appellate proceedings. It was further submitted that there has been a delay in deposit of employees contribution towards PF and ESI by the assessee and as the same has not been deposited within the stipulated time frame as prescribed by the relevant statue, the same has been rightly disallowed in terms of section 36(1)(va) while processing the return of income u/s 143(1) and has been rightly confirmed by the ld CIT(A) following the decision of the Hon’ble Madras, Gujarat and Kerala High Courts. The ld DR has thus relied on the findings of the lower authorities.

We have heard the rival contentions and perused the material available on record. On perusal of the audit report submitted by the assessee as part of his return of income, it is noted that the assessee has deposited the employees’s contribution towards ESI and PF well before the due date of filing of return of income u/s 139(1) and the last of such deposits were made on 11.08.2018 whereas due date of filing the return for the impugned assessment year 2019-20 was 31.10.2019 and the return of income was actually filed on 23.10.2019. Admittedly and undisputedly, the employees’s contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of filing of return of income u/s 139(1) of the Act. The issue is no more res integra in light of series of decisions rendered by the Hon’ble Rajasthan High Court starting from CIT vs. State Bank of Bikaner & Jaipur (supra) and subsequent decisions.

In this regard, we may refer to the initial decision of Hon’ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner & Jaipur wherein the Hon’ble High Court after extensively examining the matter and considering the various decisions of the Hon’ble Supreme Court and various other High Courts has decided the matter in favour of the assessee. In the said decision, the Hon’ble High Court was pleased to held as under:

The said decision has subsequently been followed in CIT vs. Jaipur Vidyut Vitran Nigam Ltd. 363 ITR 307, CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 366 ITR 163, CIT vs Rajasthan State Beverages Corportation Limited (supra) and PCIT vs Rajasthan Renewable Energy Corporation Ltd. In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act.

We further note that though the ld. CIT(A) has not disputed the various decisions of Hon’ble Rajasthan High Court and various other High Courts including Hon’ble Delhi High Court in case of CIT vs AIMIL Ltd 321 ITR 508 which were brought to his notice by the ld AR during the course of appellate proceedings but has decided to follow the decisions rendered by the Hon’ble Madras, Gujarat and Kerala High Courts. Given the divergent views taken by the various High Courts and in the instant case, the fact that the jurisdiction over the Assessing officer lies with the Hon’ble Rajasthan High Court, in our considered view, the ld CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as evident from series of decisions referred supra, as the same is binding on all the appellate authorities as well as the Assessing officer under its jurisdiction in the State of Rajasthan.

In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs 1,61,099/- so made by the CPC towards the delayed deposit of the employees’s contribution towards ESI and PF though paid well before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decision of the Hon’ble Rajasthan High Court.

Given that we have adjudicated on the merits of the case whereby we have directed to delete the addition so made, the other ground of appeal relating to adjustment while processing the return of income and issue of intimation u/s 143(1) by CPC has become academic in nature and we donot deem it necessary to adjudicate the same.