TODINI METALS AND CHEMICALS INDIA PRIVATE LIMITED,MUMBAI vs. DY CIT, CIRCLE 14(1)(2), MUMBAI

The brief facts of the case are that the assessee is a company which filed its original return of income for A.Y. 2020-21 declaring total income of ₹1,74,82,340. The return was processed by CPC and an intimation under section 143(1) dated 28.03.2021 was issued. In the said intimation, the assessee was not allowed set-off of brought forward business loss of ₹2,03,430 and tax was initially computed at the normal rate instead of the concessional rate under section 115BAA of the Act.

Thereafter, CPC passed a rectification order under section 154 of the Act dated 24.09.2021. In the rectification order, the total income was enhanced to ₹1,86,19,840. The increase in income was mainly on account of adjustments aggregating to ₹9,34,069 in respect of employee contribution under section 36(1)(va) and liabilities covered by section 43B of the Act. These adjustments included employee contribution of ₹46,308, GST liability of ₹7,23,198, employer’s contribution to provident fund of ₹48,463 and bonus liability of ₹1,16,100. The brought forward business loss of ₹2,03,430 were also disallowed in the rectification order.

The assessee had separately filed an appeal against the original intimation under section 143(1). In that appeal, the learned CIT(A), vide order dated 22.12.2023, allowed the assessee’s claim for set-off of brought forward business loss of ₹2,03,430 pertaining to A.Y. 2019-20 against the business income of A.Y. 2020-21. Thus, the dispute regarding brought forward loss was subsequently decided in favour of the assessee in the separate appellate proceedings arising from the intimation under section 143(1) of the Act.

Meanwhile, the case was selected for complete scrutiny and the Assessing Officer completed the assessment under section 143(3) read with section 144B on 29.09.2023. During the course of scrutiny, the Assessing took the income of ₹1,86,19,840 as already computed in the rectification order under section 154 of the Act. Thus, although the Assessing Officer did not make any fresh addition in the scrutiny assessment, he took the enhanced income determined by CPC in the rectification order.

The assessee was also aggrieved by the rectification order u/s 154 of the Act and filed an appeal before the learned CIT(A). During the appellate proceedings, the learned CIT(A) first noted that the appeal arose from the rectification order under section 154 and that, in the meantime, two important developments had taken place. First, the issue of brought forward business loss had already been adjudicated in the separate appeal arising from the intimation under section 143(1) of the Act, where relief had been granted to the assessee. Second, the scrutiny assessment under section 143(3) read with section 144B had already been completed on 29.09.2023, in which the Assessing Officer took the income determined by CPC in the rectification order without making any further variation.

The learned CIT(A) then examined the scope of section 154 of the Act. The learned CIT(A) observed that the issues rectified by CPC arose from information furnished by the assessee itself in the return of income and audit report. On that basis, he held that CPC was within its jurisdiction to make the rectification. The learned CIT(A) observed that the Assessing Officer, while completing the scrutiny assessment on 29.09.2023, had taken the income computed in the 154 rectification order dated 24.09.2021. According to the CIT(A), since the rectification order was the order subsisting at the time of scrutiny assessment, the Assessing Officer was justified in taking the enhanced income computed therein. The CIT(Appeals) further noted that the assessee had also challenged the scrutiny assessment in a separate appeal and that the same issues relating to the additions and disallowances made in the rectification order were already pending for adjudication in that appeal.

On this basis, the learned CIT(A) held that the present appeal against the rectification order had become a duplicate and infructuous proceeding. He observed that once the appeal against the scrutiny assessment is decided, the issues relating to the income taken from the rectification order would also stand adjudicated. Accordingly, he dismissed the assessee’s appeal as being infructuous.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival submissions and perused the material available on record. The assessee has raised six grounds of appeal against the order of the learned CIT(A). We proceed to decide the grounds as under.

As regards Ground No. 1, the assessee has challenged the denial of set- off of brought forward business loss of ₹2,03,430 pertaining to A.Y. 2019-20 against the business income of the year under consideration. We find from the record that this very issue had arisen from the original intimation passed under section 143(1) dated 28.03.2021. Against the said intimation, the assessee had preferred a separate appeal before the learned CIT(A), and vide order dated 22.12.2023, the learned CIT(A) had already allowed the assessee's claim for set- off of brought forward business loss of ₹2,03,430 against the business income of A.Y. 2020-21. Thus, the assessee has already been granted the relief sought in this ground. There is, therefore, no surviving grievance requiring adjudication by us.

Accordingly, Ground No. 1 is dismissed as infructuous.

Coming to Ground No. 2, the dispute relates to employees' contribution of ₹46,308 covered by section 36(1)(va) of the Act. The law on the allowability of employees' contribution to provident fund/other welfare funds now stands settled by the Hon'ble Supreme Court in Checkmate Services (P.) Ltd. v. CIT [2022] 448 ITR 518 (SC); [2022] 143 taxmann.com 178 (SC). The Hon'ble Supreme Court has clearly drawn a distinction between the employer's contribution and the employees' contribution. In the case of employees' contribution, the amount collected by the employer from its employees is treated as income under section 2(24)(x), and deduction is available under section 36(1)(va) only when the amount is deposited within the “due date” prescribed under the relevant provident fund, ESI or other welfare legislation. The extended period available under section 43B up to the due date of filing the return under section 139(1) of the Act does not apply to employees' contribution.

The Hon'ble Supreme Court has thus that section 43B and section 36(1)(va) of the Act operate in different fields. While employer's contribution is governed by section 43B, employees' contribution must satisfy the specific requirement of section 36(1)(va), being payment within the due date prescribed under the relevant welfare legislation. Payment after such statutory due date cannot be allowed merely because it was made before the due date for filing the return of income.

Accordingly, Ground No. 2 raised by the assessee is dismissed.

Since the claim requires verification by the Assessing Officer, we consider it appropriate to restore this issue to the file of the Assessing Officer. The Assessing Officer shall verify the relevant GST liability, the challan showing payment of ₹7,23,198, the date of payment and the corresponding entries in the books of account and tax audit report. If, on verification, it is found that the liability covered by section 43B(a) of the Act was actually paid on or before the applicable due date under section 139(1), the deduction shall be allowed in accordance with law. The assessee shall furnish the necessary supporting documents before the Assessing Officer and shall be afforded reasonable opportunity of being heard.

Accordingly, Ground No. 3 is allowed for statistical purposes.

Coming to Ground No. 4, the dispute relates to employer's contribution to provident fund amounting to ₹48,463.

The legal position regarding employer's contribution is different from employees' contribution considered by us in Ground No. 2. Employer's contribution to provident fund is governed by section 43B(b) of the Act. The Hon'ble Supreme Court in Checkmate Services (P.) Ltd. (supra) itself upheld this distinction and held that while employees' contribution is governed by section 36(1)(va), employer's contribution falls within section 43B of the Act. Therefore, in the case of employer's contribution, payment made within the period permitted under the proviso to section 43B, on or before the due date for filing the return under section 139(1), is eligible for deduction.

Thus, merely because employer's contribution remained outstanding as on the last day of the previous year would not result in permanent disallowance. What requires examination is whether the contribution was actually paid within the time permitted under section 43B.

In the present case, the assessee claims that the employer's contribution to provident fund of ₹48,463 for the month of March 2020 was outstanding as on 31.03.2020 but was subsequently paid on 26.05.2020, before the due date for filing the return under section 139(1) of the Act.

We, therefore, restore this issue to the file of the Assessing Officer with a direction to verify the nature of the contribution and the date of actual payment. If the amount of ₹48,463 is employer's contribution covered by section 43B(b) of the Act and it is found to have been actually paid on or before the applicable due date for filing the return under section 139(1) of the Act, the Assessing Officer shall allow the deduction in accordance with law. Needless to say, reasonable opportunity of being heard shall be provided to the assessee. Accordingly, Ground No. 4 is allowed for statistical purposes.

Coming to Ground No. 5, the dispute relates to bonus liability amounting to ₹1,16,100.

Section 43B also governs deduction in respect of any sum payable by an assessee to an employee by way of bonus or commission for services rendered. The scheme of section 43B is that such expenditure is allowable on the basis of actual payment. Where the amount is actually paid on or before the due date for furnishing the return of income under section 139(1), the benefit of the proviso to section 43B is available and deduction cannot be denied merely because the amount remained outstanding as on the end of the previous year.

In the present case, the assessee has claimed that bonus amounting to ₹1,16,100 was outstanding as on 31.03.2020 but was subsequently paid before the due date for filing the return of income under section 139(1) of the Act. Since the learned CIT(A) has not examined the actual date of payment on merits and the matter requires factual verification, we consider it appropriate to restore this issue also to the file of the Assessing Officer.

The Assessing Officer shall verify the nature of the liability, the actual payment of ₹1,16,100, the date of such payment and the relevant books of account and supporting documents. If the bonus liability is actually discharged on or before the applicable due date for furnishing the return of income under section 139(1), the Assessing Officer shall allow the deduction in accordance with section 43B. The assessee shall be afforded reasonable opportunity to furnish the necessary evidence. Accordingly, Ground No. 5 is allowed for statistical purposes.

In Ground No. 6, the assessee has challenged the action of the learned CIT(A) in not adjudicating the additional ground relating to absence of prior notice before passing the rectification order under section 154 and the subsequent adoption of the income determined thereunder in the assessment order under section 143(3). We find that no specific arguments were advanced before us in support of this ground. Further, the substantive disputes arising from the rectification order have been dealt with by us ground-wise. Therefore, no separate purpose would now be served by adjudicating the general procedural objection raised in Ground No. 6, particularly when no arguments were advanced in its support. Accordingly, Ground No. 6 is dismissed.

In the result, the appeal of the assessee is partly allowed for statistical purposes.