NETSCOUT SYSTEMS INDUSTRIAL PRIVATE LIMITED,MUMBAI vs. DCIT CIRCLE 1(3)(1), MUMBAI, MUMBAI

However, while not pressing the aforesaid ground, the ld.AR advanced an alternative contention challenging the very basis of the assumption of jurisdiction under section 147 of the Act. It was submitted that the notice issued under section 148 and the reassessment proceedings which followed could not survive because the Assessing Officer, while reopening the assessment and thereafter dealing with the objections raised by the assessee against the reasons recorded, proceeded on the understanding that the amendment made by the Finance Act, 2021 to the provisions of section 36(1)(va) read with section 43B, with effect from 01.04.2021, was retrospective in operation and would consequently apply even to the assessment year 2016-17. According to the ld.AR, the very basis on which the Assessing Officer proceeded was contrary to the decision of the Hon’ble Delhi High Court in TV Today Network Ltd., 141 taxmann.com 275, wherein the amendment made by the Finance Act, 2021 by insertion of Explanation 2 to section 36(1)(va) was held to be prospective in nature and applicable only from 01.04.2021. It was therefore contended that once the amendment could not be retrospectively applied to assessment year 2016-17, the reopening founded upon such premise could not be sustained.

The learned Departmental Representative (ld.DR), on the other hand, relied upon the orders passed by the Assessing Officer and the learned CIT(A) and submitted that the reopening was validly undertaken and that the disallowance was correctly made. The rival submissions have been considered and the material available on record has been carefully examined.

We first deal with the alternative contention advanced by the ld.AR regarding the basis of the reopening. For this purpose, it is necessary to examine the sequence of events leading to the reassessment and, in particular, the reasons recorded by the Assessing Officer under section 147 of the Act. The original assessment under section 143(3) was completed on 22.12.2018. It is noticed from the material on record that the delay in depositing the employees’ contribution to the relevant funds had been reported in the tax audit report. No addition was made on this account in the original assessment. Subsequently, the Assessing Officer recorded reasons for reopening the assessment and issued notice under section 148 on 30.03.2021.

The reasons recorded by the Assessing Officer form the foundation for the assumption of jurisdiction under section 147. On examination of the reasons reproduced in the assessment order, it is seen that the Assessing Officer referred to the information contained in Form No.3CD regarding the employees’ contribution of Rs.32,33,131/- which had been credited to the employees’ account in the relevant funds beyond the stipulated dates. The Assessing Officer referred to the provisions of section 36(1)(va) and proceeded to observe that the assessee had claimed deduction in respect of the amount which had actually been paid after the due date prescribed under the relevant enactments. On that basis, the Assessing Officer formed the belief that the amount was not allowable under section 36(1)(va), that income chargeable to tax had escaped assessment and that it was a fit case for reopening the assessment under section 147 of the Act.

At this stage, it is important to notice that the reasons recorded under section 147 do not, in terms, refer to the amendment made by the Finance Act, 2021 to section 36(1)(va) or to section 43B, nor do they state that the assessment was being reopened on the premise that such amendment was retrospective in operation. The recorded reasons proceed by referring to the provisions of section 36(1)(va), the statutory due dates and the actual dates of payment reflected in the material available to the Assessing Officer. The Assessing Officer, on the basis of such material, recorded his belief that the deduction was not allowable and that income had escaped assessment.

The assessee thereafter raised objections to the reasons recorded for reopening. While disposing of those objections by order dated 17.03.2022, the Assessing Officer referred to the fact that the original assessment had been completed on 22.12.2018 and that no addition had been made on account of the delayed employees’ contribution, notwithstanding the fact that the delay had been reported in the tax audit report. The Assessing Officer observed that the original assessment had been completed having regard to the judicial pronouncements prevailing at that point of time. However, while dealing with the position thereafter, the Assessing Officer referred to the amendment brought about by the Finance Act, 2021 and observed that, post-2021, employees’ contribution was required to be paid within the due dates prescribed under the respective Acts. The Assessing Officer further observed that a change had been brought about with retrospective effect and, consequently, the employees’ contribution paid beyond the statutory due dates was liable to be disallowed.

The reassessment order thereafter proceeded to make the disallowance of Rs.32,33,131/- on the basis that the employees’ contribution had been deposited beyond the due dates prescribed under the respective enactments. Thus, while the reasons recorded for reopening proceeded on the basis of the provisions of section 36(1)(va) and the delayed payment reflected in the material before the Assessing Officer, the subsequent order disposing of the objections specifically referred to the amendment made by the Finance Act, 2021 and described the change as having retrospective effect. The assessment order also proceeded in the light of the amended statutory position and the understanding expressed by the Assessing Officer regarding its applicability.

It is in the above factual background that the contention advanced by the ld.AR has to be examined. The ld.AR has relied upon the decision of the Hon’ble Delhi High Court in TV Today Network Ltd., 141 taxmann.com 275, for the proposition that the amendment made by the Finance Act, 2021 to section 36(1)(va) read with section 43B, by insertion of Explanation 2, is prospective in nature and applicable only from 01.04.2021. It is the contention of the assessee that since the assessment year under consideration is 2016-17, the said amendment could not have been applied to the year under consideration and, consequently, the reopening, which according to the assessee was founded upon the retrospective operation of the amendment, is liable to be quashed.

We have given our careful consideration to the aforesaid contention. There is no dispute with the proposition that the reasons recorded by the Assessing Officer constitute the foundation of the proceedings under section 147. The validity of the assumption of jurisdiction has necessarily to be examined with reference to the reasons recorded by the Assessing Officer for forming the belief that income chargeable to tax has escaped assessment. The Assessing Officer cannot, after having recorded reasons, improve upon or substitute the basis of the reopening by subsequently referring to material or reasoning which does not form part of the recorded reasons. The subsequent proceedings must therefore be examined keeping this fundamental distinction in view.

In the present case, however, the reasons recorded do not state that the assessment was being reopened because of the Finance Act, 2021 amendment or on the ground that the said amendment had retrospective operation. The reasons identify the delayed payment of employees’ contribution, refer to section 36(1)(va), take note of the dates of payment and proceed to form the belief that the amount was not allowable as deduction. Therefore, although the Assessing Officer, while disposing of the objections raised by the assessee and while completing the reassessment, subsequently referred to the Finance Act, 2021 amendment and expressed the view that the amendment operated retrospectively, such subsequent reference cannot, by itself, alter the basis on which jurisdiction had originally been assumed under section 147.

In other words, the entire edifice of reassessment proceedings has to stand on the foundation of the reasons recorded under section 147. The speaking order disposing of the objections and the subsequent assessment order cannot be treated as the foundation for the reopening; they are proceedings which follow the assumption of jurisdiction on the basis of the recorded reasons. Therefore, a reference made in those subsequent orders to the amendment introduced by the Finance Act, 2021, even if the Assessing Officer understood the amendment to be retrospective, cannot retrospectively become the reason for reopening when such proposition does not form part of the reasons actually recorded under section 147.

We therefore find considerable merit in the proposition that the subsequent reference to the Finance Act, 2021 amendment in the order disposing of the objections or in the reassessment order cannot be used to reconstruct the reasons recorded under section 147. The question that therefore arises for our consideration is whether the legal basis actually stated in the recorded reasons, namely, that employees’ contribution deposited beyond the due date prescribed under the relevant enactment was not allowable under section 36(1)(va), was legally sustainable.

In this regard, the decision of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd., 143 taxmann.com 178, assumes significance. The Hon’ble Supreme Court, while considering the provisions of section 2(24)(x), section 36(1)(va) and section 43B, examined the position relating to employees’ contribution for assessment years prior to assessment year 2021-22 and held that the non obstante clause contained in section 43B could not operate so as to override the specific requirement contained in section 36(1)(va) in respect of employees’ contribution. The Hon’ble Supreme Court thus held, independently of the amendment made by the Finance Act, 2021, that employees’ contribution was required to be deposited on or before the due date prescribed under the relevant welfare legislation as a condition for allowability of deduction.

The distinction between the decision in TV Today Network Ltd. and the decision in Checkmate Services (P.) Ltd. is therefore material for the issue before us. The decision in TV Today Network Ltd. concerns the question whether the amendment introduced by the Finance Act, 2021 could itself be given retrospective operation. The decision in Checkmate Services Pvt. Ltd., on the other hand, determines the legal position under the substantive provisions governing employees’ contribution and holds that, even for assessment years prior to assessment year 2021-22, employees’ contribution deposited beyond the due date prescribed under the relevant welfare legislation was not allowable merely because it had been deposited before the due date for filing the return under section 139(1). Consequently, the proposition that the Finance Act, 2021 amendment is prospective does not lead to the further conclusion that, for assessment year 2016-17, employees’ contribution paid beyond the statutory due date was allowable under the pre-amendment law.

It is true that the notice under section 148 in the present case was issued on 30.03.2021 and that the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. was rendered subsequently. However, the question before us is not whether the Assessing Officer, on the date of recording the reasons, could have relied upon the subsequent decision of the Hon’ble Supreme Court. The question is whether the reasons actually recorded by the Assessing Officer disclosed a legally sustainable basis for forming the belief that income had escaped assessment. As noted above, the recorded reasons did not depend upon the retrospective operation of the Finance Act, 2021 amendment. They proceeded on the provisions of section 36(1)(va), identified the delayed payments and formed the belief that the corresponding deduction was not allowable.

The subsequent authoritative interpretation of the very provisions of section 36(1)(va) by the Hon’ble Supreme Court in Checkmate Services (P.) Ltd. establishes that the legal position underlying the reasons recorded by the Assessing Officer was not dependent upon giving retrospective operation to the Finance Act, 2021 amendment. Thus, even though the Assessing Officer subsequently referred to the amendment and expressed the view in the speaking order and the assessment order that the amendment was retrospective, such reference does not constitute the foundation of the reopening and, at the same time, the subsequent judicial pronouncement demonstrates that the substantive legal proposition forming the basis of the recorded reasons was not dependent upon retrospective operation of that amendment.

We therefore find that the reliance placed by the ld.AR upon TV Today Network Ltd. does not, in the facts of the present case, render the recorded reasons invalid. The assessee's argument proceeds on the premise that the reopening necessarily rested upon retrospective application of the Finance Act, 2021 amendment. On examination of the recorded reasons, that premise is not borne out. The recorded reasons proceeded upon the provisions of section 36(1)(va) and the delayed deposit of employees’ contribution. The subsequent reference to the amendment in the speaking order disposing of the objections and in the reassessment order cannot alter that position. Consequently, the challenge to the validity of the reassessment proceedings on this ground fails.

We may also observe that the notice under section 148 was issued on 30.03.2021, within four years from the end of the relevant assessment year. The ld.AR having expressly not pressed Ground No.1 insofar as it proceeded on the premise that the reopening was beyond four years and that, for that reason, the Assessing Officer was required to establish failure on the part of the assessee to disclose fully and truly all material facts, no adjudication on that aspect is called for. The challenge to the assumption of jurisdiction under section 147, on the alternative ground urged during the course of hearing, is accordingly rejected.

We now turn to the addition on merits. The Assessing Officer noticed from Form No.3CD that the assessee had received employees’ contributions towards provident fund and other welfare funds and that the payments to the concerned authorities had been made beyond the due dates prescribed under the respective enactments. The total amount so identified was Rs.32,33,131/-. The assessee's contention before the lower authorities was that the payments had nevertheless been made before the due date for filing the return under section 139(1) and, therefore, deduction was allowable by virtue of section 43B.

The issue is now covered against the assessee by the decision of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd., 143 taxmann.com 178. As noted hereinabove, the Hon’ble Supreme Court held that employees’ contribution governed by section 36(1)(va) stands on a footing distinct from the employer’s contribution governed by section 43B and that the employees’ contribution has to be deposited within the due date prescribed under the relevant welfare legislation in order to qualify for deduction. The fact that the payment was made before the due date for filing the return under section 139(1) does not cure the delay in respect of employees’ contribution.

In the present case, the dates recorded by the Assessing Officer demonstrate that the payments in respect of the employees’ contribution were made beyond the respective statutory due dates. The assessee has not disputed the dates of payment. Therefore, applying the ratio of the decision of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd., the amount of Rs.32,33,131/- is not allowable as deduction. The order of the learned CIT(A) confirming the said disallowance is accordingly upheld.

In the result, Ground No.1, insofar as it challenges the reopening on the ground that the notice under section 148 was issued beyond four years and that the Assessing Officer was consequently required to establish failure on the part of the assessee to disclose fully and truly all material facts, is not pressed and is dismissed as such. The alternative contention advanced by the ld.AR challenging the validity of the reopening on the ground that the Assessing Officer proceeded on the basis of retrospective operation of the Finance Act, 2021 amendment is also rejected. The addition of Rs.32,33,131/- made under section 36(1)(va) is confirmed.

In the result, the appeal of the assessee is dismissed.