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Facts
The assessee filed its return of income which was processed under Section 143(1) of the Income Tax Act, leading to certain additions. The assessee appealed to the CIT(A), and during the pendency, the CPC issued a rectification order. The disallowances pertained to employee contributions to PF/ESI made belatedly (Section 36(1)(va)) and disallowance under Section 43B.
Held
The Tribunal held that while the CPC's power to make disallowances under Section 143(1) was limited, adjustments for incorrect claims are permissible. It was noted that some payments for PF/ESI were made within the due date, and the disallowance for Section 36(1)(va) should be recomputed considering this. The disallowance under Section 43B was found to have been already deleted by the CPC in a rectification order.
Key Issues
Whether the CPC can make disallowances under Section 143(1) for delayed payments of employee contributions to PF/ESI and whether the disallowance under Section 43B was correctly confirmed.
Sections Cited
143(1), 36(1)(va), 43B, 139(1), 154
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arises out of order dated 04/12/2024, passed by Ld.CIT(A) Bhubaneswar for A.Y. 2020-21 on following grounds of appeal :
“1. Invalid Intimation Order u/s 143(1): a) The CPC erred in law and in facts in passing an intimation order u/s 143(1). b) The CPC has gone beyond the powers conferred upon it u/s 143(1) while making disallowance u/s 36(1)(va) and s. 43B.
2 ITA 6649/Mum/2024 A.Y. 2020-21 c) The CPC has ignored the explanation provided by the appellant in response to notice for proposed adjustment u/s. 143(1)(a) and Form 3CB-3CD in respect to the disallowance u/s. 36(1)(va). d) The CPC has not mentioned anything in the notice for proposed adjustment u/s. 143(1)(a) in respect to the disallowance u/s. 43B. e) The CPC has not provided any reason or explanation for rejecting the explanation provided by the appellant. f) The CIT(A) has erred in facts and on law in not adjudicated this ground of Appeal
. g) Your appellant prays that the intimation order u/s 143(1) be quashed.
2. Disallowance u/s 36(1) (va) of ₹ 4,14,709: a) The CPC has erred in law and on facts in making a disallowance of 4,14,709 u/s 36(1)(va). b) The CPC has failed to consider the fact that in Form 3CD only the details of employees share of PF and ESI are to be filled and not the disallowance amount. c) The CPC has failed to consider the observation of the auditor in Form 3CB for allowability of PF and ESIC. d) The CPC has erred in not verifying the details filled in Form 3CD which would have shown that out of ₹4,14,709, ₹1,75,308 was paid before the due dates of PF and ESIC and therefore did not warrant any disallowance u/s 36(1)(va). e) The CIT(A) has erred in facts and on law in confirming this action of the CPC without verifying the evidences, documents & submissions made. f) Your appellant prays that the disallowance of 4,14,709 u/s 36(1)(va) be deleted or in the alternative be restricted to ₹2,39,401 (414709- 1,75,308).
3. Disallowance u/s 43B of 92,504: a) The CPC has erred in law and on facts in making a disallowance of 92,504 u/s 43B. b) The CPC has failed to consider the fact that in point 26(i) (B) (a) of Form 3CD does not speak about disallowance u/s 43B but in fact
3 ITA 6649/Mum/2024 A.Y. 2020-21 states the allowability of expense u/s 43B if incurred in previous year and paid before due date of filing income tax return as per s. 139(1). c) The CPC has failed to consider the fact that s. 43B specifically allows the expenses incurred in any financial year if they are paid before the due date of filing of income tax return. d) The CIT(A) has erred in facts and on law in confirming this action of the CPC. e) The CPC has correctly rectified the mistake apparent from the Intimation Order u/s 143(1) but the hon. CIT(A) has failed to confirm this rectification. f) Your appellant prays that the disallowance of deleted. 92,504 u/s 43B be 4. Violation of Natural Justice: a) The CPC has erred in law and on facts in passing the intimation order without providing a proper opportunity to the appellant to submit its reply. b) The CPC has in its proposal to make adjustment u/s 143(1) only mentioned about disallowance u/s 36(1) (va) of ₹ 4,14,709 but while passing intimation order u/s 143(1) also made disallowance of 92,504 u/s 43B. c) The CPC expects the appellant to submit its reply by providing a space of 500 characters only. The appellant in its reply has mentioned that a very short space is provided for furnishing reply. d) The appellant requested for a virtual hearing which was also not provided by the CPC. e) The appellant wanted to submit a second rectification request on the income tax portal against the intimation order u/s 143(1) but was not permitted to do so against the provisions of s. 154.. f) The hon. CIT(A) has erred in law and on facts in confirming the action of the Id. A.O. in gross violation of provisions fairness of natural justice, equity and g) The hon. CIT(A) has further erred in law and on facts in not providing an opportunity of virtual hearing despite specifically asking for the same.
4 ITA 6649/Mum/2024 A.Y. 2020-21 h) Your appellant prays that the intimation order passed in violation of the provisions of natural justice be quashed. 5. Prayer for leave: Your appellant prays for the leave to add, amend, alter, delete or modify any of the above grounds.” Brief facts of the case are as under:
Assessee is an individual and filed its return of income declaring total income of Rs. 26,06,520/- on 14/02/2021 the return was processed u/s.143(1) of the act, and the income was determined by CPC at Rs. 31,13,750/- by making addition of Rs. 5,06,210.
Aggrieved by the order of the CPC assessee preferred appeal before Ld.CIT(A).
As the appeal was pending before Ld.CIT(A) the CPC issued a 154 order suo moto rectifying disallowance of Rs. 92,504/- that was initially made u/s. 143B of the Act.
3.1 Before the Ld.CIT(A) assessee submitted that, the main disallowance made by the CPC was towards the employee’s contribution towards ESI/PF made belatedly amounting to Rs. 4,14,709/-. It was submitted that, not all the payment were belatedly made. However the CPC disallowed the entire amount without considering the date of payment vis-à-vis the due date. The Ld.CIT(A) while deciding the issue upheld the disallowance made by the Ld.AO u/s. 36(1)(a) of the act, amounting to Rs. 4,14,709/-.
5 ITA 6649/Mum/2024 A.Y. 2020-21 3.2 The Ld.CIT(A) also confirmed the addition of Rs. 92,504/- which was subsequently rectified by the CPC u/s. 154 of the Act suo motto even though the said fact was brought to the notice of Ld.CIT(A).
Aggrieved by the order of the Ld.CIT(A) assessee is in appeal before this Tribunal.
Ground no. 1-2
The Ld.AR submitted that, u/s. 143(1)(a), CPC cannot make such disallowance, as no power is conferred upon it to do so . The Ld.AR in support relied on the decision of coordinate bench of this Tribunal in case of P. R. packaging service vs. ACIT reported in 2023 148 taxmann.com153. The Ld.AR submitted that: a) The CPC erred in law and in facts in passing an intimation order u/s 143(1). b) The CPC has ignored the explanation provided by the appellant in response to notice for proposed adjustment u/s. 143(1)(a) and Form 3CB in respect to the disallowance u/s. 36(1) (va). c) The CPC has not mentioned anything in the notice for proposed adjustment u/s. 143(1)(a) in respect to the disallowance u/s. 43B. d) The intimation order is passed in violation of the provisions of s. 36(1) (va) and s. 43B. e) The CPC has ignored the various case laws in favour of the appellant. f) The CPC has gone beyond the powers conferred upon it u/s 143(1) while making disallowance u/s 36(1) (va) and s. 43B. g) The CPC has not provided any reason or explanation for rejecting the Page 2 of 12 AABPC5277G- ARVIND LAXMICHAND CHHEDA A.Y. 2020-21 ITBA/APL/S/250/2024-25/1070872433(1) explanation provided by the appellant. h)Your appellant prays that the intimation order u/s 143(1) be quashed.
6 ITA 6649/Mum/2024 A.Y. 2020-21 4.2 On the contrary the Ld.DR relied on the orders passed by the authorities below.
I have perused the submissions advance by both sides based on the record filed before this Tribunal.
At the threshold I do not agree with the argument that disallowance could not be made in respect of delayed payment towards ESI/PF u/s. 143(1)(a) of the Act, u/s. 143(1) the total income or loan declared in the return is computed after making adjustments pertaining to arithmetical errors like any calculation mistakes in the return, any claim that are clearly incorrect based on the information provided in the return.
5.1 Further the law declared by the Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. vs. CIT reported in 2022 448 ITR 518 is the law of land, as it ought to have been, when the provisions was inserted. The decision of Hon’ble Supreme Court does not specify that the ratio decidendi will apply prospectively and therefore the judicial view based on which the assessee had sought to take benefit by depositing the funds with the government account before the filing of the return u/s. 139(1) of the Act will no longer be applicable.
5.2 It can thus be stated that the position of law would always be as was declared by Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. (supra), and no deduction could be granted to assessee, in case the employs contribution are deposited to the respected fund beyond the “due date” prescribed under the respective act.
7 ITA 6649/Mum/2024 A.Y. 2020-21 6. However, in the present facts of the case, there are some contributions are made by the assessee within the “due date” to the respective funds. Such contribution cannot subjected to disallowance. It is noted that details of the contributions and deposit dates are placed at page 173 of the paper book, according to which Rs. 1,75,308/- was paid within the “due date” and Rs. 2,39,419/- was paid beyond the “due date”. The Ld.AO is accordingly directed to recomputed the disallowance u/s. 36(1)(va) by granting credit of such payments that has been deposited within the “due dated”.
Accordingly Ground no. 1 raised by assessee stands dismissed and Ground no. 2 raised by the assessee stands partly allowed.
Ground no. 3 is in respect of disallowance u/s. 43B of Rs. 92,504/-. The Ld.AR placed reliance on page 163 of the paper book, wherein the CPC deleted the disallowance that was originally made vide intimation dated 28/10/2021. The Ld.AO is directed to delete the addition confirmed by the Ld.CIT(A) as a said disallowance is already deleted by the CPC in the rectification order passed by the CPC.
Accordingly the Ground no. 3 raised by the assessee stands allowed.
8 ITA 6649/Mum/2024 A.Y. 2020-21 In the result appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 19/02/2025