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Income Tax Appellate Tribunal, A BENCH, MUMBAI
order : 23.05.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 22.06.2021, passed by the Ld. Commissioner of Income Tax (Appeals), [hereinafter referred to as „the CIT(A)‟] [National Faceless Appeals Centre (NFAC)] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] in appeal [CITA), Mumbai-16/10008/2019-20] for the Assessment Year 2017- 18, whereby the CIT(A) (NFAC) had dismissed the appeal filed by the Assessee against the intimation/order, dated 30.03.2019, issued/passed by Deputy Commissioner of Income Tax, CPC under Section 143(1) of the Act.
Appellant has raised the following grounds of appeal:
Assessment Year: 2017-18 “The Ld.CIT(Appeals), NFAC has erred in upholding the decision of addition of Rs. 24,95,343/- being the amount of employee‟s contribution to PF and ESIC paid belatedly. Taking view of the law as explained by the insertion of Explanation to Section 36(1)(va) and Section 43B of the Income Tax Act, 1961 inserted by the Finance Act, 2021, considering the applicability of the explanation retrospectively. As per the recent judgment of Hon‟ble ITAT Hyderabad on 15th June, 2021 in the case of Salzgitter Hydraulics (P). Ltd. Vs. Income Tax Officer and to this effect the Memorandum of Explanation to the Budget issued by the CBDT for the amendments in section 36(va) as well as 43B vide Finance Act, 2021, specifies that the amendments will be applicable w.e.f. 01.04.2021 and will prospective.”
The brief facts of the case are that the Appellant-company is engaged, inter alia, in the business of providing security services. For the Assessment Year 2017-18, the Appellant e-filed its return of income on 27.09.2017 declaring total income of INR 35,65,765/- which was processed under Section 143(1) of the Act by the Deputy Commissioner of Income Tax, CPC computing income at INR.60,61,108/- after making addition of INR 24,95,343/- being employees‟ contribution to Employees‟ State Insurance Corporation (ESI) and Provident Fund (PF) made after the due date specified in the applicable statute but before the due date of filing income tax return prescribed under Section 139(1) of the Act.
Being aggrieved, the Appellant filed appeal before the CIT(A) which was dismissed by the CIT(A) placing reliance on the provisions contained in Section 143(1)(a)(iv) read with Section 36(1)(va) of the Act holding as under: “4.2 Findings 4.2.1 Before adverting to the facts of the instant case, a note may be taken of the provisions of section 143(1)(a). The Sections reads as under: “Assessment-
Assessment Year: 2017-18 143 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; (iv) disallowance of expenditure indicated in the audit report but not taken into account 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 electronics mode:
Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made.”
4.2.2 On a reading of clause (iv) above it can be seen that if disallowance of an expenditure is indicated in the audit report and the indicated disallowance has not already been taken into account by the assessee in computing the total income, then total income or loss u/s 143(1)(a), shall be computed after making the said disallowance indicated in the audit report.
4.2.3 The facts in the instant case are that the information in Col 20(b), i.e. “Details of contribution received from employees for various funds as referred to in section 36(1)(va)” indicates that employees‟ contribution of Rs. 24,95,343/- was paid beyond the “due date”. Further, as per Section 36(1)(va), employees contribution is allowable as a deduction only if paid
Assessment Year: 2017-18 before the due date as defined in Explanation to that section. Therefore, the adjustment of Rs. 24,95,343/- made in intimation u/s 143(1) squarely falls within the ambit of adjustments that shall be made u/s 143(1) in computing total income or loss. Accordingly, the argument of the appellant that the addition of Rs. 24,95,343/- was beyond the scope of section 143(1) is found to be devoid of merit. Ground 2 of appeal is thus dismissed.” (Emphasis Supplied) 5. Now the Appellant is before us challenging the order dated 22.06.2021 passed by CIT(A).
The Ld. Authorised Representative for the Appellant relied upon written submissions dated 16.02.2022 and submitted that employees' contributions to ESI and PF are allowable business deduction even if it is same are deposited beyond the due date specified under the applicable statute but before the due date of filing of Income Tax return. He submitted that there being no change in the applicable law for the Assessment Year 2017-18. The Explanatory Memorandum to Finance Act, 2021 specifically provided that the proposed amendments to Section 36(1)(va) and Section 43B of the Act will take effect from 01.04.2021 and shall accordingly apply from Assessment Year 2021-22, and onwards. In this regard, he relied upon the following decisions of the Tribunal - Salzgitter Hydraulics (P.) Ltd. Vs Income Tax Officer (ITA 644 /HYD/2020), Shashi Rajawat vs. ITO (ITA No. 81/JP/2021) and The Chodavaram Co- operative Sugar Ltd. vs. ADIT (ITA No. 25 & 28/VIZ/2021). He further submitted that it was brought to the knowledge of the CIT(A) that his predecessor had decided this issue in favour of the Appellant in Appellant‟s own case in Appeal No.CIT(A)-16/IT- 10116/ITO9(1)(4)/2017-18 for the Assessment Year 2015-16 and this was also brought to be knowledge of CIT(A). In addition to the above, the Ld. Authorised Representative of the Appellant also submitted that the provisions of Section 143(1)(a)(iv) are not attracted in the Assessment Year: 2017-18 facts of the present case as the tax auditor had only given details require in tax audit report in Form No. 3CD.
Per contra, Ld. Departmental Representative relied upon the order passed by the CIT(A) to support the order/intimation issued by CPC under Section 143(1) of the Act. He also relied on the amendments made to Section 36(1)(va) and Section 43B of the Act by the Finance Act, 2021. He submitted that the addition/adjustment squarely falls within the ambit of the provisions of Section 143(1)(a)(iv) of the Act.
We have carefully considered the rival contentions of the Ld. Departmental Representative as well as the order passed by CIT(A). It is admitted position that employees contribution towards ESI and PF amounting to INR 24,95,343/- was deposited by the Appellant before the due date of filing the return prescribed under Section 139(1) of the Act.
The CIT(A) has sought to justify the additions/adjustments made under Section 143(1) of the Act on 30.03.2019 by placing reliance upon the amendments introduced by the Finance Act, 2021 which was passed much later on 28.03.2021 by contending that the amendments are to be interpreted retrospectively. Such an approach adopted by the CIT(A) cannot be countenanced. The date on which intimation/order under Section 143(1) of the Act was passed the issue stood decided in the favour of the Appellant by virtue of the decisions of the jurisdictional High Court in the case of Hindustan Organics Chemicals Ltd.: 366 ITR 1 (Bom) and the Hon‟ble Supreme Court in the case of Alom Extrusions Ltd.: 319 ITR 306 (noted by CIT(A) in paragraph 3.3.1 of the order). Even assuming arguendo that the stand of the CIT(A)/Revenue is acceptable, the issue was not free from doubt in any case and fell in the category of debatable issue which could not have been addressed by way of additions/adjustments made under Section 143(1) of the Act as even after the introduction of amendments to Section 36(1)(va)/43B of the Assessment Year: 2017-18 Act by way of Finance Act, 2021, Hyderabad Bench of the Tribunal had, vide order dated 15.06.2021, in the case of Salzgitter Hydraulics (P.) Ltd. (supra), held that the aforesaid amendments are applicable from Assessment Year 2021-2022. Accordingly, the adjustments/additions made by the Deputy Commissioner of Income Tax, CPC in respect of employees contribution to ESI and PF fell outside the scope of Section 143(1) of the Act. We also find merit in the contention of the Appellant that provisions of Section 143(1)(a)(iv) of the Act are not attracted in the facts of the present case. Section 143(1)(a)(iv) provides for adjustment in the return of income filed by an assessee in case a disallowance of expenditure is indicated in the audit report but had not taken into account in computing the total income in the return. A perusal of Form 3CD, the form prescribed for filing tax audit report, would show that the tax auditor is not just required to identify and provide details of disallowance of expenditure. Form 3CD also provides for disclosures of various information/details relating to an assessee such as the nature business/profession, books of accounts maintained etc. Further, not all clauses of Form 3CD require the tax auditor to express an opinion. Some of the clauses require the tax auditor to just provide information/details. Clause 20(b) of Form 3CD falls in this category. The tax auditor is merely required to provide „Details of contributions received from employees for various funds as referred to in section 36(1)(va)‟. This becomes clear on examining other clauses which specifically require the tax auditor to express an opinion, such as Clause 21(b) requiring disclosure of amounts inadmissible under Section 40(a) of the Act, Clause 21(d) requiring disclosure of amounts inadmissible under Section 40A(3) of the Act and Clause 21(e) requiring disclosure of amounts inadmissible under Section 40A(9) of the Act. Since Clause 20(b) of Form 3CD does not require any expression of opinion on the part of tax auditor, it cannot, in our opinion, be said that disclosure made by tax auditor in the aforesaid clause constitutes a „disallowance of expenditure
Assessment Year: 2017-18 indicated in the audit report‟ triggering the provisions of Sections of Section 143(1)(a)(iv) of the Act. Further, even otherwise, this issue is squarely covered in favour of the assessee by the decision of co– ordinate bench in case of Kalpesh Synthetics (P.) Ltd. Vs. Deputy Commissioner of Income-tax, CPC Bangaluru [2022] 137 taxmann.com 475 (Mumbai - Trib.).
In view of above, the solitary ground of appeal raised by the Appellant/Assessee is allowed and addition of INR 24,95,343/- on account of delayed deposit of employee contribution to ESI and PF is deleted.
In the result, appeal is allowed.
Order pronounced on 23.05.2022.