SREE GOKULAM CHIT AND FINANCE CO. PVT. LTD.,CHENNAI vs. DY. COMMISSIONER INCOME TAX, CENTRAL CIRCLE-1(2), CHENNAI

As regards to merits of the case, the CIT(A) confirmed the disallowance u/s.36(1)(va) of the Act and now before us the ld.counsel for the assessee could not make any argument when the decision of Hon’ble Supreme Court in the case of Checkmate

Before us, the ld.counsel in regard to making prima-facie adjustment u/s.143(1) of the Act only argued and drew our attention to the audit report, copy of which is filed in Form No.3CD in assessee’s paper-book from pages 6 to 21. The ld.counsel drew our attention to specific clause 20B of the audit report and stated that there are only indicative payments and not the actual. The ld.counsel further drew our attention to clause 21, sub-clause (b)(8) i.e., payment to PF and other funds, etc., in sub-clause (4), which was left blank and there is no indication.

On the other hand, the ld. Senior DR, relied on the provisions of section 143(1) of the Act as amended from time to time and stated that any incorrect claim and if such incorrect claim is apparent from any information in the return of income and moreover disallowance of expenditure indicated in the audit report and not taken into account in the total income in the return of income, the same is to be disallowed while making prima-facie adjustment under this provision. The ld.senior DR relied on the order of CIT(A) who has elaborately discussed this issue.

We have heard rival contentions and gone through facts and circumstances of the case. The admitted facts are that as per audit report filed by assessee along with the return of income in Form No.3CA, the assessee has filed complete details of the dates of payments of PF & ESI. Admittedly, the assessee has remitted delayed payment of employees contributions of PF & ESI beyond the due date as prescribed under the PF & ESI Act but before the date of filing of return of income. The details are as under:- Employees Provident Fund Month Place Employees Due date for Actual date No. of days contribution payment of payment delay Apr-19 HO 3,919 15-May-19 17-Sep-19 125 May-19 HO 3,228 15-Jun-19 18-Sep-19 95 Jun-19 HO 5,640 15-Jul-19 18-Sep-19 65 Jun-19 HO 6,186 15-Jul-19 12-Sep-20 425 Jun-19 HO 6,630 15-Jul-19 16-Oct-19 93 Jun-19 HO 6,012 15-Jul-19 16-Aug-19 32 Jun-19 HO 24,097 15-Jul-19 19-Jul-19 4 Jun-19 HO 77,103 15-Jul-19 17-Jul-19 2

Now, the question arises whether in view of the provisions of section 143(1)(a) of the Act, while processing the return of income filed by the assessee, the total income or loss shall be computed after making the following adjustments as described u/s. 143(1)(a) (ii) of the Act i.e., an incorrect claim, if such incorrect claim is apparent from any information in the return or not. The Memorandum of Finance Bill, 2008 as well as Finance Bill, 2016 explaining the provisions of section 143(1)(a)(ii) of the Act will explain the situation and the relevant memorandum of Finance Bill, 2008 and Finance Bill, 2016 are being reproduced as it is:- Memorandum to Finance Bill, 2008 Correction of arithmetical mistakes and adjustment of incorrect claim under section 143(1) through Centralised Processing of Returns. Generally, tax administrations across countries adopt a two-stage procedure of assessment as part of risk management strategy. In the first stage, all tax returns are processed to correct arithmetical mistakes, internal inconsistency, tax calculation and verification of tax payment. At this stage, no verification of the income is undertaken. In the second stage, a certain percentage of the tax returns are selected for scrutiny/audit on the basis of the probability of detecting tax evasion. At this stage, the tax administration is concerned with the verification of the income. In India, the scheme of summary assessment being in force since the 1st day of June, 1999 does not contain any provision allowing for prima facie adjustment. The scope of the present scheme is limited only to checking as to whether taxes have been correctly paid on the income returned. Under the existing provisions of section 143(1), there is no provision for correcting arithmetical mistakes or internal inconsistencies. This leads to avoidable revenue loss. With an objective to reduce such revenue loss, it is proposed to amend section 143(1) of the Income-tax Act. It is proposed to provide that the total income of an assessee shall be computed under section 143(1) after making the following adjustments to the total income in the return:-

From the above Memorandum to Finance Bill, 2008 & 2016 explaining the provisions of section 143(1)(a)(ii) specifies the incorrect claim particularly if such incorrect claim is apparent from any information in the return of income and that can be any information as such as the audit report or some other information as provided by assessee in the return of income. In this context, it is pertinent to mention that earlier only prima-facie arithmetic adjustments can be made but in view of the amendment provisions by the Finance Act, 2008 w.e.f. 01.04.2008, the amended provisions empowers adjustments to be made interalia on the basis of remarks indicated in the return of income or incorrect claim apparent from any information in the return of income. Post amendment w.e.f. 01.04.2008, the scope of adjustment u/s.143(1) of the Act has widened and enlarged. It provides that total income

Coming to another angle that this issue has been settled by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra and what will be the impact of law laid down by Hon’ble Supreme Court and this has been explained by Hon’ble High Court of Madras in the case of South Industrial Corporation Ltd., (2002) 258 ITR 481, wherein it is held as “When a statutory provisions is Smaller Bench, the order which does not conform to the law laid down by the Larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. The rectification under section 154(1) on the ground that the order sought to be rectified is not in conformity with the law declared by the apex court is required to be upheld”. It means that there is no ambiguity of law after Hon’ble Supreme Court judgement. Even it cannot be said that this is a debatable issue because Hon’ble Supreme Court has interpreted the law and is to be regarded as law as it always was unless declared by the court itself to be prospective in operation.

Coming to judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra, wherein the Hon’ble Supreme Court has considered the aspect of deemed income in regard to money held by assessee as a custodian on account of employees contribution of ESI and PF payments and that is also held not be an expenditure. The Hon’ble Supreme Court considered that the ESI and PF as custodian is deemed income in view of provisions of section 36(1)(va) as well as section 2(24)(x) of the Act. The Hon’ble Supreme Court held as under:- 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income.

In view of the above discussion carried out in view of the amended provisions of the Act by the Finance Act, 2008 w.e.f. 01.04.2008 and subsequently by Finance Act, 2016 w.e.f. 01.06.2016, the legal position is very clear that while processing return of income u/s.143(1)(a)(ii) of the Act, an incorrect claim, if such incorrect claim is apparent from any information in the return of income is to be disallowed and such adjustment is to be made on the total income or loss to the assessee. We find not infirmity in the order of CIT(A) and that of the CPC and hence, the same are confirmed. This issue of assessee’s appeal is dismissed.

The next issue in this appeal of assessee is as regards to the order of CIT(A) in confirming the action of AO denying the tax benefit / tax rates to be adopted while computing tax liability in term of Section 115BAA(5) of the Act.

Brief facts are that the CPC, Bangalore while processing the return of income computed the tax liability and comparative chart as provided by the assessee and as computed by the CPC is as under:- Particulars As per Appellant As per CPC Total Income 2,10,99,67,200 2,11,01,80,030 Tax Liability after relief 53,06,51,890 73,54,23,071 Interest and fee payable 10,000 5,31,67,327 Total Liability 53,06,61,890 78,85,90,398 Total Taxes Paid (Advance Tax, 53,30,75,986 53,30,65,748 TDS & Self – Assessment Tax) Balance Tax Payable / (24,14,100) 25,55,24,650 (Refundable)

We have heard rival contentions and gone through the facts and circumstance of the case. We noted that the assessee has already moved petition for condonation of delay in filing the return of income u/s.119(2)(b) of the Act dated 09.11.2022 before CBDT, New Delhi. The Revenue can await decision of this petition and in the eventuality, the CBDT condones the delay, the assessee is liable to assess at a lower rate of tax in the given facts and circumstances of the case. Hence, we restore this issue back to the file of the AO to await and pursue the petition for condonation of delay filed by assessee before CBDT, New Delhi. The assessee will also pursue the same and we are confident that CBDT will take up this decision and will decide this issue at the earliest. In term of the above, this issue of assessee’s appeal is allowed for statistical purposes.

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