SAHRUDAYA HEALTH CARE (KURNOOL) PRIVATE LIMITED,HYDERABAD vs. ITO, WARD-3(1), HYDERABAD

Facts of the case in brief are that the assessee is a company filed its return of income electronically on 30.10.2018 declaring loss of Rss.20,76,090/- which was processed by the CPC u/s 143(1) of the Act at Rs. 58,67,170/- under normal provisions of the Act and Rs.1,01,82,478/- under the provisions of section 115JB of the Act. The case was selected for scrutiny under CASS and accordingly, notice u/s 143(2) of the Act dt.22.09.2019 was issued to the assessee through ITBA and was duly served on the assessee. In response to the notices issued through ITBA, the assessee filed details as called for and after verification of the details submitted by the assessee, the assessment in this case was completed by accepting the processed income of the assessee at Rs.1,01,82,478/- as per MAT provisions. The main grievance of the assessee in this appeal is in respect of the disallowance under section 36(1)(va) of the Income Tax Act, 1961 (for short “the Act”) on account of the PF and ESI contribution received by the assessee from the employees and deposited with the Government, after due date as per relevant Act, but before the due date to file returns of income.

Such an order dated 19.11.2019 passed under section 143(3) of the Act making such a disallowance was challenged before the learned CIT(A). Learned CIT(A) considered the issue in the light of various decisions of Hon’ble High Courts and Hon’ble Apex wherein it was held that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended, and held that the amendment brought in by the Finance Act, 2021 applies to the issue and the employees contribution to the PF and ESI not deposited by the

Assessee is, therefore, before us in this appeal stating that inasmuch as the assessee credited the amounts to the Government account within the previous year and well before the due date of filing of return of income prescribed under section 139(1) of the Act, there is no justification in disallowing the same.

When the matter is called, neither the assessee nor the authorized representative of the assessee are present. It could be seen from the record that the notices were sent to the address given in form No. 36. There is a presumption in law that all the official acts are performed regularly and properly, and the prescribed procedure is followed in such performance. When the notices were issued to the proper address of the assessee, with postage prepaid, and if the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, or by making request to the postal department to detain the mail till the assessee claims the same. In these circumstances, the non-service of notice, if any, is solely attributable to the conduct of the assessee. We, therefore, find no option but to proceed to hear the counsel for Revenue and decide the matter on merits basing on the material available on record.

Learned DR placed heavy reliance on the authorities below. To justify the conclusions reached by the learned CIT(A) that the assessee is not entitled to claim the deduction in respect of the delayed remittance of the employees’ contribution of PF and ESI, he placed reliance on the decision reported in Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC). He, however, fairly brought it to our notice that subsequently there are two decisions rendered by different Co-ordinate Benches of this Tribunal in the case of M/s P R Packaging Service Vs. ACIT in ITA No.2376/Mum/2022 (AY.2019-20) and M/s. Electrical India Vs. ADIT, CPC in ITA No.789/Chny/2022, (AY.2019-20) wherein contrary views are taken in case where the disallowance under section 36(iv)(a) was made while processing the return under section 143(1) of the Act. He submitted that as has been held in P.V. George v. State of Kerala, (2007) 3 SCC 557, the law declared by the Hon'ble Supreme Court will always be retrospective effect, if not otherwise stated to be so specifically.

We have gone through the record in the light of the submissions made on either side. In the case of M/s P R Packaging Service (supra), the Bench while referring the provisions under section 143(1)(a)(iv) of the Act, in the light of the view taken by the Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum), was of the opinion that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income; and that if the tax auditor had not stated to disallow Employees Contribution to Provident Fund

In M/s.Electrical India Vs. ADIT, CPC in ITA No.789/Chny/2022, AY.2019-20 Chennai Bench of the Tribunal held that where the assessee failed to credit the sums received from the employees towards PF and ESI contribution within the date by which the assessee was required to deposit the same is in direct conflict with the claim made by the assessee seeking deduction under section 36(1)(va) of the Act and, therefore, falls within the ambit of section 143(1)(a)(ii) of the Act and, therefore, any addition made on account of disallowance by invoking the provisions under section 36(1)(va) of the Act cannot be interfered with.

Under section 2(24)(x) of the Act, the ‘income’ includes any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of the employees. It, therefore, goes without saying that this deemed income has to be treated as the income of the assessee, the moment such amount comes to the possession of the assessee. It is open for the assessee to claim

In Checkmate Services Pvt. Ltd., (supra), the Hon'ble Apex Court dealt with the impact of the provisions under section 36(1)(va) of the Act in depth and while holding the issue against the assessee, held as under :

This decision of the Hon'ble Apex Court declaring the law under the provision under section 36(1)(va) of the Act will take the retrospective effect, if not otherwise stated to be so specifically. In the decision, nothing contrary is indicated for any prospective effect only. It is, therefore clear that the law under section 36(1)(va) of the Act in the light of the Explanation-1 as declared by the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra), shall be taken to have effect from the enactment of the provision by way of Finance Act, 1987 with effect from 01/04/1988. No other inference is possible.

Further, a useful reference could be made to the relevant portions of section 143 of the Act which read thus,-

The above provisions indicate that while processing the return of income that was filed under section 139 or section 142(1) of the Act and computing the total income or loss, the adjustment need not be confined to the disallowance of expenditure or increase in income, indicated in the audit report, but not taken into account in the total income under clause (iv), but law permits such adjustment could also be in respect of an incorrect claim which is apparent from the information in the return under clause (ii).

With the law declared by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), any claim for deduction under section 36(1)(va) of the Act wherein the assessee fails to credit the sums received from the employees to which the provisions under section 2(24)(x) of the Act are applicable, preferred by the assessee would be patently an incorrect claim and the adjustment in that respect at the stage of 143(1) of the Act process is perfectly justified.

With this view of the matter, we are of the considered opinion that there is nothing illegality or irregularity in making the disallowance under section 36(1)(va) of the Act in the order dated 20.01.2021 passed under section 143(1) of the Act and, therefore, we hold that the learned CIT(A) rightly upheld the same. No interference is warranted and the appeal is, accordingly, liable to be dismissed.

In the result, appeal of the assessee is dismissed.