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Facts
The assessee company, engaged in IT services, filed its return declaring income. The CPC processed the return and made disallowances regarding delayed payment of provident fund and GST. The assessee also erroneously selected a higher tax rate initially.
Held
The Tribunal held that the disallowance for GST was unjustified as it was not routed through the P&L account and thus Section 43B was not attracted. The delay in PF deposit by one day due to a holiday was also condoned, allowing the deduction.
Key Issues
Whether the disallowance of GST under Section 43B was justified when not claimed as a deduction. Whether the one-day delay in PF deposit, due to a holiday, warranted disallowance under Section 36(1)(va).
Sections Cited
43B, 36(1)(va), 139(1), 143(1), 143(3), 234B, 234C, 244A, 250
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the ld. Addl/JCIT(A)-1 Pune dated 18.11.2024 vide DIN & Order No. ITBA/APL/S/250/2024-25/1070402750(1) passed for the AY 2018-19 u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The assessee has raised the following grounds of appeal:
Brief facts of the case are that assessee company is engaged in providing information technology services including designing, development, promotion, marketing in software products. The assessee company filed its return of income for the AY 2018-19 on 24.10.2018 u/s 139(1) of the Act by declaring total income of Rs.14,68,41,529/-. Thereafter the return was processed by the CPC and accordingly the intimation was passed u/s 143(1) of the Act on 1.10.2019 by disallowing Rs.2,79,56,057/- consisting of qualification in tax audit report on account of following heads: i. Amount debited to P&L account to the extent disallowable u/s 36 of the Act for late payment of provident fund is Rs.18,89,018/- ii. Amount debited to P&L account of the previous year but disallowable u/s 43B of the Act on account of estimated GST Payable allegedly reported by the statutory auditor is Rs.2,60,67,039/- 3.1 Further, the assessee after receiving the intimation noticed that at the time of filing of the return, while calculating the tax liability had erroneously selected the basic tax rate @ 30% instead of correct base rate of 25%, which has been carried on in the said intimation. Thereafter noticing the said mistakes i.e. wrong mentioning of tax rate @ 30% instead of 25% the assessee company immediately furnished the rectified return on 18.11.2019 and M/s. CAST Software India Pvt. Ltd., Bengaluru Page 4 of 10 accordingly claimed the refund of Rs.86,12,904/- along with interest u/s 244A of the Act thereon. The CPC without providing the reasonable opportunity had rejected the rectified return filed by the assessee. Thereafter, the return of income originally filed by the assessee on 24.10.2018 was selected for limited scrutiny on the issue of “foreign outward remittance” and accordingly statutory notices u/s 143(2) & 142(1) of the Act were issued calling for the details/information. During the course of assessment proceedings, the assessee company also submitted the fact of selection of wrong tax base figure of 30% in the return of income but the ld. AO without appreciating any submission of the assessee on the said issue of wrong tax rate concluded the assessment proceedings on 3.11.2020 by passing u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act by accepting the returned income of Rs.14,68,41,530/- and determined the net tax payable amounting to Rs.6,15,540/-.
Thereafter, the assessee company being aggrieved by the intimation passed u/s 143(1) of the Act dated 1.10.2019, preferred an appeal before the ld. CIT(A)/ Addl/JCIT(A).
Firstly on the ground that the assessee while calculating the tax liability had erroneously selected the basic tax rate of 30% instead of 25% in its original return, the ld. Addl/JCIT(A)-1 Pune held that as the turnover of the assessee is Rs. 66,19,44,187/- i.e. way above 50 crores & hence the assessee company is not eligible for the concessional tax rate of 25%.
5.1 Further, with regard to alleged GST payable amounting to Rs.2,60,67,039/- disallowed u/s 43B of the Act, the ld. CIT(A)/NFAC confirmed this disallowance on account of non- payment of GST before the due date of filing return u/s 139(1) of the Act. Further the ld. Addl/JCIT(A)-1 Pune observed that the row M/s. CAST Software India Pvt. Ltd., Bengaluru Page 5 of 10 26(i)(B)(b) of tax audit report mentioned that the said sum of taxes not paid before due date and the auditor has also not revised the audit report.
5.2 Lastly, with regard to disallowance u/s 36(1)(va) of the Act, the ld. Addl/JCIT(A)-1 Pune was of the view that the employees’ contribution to specified fund will not be allowed as deduction, if there is delay in deposit even by a single day as per the due dates mentioned in the respective legislation and accordingly held that the decision of the AO to allow the deduction claimed by the assessee on account of payments of employees’ contribution towards provident fund and ESI fund amounting to Rs.18,89,018/- which were made after the dates prescribed in the concerned statute was as per the law. Accordingly the ld. Addl/JCIT(A)-1 Pune dismissed the appeal of the assessee.
Again aggrieved by the order of ld. Addl/JCIT(A)-1 Pune, the assessee has filed the present appeal before this Tribunal. The assessee has also filed 2 nos. of paper books comprising 267 pages containing therein the written submission, copy of intimation, copy of tax audit reports, copy of assessment order along with CBIC circular.
Before us, the ld. A.R. of the assessee vehemently submitted that the ld. CIT(A)/NFAC erred in not appreciating the fact that CPC had erroneously invoked the provisions of section 43B of the Act against a sum of Rs.2,60,67,039/- in the absence of such sum reflecting in the financial statement. Further, ld. A.R. of the assessee submitted that ld. Authorities below erred in confirming the disallowance made u/s 36(1)(va) of the Act specially when there is a delay of just 1 day because of Sunday being the holiday.
We have heard the rival submissions and perused the materials available on record. On going through the intimation passed u/s 143(1) of the Act, we find that the CPC has disallowed total Rs.2,79,56,057/- based on the qualification in tax audit report on account of following heads: i. Amount debited to P&L account to the extent disallowable u/s 36 of the Act for late payment of provident fund is Rs.18,89,018/- ii. Amount debited to P&L account of the previous year but disallowable u/s 43B of the Act on account of estimated GST by statutory auditor is Rs.2,60,67,039/- 9.1 It is an undisputed fact that the limited scrutiny was completed by the AO for the same assessment year 2018-19 on 03/11/2020. Surprisingly while going through the computation sheet issued along with the assessment order, the AO computed the total income amounting to Rs.14,68,41,530/- i.e. the returned figure after allowing deductions and brought forward losses and did not incorporate the disallowances as made u/s 143(1) of the Act. Since the case was selected for the limited purposes of examining the Foreign remittances, the AO had even no power to examine these issues during the course of the assessment proceedings.
9.2 Now first with regard to disallowance made amounting to Rs.2,60,67,039/- u/s 43B of the Act on the basis of first revised tax audit report filed on 24.10.2018 itself, we find that in column no.26(i)(B)(b) of the form no.3CD, the Chartered Accountant has mentioned GST of Rs.2,60,67,039/- as not paid on or before the due date of furnishing the return u/s 139(1) of the Act, whereas in the original tax audit report, the same column was left blank. Further, we also take a note of the fact that the same Chartered Accountant had also filed a second revised tax audit report again on 18.11.2019 along with the rectification return filed on 18.11.2019 (placed at page no.244-259 of the paper book) wherein we find that in column no. 26(i)(B)(b) of the form no.3CD the amount reported is nil. Before us, the ld. AR of the assessee submitted that the CPC had erroneously invoked the provisions of section 43B of the Act against a sum of Rs.2,60,67,039/- in the absence of such sum reflecting in the financial statements. Further, on going through the Balance sheet for the financial year ending 31.3.2018, we find that under head “other current liabilities” (schedule 8), there is no GST amount payable as on 31.3.2018 and accordingly the Chartered Accountant has rightly in his original audit report as well as in the second revised audit report mentioned in column no.26(i)(B)(b) of the form no.3CD as nil. Further, on going through the profit & loss account, we also take a note of the fact that GST amount had not been routed through the profit & loss account and claimed as operating expenses. We are of the opinion that section 43B of the Act will be attracted only when the tax or duty or any other statutory liability has been claimed as a deduction but the said tax or duty or any other statutory liability has not been actually paid. When no deduction of GST by way of operating expenses has been claimed by the assessee company, then question of disallowance of the same does not arise in the present case. It is worthwhile here to note that the section 43B of the Act deals with the allowing of certain deductions on certain expenses only when such expenses are paid by the assessee and not when they have been incurred as per the accounting method of the assessee. Thus, section 43B of the Act states that certain deductions are to be allowed only on actual payment of the expenses for which the deduction is claimed. In the present case, on going through the balance sheet we find that there is no GST amount payable as on 31.3.2018 and therefore, the disallowance made u/s 43B of the Act based on incorrect tax audit report of a Chartered Accountant which is later on rectified by the auditor is unjustified. Accordingly, we delete this disallowance made under section 43B of the Act amounting to Rs.2,60,67,039/- and allow this ground of appeal of the assessee.
9.3 Now coming to the second issue with regard to disallowance made u/s 36(1)(va) of the Act amounting to Rs.18,89,018/-, we find that the provident fund for the month of September, 2017 was actually deposited on 16.10.2017 whereas the due date was 15.10.2017. We take a note of the fact that for the balance 11 months, the assessee company had deposited the PF on or before the due date as prescribed under the Provident fund Act. On going through the Tax audit report we also take a note of the fact that the assessee company had only defaulted the payment of PF for the month of September, 2017 in which the due date to deposit the provident fund was 15.10.2017 whereas the assessee has deposited the provident fund on 16.10.2017. Before us, the AR of the assessee submitted that the office of the assessee company was closed on 15.10.2017 being Sunday and therefore, the amount for the month of September, 2017 could be deposited only on the next day i.e. on 16.10.2017. Section 10 of the General Clauses Act, 1897 relating to computation of time, is reproduced below for ease of reference:
9.4 On going through the above, we find that if any Act or proceeding allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open. Therefore we find force in the argument of the assessee that on 15.10.2017, the office of the assessee company was closed being holiday & for this reason the assessee company could not deposit the amount of PF on Sunday. This being so, we are of the considered opinion that the deposit of provident fund on the very next day i.e. on 16.10.2017 being Monday is within the time as per law and therefore, no disallowance is required to be made u/s 36(1)(va) of the Act and accordingly, we allow this ground of appeal also.
9.5 Lastly, with regard to the grounds related to erroneous claim of the basic tax rate @ 30% instead of correct base rate of 25% in the original return & not accepting the revised return, the ld. A.R. of the assessee during the course of hearing before us did not press this ground of appeal and accordingly we dismiss this ground of appeal of the assessee as not pressed. Accordingly, this ground of appeal is dismissed.
In the result, the appeal of the assessee is partly allowed.