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Facts
The assessee company, engaged in advertising, filed its return of income. The CPC processed the return under Section 143(1) and made a disallowance of employees' contribution to PF and ESI under Section 36(1)(va) because it was not paid before the due date prescribed in the relevant Acts. The assessee appealed this disallowance.
Held
The Tribunal held that the disallowance made by the CPC under Section 143(1) was justified. Relying on the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT, the Tribunal affirmed that employee contributions to PF and ESI can only be allowed as a deduction if paid within the prescribed due dates under the relevant Acts, and not merely before the due date of filing the income tax return.
Key Issues
Whether disallowance of employees' contribution to PF and ESI made under Section 143(1) for non-payment before the due date prescribed under relevant acts is valid, despite payment before the income tax return filing due date.
Sections Cited
143(1), 36(1)(va), 143(3), 2(24)(x), 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 17.08.2023 vide intimation u/s. 143(1) of the Income-tax Act, 1961 (hereinafter “the Act”) issued by CPC, Bengaluru dated 21.02.2020.
There is a delay of 211 days in filing the appeal by the assessee.
The assessee has filed condonation petition stating the reasons for delay in filing the appeal. We have considered the petition of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is condoned accordingly.
The grounds of appeal raised by the assessee are as under:
“1. The Appellant challenges the order of the Commissioner of Income Tax (Appeals) ("CIT(A)") on the following grounds amongst others each without prejudice to the other or others.
2. The order of the CIT(A) is arbitrary, and contrary to law, without application of mind disregarding the computation of income by the Appellant.
3. The Assessing officer (CPC) in the 143(1) Intimation dated 21.02.2020 had made a disallowance of Employees Contribution to PF and ESI u/s 36(1) (va) of the Act amounting to Rs.1,77,85,122/- on the ground that there has been an inconsistency of the claim in the return of income and the tax audit report. The Assessing Officer (CPC) has failed to note that this aspect as on the date of issuing the intimation was a debatable issue and the same cannot be the subject matter of adjustment under section 143(1) of the Income Tax Act 1961 and the Hon'ble CIT(A) upholding the additions made under section 143(1) thus warranting the interference of this Hon'ble Tribunal.
4. The learned CIT(A) has failed to consider that the disallowance of Employees Contribution to PF and ESI u/s 36(1) (va) amounting to Rs.1,77,85,122/- made the Assessing Officer under section 143(1) of the Act is ultra vires the provisions of the Income Tax Act 1961 as the Assessing Officer does not have a power to make an adjustment of an issue which is of debatable in nature. Under these circumstances the order passed by the Assessing Officer dated 21.02.2020 making the additions of Rs. 1,77,85,122/- is beyond the powers vested under section 143(1) of the Income Tax Act 1961 and suffers from illegality and ought to be deleted.
The tax audit report has only disclosed the fact that there has been a delay in remittance of ESI and PF under the relevant statute however paid before the due date of the filing of return of income. There was no indication as to any disallowance of expenditure or increase in income in the tax audit report as the said subject matter was not a settled law and in fact was in favour of the Appellant in preceding years. Under these circumstances, the additions by the Respondent under section 143(1) is illegal and liable to be deleted.
The Appellant craves leave of this Hon'ble Tribunal to file additional ground at the time of hearing.”
The effective ground of appeal in this appeal of assessee is against disallowing employees’ contribution to PF and ESI u/s. 36(1)(va) of the Act amounting to Rs. 1,77,85,122/- in the intimation u/s. 143(1) of the Act.
5. The assessee is a company engaged in the business of advertising. The assessee-company has filed its return of income on 30.11.2018 declaring total income of Rs.5,40,43,730/-. The CPC, Bengaluru has processed the return of income u/s. 143(1) of the Act disallowing employees contribution to PF and ESI of Rs.1,77,85,122/- u/s. 36(1)(va) of the Act as the contribution was not paid before due date of specified in the respective Acts and reported by the Auditor in Form 3CD. The assessee has not filed appeal against the intimation u/s. 143(1) of the Act. The case was selected for scrutiny and the A.O has passed order u/s. 143(3) of the Act assessing total income of Rs.8,82,78,160/- starting computation at income determined in the intimation u/s. 143(1) of the Act. The assessee in the appeal filed against the order u/s. 143(3) of the Act has challenged disallowance of employees contribution of PF and ESI u/s. 36(1)(va) of the Act before Ld. CIT(A). The Ld. CIT(A) has observed that the disallowances u/s. 36(1)(va) of the Act has been made by CPC in the intimation u/s. 143(1) of the Act and not by the AO in order u/s. 143(3) of the Act and therefore, the assessee should have filed an appeal against the intimation u/s. 143(1) of the Act, but in view of natural justice he has adjudicated the issue. The Ld. CIT(A) relying on the order of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT in Civil Appeal No.2833 of 2016 dated 12.10.2020 (SC), wherein it has been held that employees contribution of PF and ESI can be allowed as deduction only if it had been paid within the prescribed due date under the relevant Acts has confirmed the disallowance made u/s. 36(1)(va) of the Act.
6. The Ld. Authorized Representative (A.R) of the assessee before us has submitted that the assessee has paid the employees’ contribution to PF & ESI before due date of filing of return of income u/s. 139 of the Act and the various Courts including the Hon’ble Jurisdictional High Court has held that if the assessee had deposited employees contribution towards PF and ESI after due date as prescribed under the relevant act, but before the due date of filing of return of income under Income-tax Act, no disallowance could be made. The Ld. AR, therefore argued that the Ho’ble Supreme Court decision was not available at the time of processing of the return, therefore, CPC was not justified to make disallowance while processing return u/s. 143(1) of the Act.
The Ld. Departmental Representative (DR) has relied on the orders of lower authorities.
We have heard the rival submissions, and perused the materials available on record. The CPC while processing return u/s. 143(1) of the Act has made the disallowance of employees’ contribution to PF and ESI, which has not been deposited before due date prescribed in the relevant Act, as per report of the Auditor in the audit report. The assessee has not filed appeal against intimation u/s. 143(1) of the Act.
However, as the A.O in the order u/s. 143(3) of the Act has started the computation from income determined in intimation u/s. 143(1) of the Act, the Ld. CIT(A) has adjudicated the issue on merit. The Ld. CIT(A) has relied upon the order of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT, supra, wherein the Hon’ble Supreme Court after interpreting section 36(1)(va) of the Act and section 2(24)(x) of the Act has held that employees contribution of PF/ESI can be allowed as deduction only, if it had been paid within the prescribed due dates under the relevant Acts. The Ld CIT(A) has held that this is the position of law and it has always been so. The Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT, supra, where some courts have held that such deduction is allowed if paid before due date of filling return under Income Tax Act, has held as under:
“55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
As the Hon’ble Supreme Court has clarified that the decision of Hon’ble High Courts holding to the contrary view that the employee contribution made after the prescribed due date under the relevant Acts, but paid before due date of filing return of income is to be allowed do not lay down correct law,the assessee’s arguments that the assessee’s case was covered by the Hon’ble Jurisdictional High Court is not tenable. In view of the above, we do not find any infirmity in the order of Ld. CIT(A). Thus, the appeal filed by the assessee is dismissed accordingly.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced on 08th January, 2025.