SANJIV PRAKASHAN,JAIPUR vs. ACIT, CIRCLE-1, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “B” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 09/JPR/2023 fu/kZkj.k o"kZ@Assessment Year : 2020-21 cuke M/s Sanjiv Prakashan ACIT, Vs. Dhamani Market, First Floor, Circle-01, Choura Rasta, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAHFS 6900 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Anil Goyal, CA jktLo dh vksj ls@ Revenue by : Sh. Anoop Singh (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 13/08/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 09/09/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M.

This appeal is filed by the assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi [Here in after referred as (NFAC)] for the assessment year 2020-21 dated 17.11.2022, which in turn arises from the order passed by the AO/ACIT, CPC, Bangalore passed under Section 143(1) of the Income tax Act, 1961 (in short 'the Act') dated 25.08.2021.

“1. The order of the learned CPC u/s 143(1) and the learned CIT(A) are bad in law and against the facts of the case. 2. The learned AO has erred in disallowing a sum of Rs. 16,46,879/- under section 36(1)(va) read with section 2(24)(x) and the learned CIT(A) has erred in confirming the said disallowance. 3. That the assessee craves his right to add, alter, amend or delete any grounds of appeal at the time of hearing or earlier.

2.1 Further, the assessee has taken following additional sub- grounds in this appeal; “1. The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.

2. The learned AO/CPC has erred in making adjustments under section 143(1) of Income Tax Act for Employees Contribution for PF & ESI which are not covered by permissible adjustments under section 143(1)(a) of Income Tax Act, therefore, the adjustment so made are bad in law and should be deleted.”

3. The fact as culled out from the records is that the assessee is engaged in the business of educational publication. For the impugned assessment year, return of income was filed admitting total income of Rs.5,41,03,200/-. The AO in his order assessed the income of the assessee at Rs.5,61,08,400/- after making disallowance u/s 36(1)(va) of the Act amounting to Rs. 16,46,879 (i.e. Rs.15,51,701/- towards PF and Rs. 95,178/- towards ESI) due was deposited beyond the due date of respective Acts. The assessee claimed that the same had been deposited in Govt. account before filing of the return of income u/s 139(1) of the Act.

But ld. AO made an addition of Rs.16,46,879/- on account of late deposit of employees’ contribution towards EPF/ESI u/s. 143(1) of the Act.

4. Aggrieved from the order of the National Faceless Assessment Center, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

6.4 It could be seen from the table furnished by the appellant as part of his submission, the payments were made beyond the due dates prescribed under the Provident Fund Act. In view of the above facts and respectfully following the Hon'ble Apex Court's decision in the case of M/s Checkmate Services P Ltd., which has further clarified the correct interpretation of the provisions of the Act, the disallowance made under Sec.36(1) (va) read with Sec.2(24)(x) of the Act amounting to Rs. Rs. 16,46,879 is upheld. In the result, this ground is

7. The next ground raised

in this appeal relates to disallowance under Sec.43B amounting to Rs.3,43,997. The submission filed by the appellant and the action of the AO has been duly considered. The AO based on the tax audit report, disallowed the sum of Rs.3,43,997 under Sec.43B. First proviso to Sec.43B clearly states that if tax, duty, cess or fee was paid after the closing of the accounting year but before the due date of filing the return of income under Sec. 139(1) of the Act, the same would be allowed as deduction for the same accounting year. Since the Sanjiv Prakashan vs. ACIT employer's contribution to PF and ESI are covered by first proviso to Sec.43B, and the appellant has made the payments before filing the return of income under Sec.139(1), the disallowance under Sec.43B is not warranted and the addition of Rs.3,43,997 is deleted. This ground is "Allowed".

8. Ground No (i) and (iv) are general in nature and does not require any separate adjudication and treated as dismissed.

9. In the result, the appeal is “Partly Allowed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove.

The co-ordinate bench of this tribunal vide order dated 02.06.2023 disposed the appeal of the assessee. Thereafter the assessee moved a miscellaneous application u/s. 254(2) of the Act stating that in the above order there was an apparent mistake on record as two grounds raised by the assessee before the Bench were not decided. That ground was raised vide letter dated 6/3/2023 before the Bench, filed on 09/03/2023, in which the assessee has raised following Additional Grounds of appeal no.

(1A) and (1B) which reads as under;

Ground No. 1A ‘The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, Sanjiv Prakashan vs. ACIT either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.’ Ground No. 1B ‘The learned AO/CPC has erred in making adjustments under section 143(1) of Income Tax Act for Employees Contribution for PF & ESI which are not covered by permissible adjustments under section 143(1)(a) of Income Tax Act, therefore, the adjustments so made are bad in law and should be deleted.’ Considering the interest of principles of natural justice, that miscellaneous application filed by the assessee was allowed vide order dated 19.12.2023. In support of these two additional grounds so raised by the assessee he has relied upon the following written submission:

Ground No. 1A: ‘The learned AO/CPC has erred in making adjustments under section 143(1) without giving intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1), which makes the entire order of the learned AO/CPC bad in law and void ab initio.’ Submissions: 1. It is submitted that the learned AO/CPC has erred in making adjustments under section 143(1) without giving advance intimation to the assessee of such adjustments, either in writing or in electronic mode, as per requirement of proviso to section 143(1). In this manner, the AO(CPC) has erred in passing order under section 143(1) of the Income Tax Act, 1961, without following the procedure as laid down under such section.

2. The provisions of Sec. 143(1) of the Income tax Act are as under: 143. (1) 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:— Sanjiv Prakashan vs. ACIT (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 68[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under 69[section 10AA or under any of the provisions of Chapter VI-A under the heading "C.— Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included 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 electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made: Provided also that no adjustment shall be made under sub clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;

3. It is submitted that as per provisions of Proviso first and second to Sec. 143(1), before making any adjustment in income of the assessee u/s 143(1), advance intimation will be given to him to seek his response, and the response so received will be considered before making any adjustment.

4. In this case no intimation was given to the assessee, either in writing or in electronic mode, before making such adjustments in the income of the assessee and no opportunity was given to him to file his response. This is in clear violation of provisions of Proviso first and second to Sec. 143(1).

5. In support of this we are also producing before the Hon’ble Bench the screen shot of the assesses account on E filing portal of the Income tax department for AY 2020-21. From this screen shot also, it

6. That the Hon’ble ITAT has decided present appeal on the basis of decision of Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. V. CIT as well as order of Hon’ble Delhi ITAT in the case of Salveen Kaur vs Income Tax Officer [2023] 147 taxmann.com 402

7. It is submitted that in the above order, Hon’ble Supreme Court has stated that delayed payment of Employees’ Contribution to PF and other funds are to be disallowed under section 36(1)(va) of Income tax Act even if payment has been made before due date of filing of return . Hon’ble Delhi Tribunal in the case of Salveen Kaur (supra) has stated that the above decision of Hon’ble Supreme Court is equally applicable on the orders passed under section 143(1)(a) of Income Tax Act.

8. Even a combined reading of both the judgments of Hon’ble Supreme Court in the case of Checkmate Services P Ltd (Supra) and Hon’ble Delhi ITAT in the case of Salveen Kaur (Supra) do not give a finding that an order u/s 143(1)(a) can be passed for disallowances without giving advance intimation to the assessee.

9. In this case no such advance intimation was given to the assessee before making the disallowance of Rs. 16,46,879 u/s 36(1)(va). Therefore order of the learned AO passed under section 143(1)(a) is bad in law and deserves to be quashed.

10. It is submitted that an intimation u/s 143(1)(a) is not an assessment. Time and again, various Courts have categorically held that 143 (1) intimation cannot be considered as a regular assessment. Therefore, only prima facie adjustments as mentioned in Sec 143(1)(a) can be made in the income of the assessee without going into details of the case. These adjustments can be made only after giving the assessee an opportunity of being heard as per scheme of the Act.

11. The case of the assessee is squarely covered by the following decisions in favour of the assessee: S. Name of case Gist of facts and Findings given by the Case Law No. Court Paper book page no. 1. Kankanala Ravindra This was on the issue of not following 44-51 Reddy V ITO procedure for issue of notice u/s 148 as per amended provisions by Finance Act (2023) 156 2021 and decision of Hon’ble Supreme

taxmann.com 178 Court in the case of Ashish Agarwal: (Telangana HC)

Held: It is well settled principle of law that where the power is given to do certain things in certain way, the thing has to be done in that way alone and no any other manner which is otherwise not provided under the law. [Para 31]

Reliance is also placed on various SC decisions on this issue mentioned in para 32 of this order.

2. 5 - 6 Vinod Malik V ADIT ( This is on the issue of disallowance of ITAT Delhi) ESIC/EPF amount u/s 143(1)(a). Hon’ble bench has followed the decision of [ITA no. Hon’ble Supreme Court in the case of 1635/Del/2021 Checkmate Services P Ltd and Assessment Year disallowed the first ground of appeal. 2019-20 dated However, second ground of appeal was 25.11.2022 on making disallowance u/s 143(1)(a) without giving advance intimation to the assessee. The ITAT has decided this issue in favour of the assessee and held as under:

‘The revenue could not produce evidence of sending the intimation to the assessee with regard to the proposed adjustment.

Failure to adhere to the mandatory procedure prescribed in statute has domino effect on the order passed u/s 143(1)(a) culminating in treating the order legally unsustainable.

In the result, the appeal of the assessee is allowed.’

3. Arham Pumps v. Section 36(1)(va), read with section 1-4 Deputy 143(1), of the Income-tax Act, 1961 - Commissioner of Employee's contribution (Intimation for Income-tax* making adjustment) - Assessment year 2018-19 - Whether where addition was [2022] 140 made to income of assessee, being late taxmann.com 204 payment of employees contribution of PF (Ahmedabad - and ESI which was disallowed under Trib.SMC) section 36(1)(va), however, no intimation had been given to assessee for making any adjustment or disallowance either in writing or in electronic mode, thus, CPC center had erred in issuing intimation under section 143(1) as it had not followed first proviso to section 143(1)(a) - Held, yes - Whether therefore, entire section 143(1) proceedings being invalid in law, intimation issued by CPC was to be quashed and set aside - Held, yes [Paras 7 to 9] [In favour of assessee]

Section 143 of the Income-Tax Act, 1961 - Assessment - General (Intimation) - Assessment year 2018-19 - Whether a return can be processed under section 143(1) by making adjustments on six types of adjustments only, however, first proviso to section 143(1)(a) makes it very clear that no such adjustment shall be made unless an intimation is given to assessee of such adjustment either in writing or in electronic mode - Held, yes [Para 7] [In favour of assessee]

4 Sentinel Consultants In this case PF/ESI payments were 52-54 (P.) Ltd. V ACI disallowed u/s 143(1)(a) – after giving opportunity on E-platform – no response [2023] 153 received from assessee – Held the taxmann.com 151 disallowance was proper (Delhi - Trib.)

5 Siddhi Vinayaka PF/ESI disallowance made u/s 143(1) – 55-64 Graphics (P.) Ltd.v. ITAT held that such disallowance can be ADIT/ACIT made after giving opportunity to respond before making any adjustment u/s 143(1) [2023] 150 (Para 16 of the order) taxmann.com 297 (Kolkata - Trib. SMC)

6 7-13 The Ceylon The proviso further specifies that no Pentecostal Mission such adjustment shall be made unless (ITAT Chennai) an intimation is given to the assessee of such adjustments either in writing or [ITA no. electronic mode. In this case, admittedly 320/Chny/2021, no such intimation was given to the Assessment Year assessee before making adjustment

2015-16 dated towards capital gain and accumulation of 08.10.2021] income u/s.11(2) of the Income Tax Act, 1961. Therefore, on this count itself adjustment made by the Assessing Officer towards capital gain and accumulation of income u/s.11(2) of the Income Tax Act, 1961 deserves to be deleted.” 7 Sanjay Kumar v. Original order in this case was passed 65-66 Income-tax Officer u/s 143(1) - AO made disallowance for PF/ESI by passing rectification order u/s [2023] 152 154 – held AO was not justified – appeal taxmann.com 594 of assessee allowed (Delhi - Trib.) 8 Principal Original order in this case was passed 67-68 Commissioner of u/s 143(3) – PCIT in order u/s 263 made Income-tax v. SPPL disallowance for PF/ESI. Held: order of Property AO not prejudicial to the interest of Management (P.) Ltd revenue [2023] 151 taxmann.com 103 (Calcutta HC) 9 Changanacherry Co- Disallowance of deduction claimed u/s - op. Agrl & Rural 80P in order u/s 143(1)(a) - no advance Development Bank notice issued to the assessee – Ltd. v. CIT/ITO disallowance deleted. (2023) 152 taxmann.com 466 (Cochin - Trib.) 10 Income-tax Officer Disallowance of exemption claimed u/s - (Exemption) 11 for the reason of non compliance of v.Camellia Educare Sec. 139(4A) in order passed u/s Trust 143(1)(a) – without giving prior intimation to the assessee – Held: impugned [2023] 152 adjustment was to be deleted taxmann.com 304 (Kolkata - Trib.)

3. It is submitted that u/s 143(1)(a)(iv) only a claim/expenditure whose disallowance has been indicated in the audit report but the same not been taken into account in computing the total income in the return can be adjusted while processing the return of income. The relevant section is reproduced in earlier paragraphs.

4. In the case of assessee the auditor in clause 20(b) ( Copy at Pb page no..26-back page...) provided details of contribution received from employees for various funds as referred to in section 36(1)(va).

He has done only factual reporting, which was mandated, and no opinion was expressed regarding the disallowance. Otherwise also no disallowance can be made on the basis of mere reporting in Audit Report. The disallowance can be made only on the basis of relevant law and taking into account judicial view in that regard.

5. While giving his report, the auditor has not indicated any amount of disallowance under this head. Ld. AO(CPC) simply matched the due dates of payment and actual date of payment while processing the return of income and any difference between the said dates has been assumed to be disallowance. But in actual scenario there is no disallowance but only difference in due date and actual date of payment. Hence, when there is no disallowance, provisions of section 143(1)(iv) cannot be invoked.

6. Attention is drawn towards the fact in Section 143(1)(a)(iv), words ‘increase in income’ has been added by Finance Act, 2021 w.e.f. 1.4.2021. In view of provisions of Sec. 2(24)((x), the adjustments made in this case are in the nature of ‘increase in income’. The right to make adjustments u/s 143(1)(a)(iv) for ‘increase in income’ has been conferred only w.e.f. 1.4.2021 i.e. AY 2021-22. Thus, invoking this

7. It is further submitted that provisions of section 143(1)(a)(iv) can be invoked with reference to other clauses like, for example, the following wherein the auditor is required to express his opinion with reference to disallowance: clause 21(b)- Amounts inadmissible under section 40(a), clause 21(d)-Disallowance/deemed income under section 40A(3), clause 21(f)-Any sum paid by the assessee as an employer not allowable under section 40A(9) etc. However, in the case of the assessee, the auditor has not reported any amount of disallowance.

8. Reliance is placed on the following decisions in favour of the assesssee:

S.No. Name of case Findings Case law paper book page no.

1 Paris Elysees India ‘The Bench noted that the ld. AR of the 28-38 assessee demonstrated that the tax Private Limited, auditor has merely given the details as Jaipur v/s Deputy required in the form no 3CD and at the Commissioner of same time in 3CA has given his view Income Tax, Circle 7, that considering the favorable decision Jaipur ( ITAT Jaipur ) for ESI and PF they have considered same as allowable and not considered the deemed income of the 357/JPR/2022 assessee. For which the ld. DR has not disputed that the details are already available on records of the revenue. On going the tax audit report and provision of section 143(1) of the Act we are of the considered view that the PF and ESI being the deemed income of the assessee as the same is collected from the employee salary and therefore, the same is not under the permissible adjustments. Taking into rival contentions placed before us and on perusing the record, we are of the considered view that the adjustment made 7.72 by the lower authorities are outside the purview of Section 143(1) of the act. To support the view taken by us we have relied upon the detailed finding of the coordinate Delhi bench’s decision in the case of Garg Heart Center & Nursing Home Private Limited in ITA No. 1700/Del/2022.’ 2 Garg Heart Centre & “At the very least, Revenue should 14-27 have given due consideration to the Nursing Home fact that the issue was highly Private Limited (ITAT debatable and controversial. As already Delhi ) ITA discussed earlier, adjustments u/s No.1700/Del/2022 ( 143(1) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act, on debatable and controversial issues, is beyond the scope of section 143(1) of Income Tax Act. Revenue was clearly in error, in making the aforesaid adjustments u/s 143(1) of Income Tax Act on a debatable and controversial issue”

3. K A Hospitality (P.) Followed the judgement of Hon’ble 39-43 ITAT, Mumbai Bench in the case of Ltd.v.Income-tax Kalpesh Synthetics (P.) Ltd. Vs. Department*[2022] DCIT, CPC Bengaluru [2022] 137 141 taxmann.com taxmann.com 475 holding as under: 440 (Mumbai - Trib.) “In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon'ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous.”

Sanjiv Prakashan vs. ACIT Prayer: In view of the above, the adjustment made by ld. AO (CPC) is illegal and without jurisdiction. Relief may please be granted by quashing such intimation.”

6. To support the contention so raised in the written submission reliance was placed on the following decisions:

S. No. Name of case Page no. 1 In the ITAT Ahmedabad Bench ‘SMC’ Arham Pumps v. Deputy 1-4 Commissioner of Income tax [2022] 140 taxmann.com 204 (Ahmedabad-Trib.) 2 In the ITAT Delhi Bench ‘H’ Vinod Malik v. ADIT, CPC Faridabad (ITA 5-6 no. 1635/Del/2021) 3 In the ITAT ‘A’ Bench Chennai The Ceylon Penecostal Mission vs. 7-13 The Assistant Commissioner of Income Tax (CPC) (ITA No. 320/Chny/2021) 4 In the ITAT Delhi Bench ‘G’ Garg Heart Centre & Nursing Home Pvt. 14-27 Limited v. ACIT, Circle-10(1) NFAC (ITA No. 1700/Del/2022) 5 In the ITAT Jaipur Benches ‘A’ Paris Elysees India Private Limited vs. 28-38 Deputy Commissioner of Income Tax (ITA No. 357/JP/2022) 6 In the ITAT Mumbai Bench ‘H’K A Hospitality (P.) Ltd. vs. Income-tax 39-43 Department [2022] 141 taxmann.com 440 (Mumbai-Trib.)

7. The ld. AR of the assessee in addition to the written submitted argued that upon co-joint reading of both the judgments of Hon’ble Supreme Court in the case of Checkmate Services P Ltd (Supra) and Hon’ble Delhi ITAT in the case of Salveen Kaur (Supra) do not give a finding that an order u/s 143(1)(a) can be passed for disallowances without giving advance intimation to the assessee. In the case of the assessee no such advance intimation was given to the assessee before making the disallowance of Rs. under section 143(1)(a) is bad in law and deserves to be quashed.

8. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A) and also submitted that the decision of the co-ordinate bench in the case of Salveen Kaur (Supra) deals with the intimation u/s 143(1)(a) of the Act and even the co-ordinate bench of Jaipur after that judgment not considered the plea of the assessee.

9. We have heard the rival contentions, perused the material placed on record and gone through the judicial decision relied upon by both the parities to drive home to their contentions. So far as the ground Nos. 1A & 1B in relation to the disallowance of payment of ESI & PF while processing the return of income u/s. 143(1)(a) of the Act, the ld. CIT(A) has followed the judgment of CIT-1 vs. Checkmate Service Pvt. Ltd.(supra) and disallowance so Hon’ble Apex Court.

9.1 As argued and decided by the bench that similar issue has also been decided by the ITAT Delhi Bench in favour of the Revenue in the case of Salveen Kaur Vs Income Tax Office vide its order darted 9th January 2023 (in IT Appeal Nos. 2197,2249, 2250 and 2293 (Delhi) of 2022 – A.Y. 2017-18 to 2019-20 [2023] 147 taxmann.co. 402 (Delhi-Trib) by observing as under:-

‘’4. The undisputed fact in the captioned appeals is that there was a delay in depositing the employees’ contribution and the contribution has been deposited beyond the date stipulated under the relevant Fund Act.

6. Another argument taken before us is that the disallowance made by the CPC Bengaluru while processing the return u/s 143(1) of the Act is beyond the scope of provisions of section 143(1(a) of the Act and,therefore, cannot be sustained.

7. We have carefully perused the decision of the co-ordinate bench in the case of M/s P R Packaging Services [supra]. We find that the co-ordinate bench has not given any independent finding but has simply relied upon another decision of the co-ordinate bench in the case of Kalpesh Synthetics Pvt Ltd 195 ITD 142 wherein the co- ordinate bench has based its decision on the interpretation and binding decision of the Hon'ble Jurisdictional High Court. In the case of Kalpesh Synthetics Pvt Ltd [supra], the Tribunal has held that the CPC Sanjiv Prakashan vs. ACIT Bengaluru cannot override the binding decision of the Hon'ble Bombay High Court while making the impugned disallowance on account of delay in the deposit of employees’ contribution to PF/ESI.

“8. When the law enacted by the legislature has beenconstrued in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read any other manner than as read by the Hon'ble jurisdictional High Court. The views expressed by the tax auditor in sucha situation, cannot be reason enough to disregard the binding views of the Hon'ble jurisdictional Court. To that extent, the provisions of section 143(1)(a)(iv) must be read down. What essentially follows is the adjustments under section 143(1)(a) in respect of” disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon'ble Courts above”. That is where the quasi judicial exercise of dealing with the objections of the assessee against proposed adjustments under section 143(1), assumes critical importance in the processing of returns, also important to bear in mind the fact that what constitutes jurisdictionalHigh Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, rule 11(1) of the Central Processing of Returns Scheme, 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income Tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer” Thensitus of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether theCPC is within the jurisdiction of Hon'ble Bombay High Court or not, as for the regular Assessing Officer of the assesseeand the assessee are located in the jurisdiction of Hon'bleBombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon'ble Bombay High Court. In our considered view, it cannot be open tothe Assessing Officer CPC to take a view contrary to the view taken by the Hon'ble jurisdictional High Court- moreso when his attention was specifically invited to bindingjudicial precedents in this regard. For this reason also, the inputs in question in the tax audit report cannot be reason enough to make the impugned disallowance. The assesseemust succeed for this reason as well.”

Sanjiv Prakashan vs. ACIT 9. With our utmost respect to the findings of the co-ordinate bench [supra], we are of the considered view that the co-ordinate bench has ignored the binding ratio decidendi of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd [supra]. It would be pertinent to refer to the most relevant observations of the Hon'ble Supreme Court on the impugned quarrel which read as under:-

“32. The scheme of the provisions relating to deductions, such as Sections 32 - 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfillment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection.

In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act,1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of “income” – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions,or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)).

Sanjiv Prakashan vs. ACIT 33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, “employers’contribution”) is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that “any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.” The essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date.

12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B).The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. “Due date”means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise.

(Explanation to Section 36 (1) of the Finance Act)

12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.” XXXXXX

“15. …It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare fundsof employee(s) on the other. This is one more reason whywe hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P)Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effectfrom 1st April, 1988 [when the first proviso stoodinserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to theassessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date Sanjiv Prakashan vs. ACIT of payment falls after the due date under the Employees' Provident Fund Act,they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April,2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003,to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April,2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003”. XXXX 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. Eagle Flask Industries Ltd Vs. Commissioner of Central Exercise 2004Supp (4) SCR 35. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations.

Sanjiv Prakashan vs. ACIT 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non- compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.” XXXX

12. Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon'ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru.

“143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of Section143, 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 [or increase in income]indicated in the audit report but not taken into account in computing the total income in the return;

(v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain income”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;”

13.1 A perusal of the afore-stated provisions show that at every stage in sub-section (1) of the Act, the return submitted by the Sanjiv Prakashan vs. ACIT assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses are found,appropriate adjustments are to be made. It is an open secret that hardly 3 to 5% of the returns are selected for scrutiny assessment, out of which, more than 50% are because of AIR Information under CASS and the Assessing Officer cannot go beyond the reasons for scrutiny selection and such cases are called Limited Scrutiny cases and only the remaining returns are taken up for complete scrutiny u/s 143(3) of the Act.

13.2 Meaning thereby, that exercise of power under sub- section (2) of section 143 of the Act leading to the passing of an order under sub-section (3) thereof, is to be undertaken where it is considered necessary or expedient to ensure that the assessee has not understated income or has not computed excessive loss, or has not under paid the tax in any manner.

vs CIT-1(supra), the decision of ITAT Delhi Bench in the case of Savleen Kaur (supra), the Bench sustains the addition confirmed by the ld. CIT(A). As is evident that above decision also deals with the facts of intimation u/s. 143(1)(a) of the Act. We also get support of these view from the recent decision of Hon’ble Bombay High Cout in the case of Rohan Korgaonkar v. Deputy Commissioner of Income-tax [2024] 159 taxmann.com 321 (Bombay) wherein also the Bombay high court that the decision of the apex court though deals with the fact of case in 143(3) but that aspect of the matter being law laid down by the apex court will apply while processing the ITR u/s. 143(1)(a) also. The relevant finding of the Hon’ble high court in the matter is reproduced herein below for the sake of brevity and to decide the ground no. 1A and 1B raised by the assessee; 1. Heard Ms Priyanka Kamat for the Appellant and Ms S. Linhares for the Respondent.

Sanjiv Prakashan vs. ACIT 2. This is an appeal under section 260A of the Income Tax Act, 1961 (IT Act) to challenge the orders made by the Assessing Officer, CIT (Appeals) and the ITAT, disallowing an adjustment under section 141(l)(a)(iv) read with section 36 (l)(va) of the IT Act in respect of delayed remittance of employees' contributions to Employee State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018-2019.

5. The ITAT has relied upon Chekmate Services (P.) Ltd. (Supra), and its reasoning is entirely consistent with the law laid down in Checkmate Services (P.) Ltd. (supra). Therefore, no case is made to interfere with the AO, CIT(appeals), and ITAT decisions.

10. This appeal is, accordingly, liable to be dismissed and is, hereby, dismissed with no order as to costs.

The case law relied upon by the ld. AR of the assessee do not deal with the judgment of Salveen Kaur (Supra) which we have considered while deciding the ground no. 1 & 2 raised by the assessee and now while dealing with the ground no. 1A & 1B we get support of the decision of the Bombay High Court which is decided by the higher court then ITAT in Salveen Kaur (Supra) and therefore, respectfully following the decision of the Bomaby High Court in the case of Rohan Korgaonkar v. Deputy Commissioner of Income-tax (supra) we do not find any merits in the grounds so raised by the assessee. Based on the discussion so recorded we sustain the addition confirmed by the ld. CIT(A) by dismissing the ground no. 1, 1A, 1B and 2 raised by the assessee. Ground no. 3 being general in nature does not require our adjudication.

In the result, the appeal of the assessee is dismissed.

Order pronounced in the open court on 09/09/2024.