KATHLEEN CONFECTIONERS,KOLKATA vs. DCIT, CIR-32, KOLKATA. , KOLKATA

Kathleen Confectioners, AY 2019-20 3.1. On the addition so made, assessee went in appeal before the Ld. CIT(A), who confirmed the addition.

Kathleen Confectioners, AY 2019-20 • The significance of this is that Parliament treated contributions under Section 36(1)(va) 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. • The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two. • There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. • When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 36(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

Kathleen Confectioners, AY 2019-20 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. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. • The distinction between an employer's contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. • The non-obstante clause in section 43B would not in any manner dilute or override the employer's obligation under section 36(1)(va) to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is Kathleen Confectioners, AY 2019-20 otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non- obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.”

5. Contention raised by the Ld. Counsel for the assessee that disallowance made towards delayed deposit of PF & ESI is a debatable issue and hence, not a permissible adjustment which can be made under the provisions of sec. 143(1) while processing the return of the assessee by CPC, Bengaluruhas been dealt exhaustively by the Coordinate Bench of ITAT, Kolkata in the case of Siddhi Vinayaka Graphics Pvt. Ltd. vs. ACIT in vide order dated 16.05.2023 wherein it is held against the assessee on the contention so raised. 5.1. Theabove decision of Siddhi Vinayaka Graphics Pvt. Ltd. vs. ACIT (supra) has been referred and followed by the Coordinate Bench of ITAT Guwahati in the case of Harendra Nath Deka Vs. ACIT, CPC, Bengaluru for AY 2018-19 & 2019-20 vide order dated 05.06.2023 in ITA No. 5 & 6/Gau/2022, taking the same view wherein undersigned Accountant Member is one of the signatories.The observations and findings given by the Coordinate Bench in the case of Hemendra Nath Deka (supra) is reproduced as under: “5. The issue herein is covered by the Coordinate Kolkata Bench of the Tribunal in the case of Siddhi Vinayaka Graphics Pvt. Ltd. vs. ACIT in ITA No.61/Kol/2023 vide order dated 16.05.2023 (authored by one of us i.e. Judicial Member herein), wherein, the decision of the Hon’ble Supreme Court in the case of ‘Checkmate Services Pvt. Ltd vs. CIT’ (supra) has been duly considered and other contentions relating to the validity of the adjustments made on account of disallowance of delayed deposit of employees’ contribution to PF/ESI while processing the return u/s 143(1) of the Act, have also been duly discussed. The relevant part of the order of the Coordinate Bench is reproduced as under: Contention -1: “5. The prima facie adjustment u/s. 143(1)(a) of the Income tax Act, 1961 (Act) in respect of an issue is allowable with reference to the interpretation of law which was prevailing as on the Kathleen Confectioners, AY 2019-20 date of filing of subject Income tax Return (ITR) and any subsequent pronouncement of law or retrospective amendment on the concerned issue is not to be considered for such purpose. Accordingly, the subsequent pronouncement of law by Hon'ble Supreme Court judgement in Checkmate Services (P) Ltd. Vs. CIT (2022) 448 ITR 518 (SC) is not to be considered for prima facie adjustment u/s. 143(1)(a) for asst. yr. 2020-21 for disallowing payment of employees' contribution to PF/ESI beyond the due date prescribed in respective statute because on the date of filing of ITR by appellant on 30.03.2021, Hon'ble Calcutta High Court (Jurisdictional High Court) judgement in the case of CIT Vs. Vijay Shree Ltd. (2014) 43 taxmann.Com 396 (Calcutta High Court) was holding field which held that such employees’ contribution, if deposited within due date of filing ITR (which in the instant case of appellant was 15.02.2021) is not to be disallowed u/s. 36(1)(va) of the Act. a) CIT Vs. Hindustan Electrographite Ltd. (2000) 243 ITR 48 (SC) (2000) 109 Taxman 342 (SC) b) Modern Fibotex India Ltd. Vs. DCIT (1995) 212 ITR 496 (Cal) c) SamtelColor Ltd. Vs. UOI (2002) 258 ITR 1 (Del) (2002) 125 Taxman 1002 (Delhi) d) ITO Vs. Gujarat Power Corpn. Ltd. (2002) 254 ITR 217 (Gujarat) (2002) 122 Taxman 367 (Gujarat) e) CIT Vs. Vijayshree Ltd. (2014) 43 taxmann.com 396 (Calcutta High Court) 6. Admittedly, the issue on merits has been set at rest by the recent decision of the Hon’ble Supreme Court in bunch of appeals with the lead case in ‘Checkmate Services Pvt. Ltd vs. CIT’ in Civil Appeal No.2833 of 2016 dated 12.10.2022. Earlier, there were divergent opinions of various High Courts. The High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi were of the view that if the employer’s as well as employee’s contribution to PF/ESI is deposited before the due date of filing of Income Tax Return, the same was an allowable expenditure u/s 36(1)(va) of the Act taking the due date as per the provisions of section 43B of the Act, whereas, the High Courts of Kerala and Gujarat ruled in favour of the Revenue holding that the due date of filing of return u/s 43B would be applicable in respect of employer’s contribution only and not in respect of failure of the employer to deposit the funds deducted/collected from the employees, to say it in other words, the benefit of extended date i.e. last date of filing of return, would not be available in respect of employees’ contribution and the same will not be allowed as deduction of expenditure if deposited after due date as prescribed by the relevant statutes irrespective of the fact that the same was deposited by the employer before the due date of filing of return of income u/s 139(1) of the Income Tax Act. The Hon’ble High Courts which ruled in favour of the assessee held that the provisions of section 43B(b) prescribing the due date as the last date for furnishing of return of income will not only apply to employers’ contribution towards ESI/PF of employee but also to the employees’ contribution which have been deducted by the employer and deposited by the employer as prescribed u/s 36(1)(va) of the Act. However, the Hon’ble Supreme Court in the case of ‘Checkmate Services Pvt. Ltd vs. CIT’ (supra) has held that by virtue of section 2(24)(x) of the Act, the amounts received or deducted by an employer u/s 36(1)(va), it retains its character as an income (albeit deemed) by virtue of section 2(24)(x), unless the condition stipulated by Explanation to section 36(1)(va) are satisfied i.e. depositing such amount received or deducted from the employee on or before the due Kathleen Confectioners, AY 2019-20 date. The Hon’ble Supreme Court held that there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income, whereas, the second is deemed an income, by definition, since it is the deduction from the employee’s income and held in trust by the employer. The Hon’ble Supreme Court thus held that the conditions of section 43B prescribing the due date as the date of filing of return of income in case the employers’ contribution towards ESI/PF would not be applicable in case the employees’ contribution as provided u/s 36(1)(va) of the Act and that the due date in respect of deposit of employees’ contribution would be such as prescribed u/s 36(1)(va) of the Act.

7. Now the contention raised by the ld. counsel for the assessee is that before the decision of the Hon’ble Supreme Court in the case of ‘Checkmate Services (P) Ltd. vs. CIT’ (supra), the judgement of the jurisdictional Calcutta High Court in CIT vs. Vijayshree Ltd. (supra) was holding field which held that employees’ contribution if deposited within the due date of filing of ITR is not to be disallowed u/s 36(1)(va) of the Act. Therefore, the Assessing Officer was not justified in making adjustment u/s 143(1)(a) of the Act. Before proceeding further, it will be relevant to mention here that under section 43B(b) of the Income Tax Act, the following amount is allowable as deduction if paid by the assessee before due date of furnishing of return u/s 139(1) of the Act. “43B(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees” It has to be noted here that under the statutory provisions of section 43B(b) of the Income Tax Act, the due date being the last date of filing of ITR was applicable only in respect of employer’s contribution towards ESI/PF etc. There is no mention in the aforesaid statutory provision of section 43B regarding the due date of deposit of employees’ contribution to ESI/PF, which is prescribed in the provisions of section 36(1)(va) only. It will be also relevant to reproduce here the relevant part of the judgment of the Hon’ble Calcutta High Court in the case of CIT vs. Vijayshree Ltd. (supra): “2. The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees ‘ Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2(24)(x) of the Act was correct or not.

3. It appears that the Tribunal below, in view of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was justified.

4. Being dissatisfied, the Revenue has come up with the present appeal.

6. Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.

Kathleen Confectioners, AY 2019-20 7. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.” A perusal of the above observations of the hon’ble Calcutta High Court would reveal that in the case of ‘CIT vs. Vijayshree Ltd.’ (supra), though the issues before the Hon’ble Calcutta High Court was relating to the disallowance on account of delayed deposit of employees’ contribution to ESI and PF, however, the aforesaid decision would show that the Hon’ble Calcutta High Court referred to the provisions of section 43B of the Act to hold that the said section 43B introduced by Finance Act 2003, was curative in nature and was required to be applied retrospectively w.e.f. 01.04.1988. It was not brought to knowledge of the Hon’ble High Court that the provisions of section 43B do not prescribe the due date of deposit of employees’ contribution, rather, the same refers to only the employer’s contribution. There is no discussion in the said decision of the Hon’ble Calcutta High Court that the provisions of section 43B would also include employees’ contribution along with employer’s contribution. However, since the hon’ble High Court in the concluding para mentioned Employees’ contribution, while holding about the retrospective application of section 43B of the Act, therefore, it was taken that the aforesaid decision of Calcutta High Court in the case of CIT vs. Vijayshree Ltd. (supra) was applicable on Employees’ contribution also.

9. It has been held time and again that law declared by a court will have retrospective effect, if not otherwise stated to be so specifically. It is also well settled proposition that whenever, a previous decision is overruled by a larger bench of the Supreme Court, the previous decision is completely wiped out and Article 141 will have no application to the decision which has already been overruled and the court would have to decide the cases according to the law laid down by the latest decision of the Hon’ble Supreme Court and not by the decision which has been expressly overruled. The above reasoning stems from the principle that when a court decides a matter, it is not as if it is making any new law but it is as if it is only restating what the law has always been. The reliance in this respect can be placed on the decision of the Hon’ble Supreme Court in the case of “Ramdas Bhikaji and Choudhary vs. Sadananda” (1980) 1 SCC 550 and on the recent decision of the Hon’ble Supreme Court in the case of “Manoj Parihar and Ors. Vs. State of Jammu & Kashmir and Ors” SLP(C) No.11039 of 2022 vide order dated 27.06.2022; “PV Goerge vs. State of Kerala” (2007) 3 SCC 557; Assistant Commissioner vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 14 SCC 171, wherein, the Hon’ble Supreme Court has held that judges do not make law, they only discover and find the correct law. Even, that where an earlier decision of the court operate for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which were earlier not correctly understood. In view of the above stated legal position, the law declared by the Hon’ble Supreme Court will be retrospectively applicable and it will be treated that earlier decisions of different High Court favouring the Kathleen Confectioners, AY 2019-20 assessee would be of no benefit of assessee at this stage as the said decisions of the High Courts are treated to be never existed or to say are wiped out by the aforesaid decision of the Hon’ble Supreme Court. Therefore, I do not find any merit in the first contention raised by the assessee. Even otherwise, it was not a case of amendment of provisions, the assessee was banking upon the interpretation given by the hon’ble High Court on the already existing provisions, which were subject to appeal to hon’ble Supreme Court. If the assessee has chosen to reap the fruits of the interpretation given by the hon’ble High Court, the assessee is also liable to face the consequences, if such an interpretation given by the hon’ble High Court is reversed or modified by the Apex Court of the country. So far as the reliance of the ld. counsel on the decision of the Hon’ble Supreme Court in the case of ‘CIT vs. Hindustan Electrographite Ltd.’ (supra) is concerned, I find that the said decision is not applicable to the facts and circumstances of the present case. The said decision deals with the retrospective amendment of the statutory provision, and not relating to the interpretation of the provisions already existing in the Statute. The facts of the said case were that the assessee had received during the prevision year relevant to assessment year 1988-89 certain amount by way of cash compensatory support. It did not include this income in its return which was filed on 29.12.1989. the Assessing Officer treated cash compensatory support receipt as additional income u/s 143(1A) in view of insertion of clause (iiib) to section 28 by the Finance Act, 1990 with retrospective effect from 1.4.1967 and levied tax at higher rate and also charged interest u/s 234. The Hon’ble Supreme Court in the aforesaid facts and circumstances held that in view of the law on the date of filing of the return, there was neither a bona fide mistake on the part of the assessee nor there was any mistaken belief. That, though, the amendment to section 28 was made with retrospective effect but the said amendment could not have been known to the assessee before the Finance Act came into force. The Hon’ble Supreme Court further observed that levy of additional tax bears all the characteristic of penalty and when the additional tax was imprint of penalty and that it would be punishing the assessee for no fault of it. However, the facts and circumstances of the present case as observed are quite distinguishable. In the present case as observed there is no change of law. the statutory provisions have not been amended retrospectively, rather, it was a question only of interpretation of statutory provisions. Moreover, as noted above, provision in the decision of the Hon’ble Calcutta High Court in the case of ‘CIT vs. Vijayshree Ltd.’ (supra), the sole issue raised before the Hon’ble Calcutta High Court was as to whether the provisions of section 43B will have to be applied retrospectively or prospectively without any discussion on the issue whether the employer’s contribution mentioned in section 43 would also include employees’ contribution. It was not the case that the assessee was not aware that the decision of the hon’ble High Court was subject to appeal before the hon’ble Supreme Court and that the decision of the Hon’ble High Court could be reversed by the Hon’ble Supreme Court. Similarly, the case law cited by the ld. counsel in the case of Modern Fibotex India Ltd. vs. DCIT (supra), the other case laws of different High Courts relied by the ld.

Kathleen Confectioners, AY 2019-20 counsel, are not applicable in view of the settled proposition of law by the Hon’ble Supreme Court in the various case laws as discussed above.

10. Contention -2 – Upto asst. yr. 2020-21, despite Hon'ble Supreme Court judgement in Checkmate Services (P) Ltd. Vs. CIT (2022) 448 ITR 518 (SC), prima facie adjustment u/s. 143(1)(a) of the Act cannot be made to disallow u/s. 36(1)(va) the employees' contribution to PF/ESI deposited belatedly after due date prescribed under relevant statute if deposited within due date of filing ITR which in the instant case of appellant was 15.02.2021. a) M/S P.R. Packaging Service Vs. ACIT (2022) 66 CCH 0378 Mum. Trib b) A Infrastructure Ltd. Vs. DCIT (2023) 37 NYPTTJ 165 (Jd) c) Paris Elysees India Private Limited Vs. DCIT Order dated 20.02.2023 in ITA No. 357/JPR/2022

11. The contention as canvassed by the ld. counsel is that the Assessing Officer could have disallowed the aforesaid employees’ contribution to ESI/PF being deposited after the due date under the relevant statute, only in an assessment carried out u/s 143(3) of the Act. That the Assessing Officer did not have any power or jurisdiction to disallow the aforesaid amount while processing the return u/s 143(1)(a) of the Act. The ld. Counsel for the assessee, in this respect, has relied upon the recent decision of the Coordinate Mumbai Bench of the Tribunal in the case of ‘M/s P R Packaging Service vs. ACIT’ in order dated 07.12.2022, wherein, the Coordinate Bench of the Tribunal has held that as per the provisions of section 143(1)(a)(iv) of the Act, the Assessing Officer while processing the return u/s 143(1) of the Act could have made the disallowance of expenditure if, the same was indicated in the audit report but not taken into account in computing the total income in the return. The Coordinate Bench of the Tribunal has been of the view that the tax auditor in the audit report had merely mentioned the due date for remittance of provident fund as per the Provident Fund Act and the actual date of payment made by the assessee. That the tax audit had not contemplated to disallow the employees’ contribution to PF, wherever, it is remitted beyond the due date prescribed in the Provident Fund Act. That it was merely recording of facts and a mere statement made by the tax auditor in his tax audit. That the provisions of section 143(1)(a)(iv) of the Act would come into operation when the tax auditor had suggested for a disallowance of expenses or increase in income, but the same has not been carried out by the assessee while filing the return of income. The Coordinate Bench thus observed that the tax auditor in the said case had not said to disallow the employees’ contribution to PF, wherever, it is remitted beyond the due date under the respective Act. The Coordinate Mumbai Bench of the Tribunal in the case of M/s P R Packaging Service (supra), therefore, held that the said action of the ld. CPC, Bangalore/Assessing Officer in disallowing the employees’ contribution to PF while processing the return u/s 143(1) of the Act was against the provisions of the Act as it did not fall within the ambit of prima facie Kathleen Confectioners, AY 2019-20 adjustment. The Coordinate Bench of the Tribunal to fortify its view has further relied upon the another decision of the Coordinate Mumbai Bench of the Tribunal in the case of ‘Kalpesh Synthetics Pvt. Ltd. vs. DCIT’ reported in 195 ITD 142(Mum). The relevant part of the order of the Coordinate Mumbai Bench in the case of M/s P R Packaging Service (supra), for the sake of ready reference, is reproduced as under: “3. We have heard the rival submissions and perused the materials available on record. It is not in dispute that assessee had remitted the employees contribution to Provident Fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income under section 139(1) of the Act. This fact of remittance made by the assessee with delay had been reported by the Tax Auditor in the Tax Audit Report. The copy of the Tax Audit Report is placed on record by the Ld.AR before us together with its annexures. On perusal of the same, we find that the Tax Auditor had merely mentioned the due date for remittance of Provident Fund as per the Provident Fund Act and the actual date of payment made by the assessee. The Tax Auditor had not even contemplated to disallow the employees’ contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act. Hence, it is merely recording of facts and a mere statement made by the Tax Auditor in his audit report. The Ld.CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. For the sake of convenience, the relevant provisions is reproduced hereunder:- “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:- (a) The total income or loss shall be computed after making the following adjustments, namely:- (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.”

4. From the aforesaid provisions, it is very clear 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. As stated supra, the tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, in our considered opinion, the said action of the Ld.CPC Bangalore in disallowing the employees’ contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt. Ltd vs. DCIT reported in 195 ITD 142 (Mum).”

12. At this stage, it will be relevant to reproduce the relevant provisions of section 143(1) of the Act which is 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:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; [***] Kathleen Confectioners, AY 2019-20 (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 indicated in the audit report but not taken into account in com- puting the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80- ID or section 80-IE, 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 in- cluded 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 be- fore 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:] ... Explanation.—For the purposes of this sub-section,— (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such re- turn; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;”

A perusal of clause (iv) to section 143(1)(a) of the Act would show that it provides for disallowance of expenditure indicated in the audit report, but not taken into account in computing the total income in the return.

8. The impugned adjustment, in our opinion, would also fall u/s 143(1)(a)(ii) since it is an in- correct claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD. As per sta- tutory mandate, the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. The purpose of the audit is to enable the revenue to make correct computation of assessee's income. A proper audit would, inter-alia, ensure that the claims for deduction are correctly made. The report is required to be furnished by the asses- see along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of de- faults reported therein since the same would be apparent from information contained in the return. As noted earlier, the contribution is first treated as income of the assessee and thereaf- ter, the deduction of the same has to be claimed by the assessee. Therefore, the columns in the Profit & Loss Account in the return of income has to be filled in this manner only i.e., the con- tribution is to be first added to the income of the assessee and thereafter, the deduction of the same would be claimed by the assessee. In other words, the assessee would first add the same to its income and thereafter, it would claim deduction after crossing the hurdle of Sec.36(1)(va). Since the claim made by the assessee is inconsistent with the reporting made by Tax Auditor, it was an incorrect claim which CPC has rightly disallowed.