STARS MULTIPURPOSE CO-OPERATIVE SOCIETY LIMITED,HYDERABAD vs. DCIT., CIRCLE-5(1), HYDERABAD

Brief facts of the case are that the assessee is a Co- Operative society, filed its return of income for the year under consideration on 29/10/2018 admitting ‘NIL’ income. The CPC Bengaluru (“CPC”) in the intimation u/s 143(1) of the income tax Act,1961(“ the Act”), dated 22/10/2019 disallowed the provident fund payment and ESI Fund payment of Rs. 14,56,847/- on the reason that the said payments are not allowable u/s. 36(1)(va) of the Act and determined the total income of the assessee at Rs. 14,56,847/- and finally raised a demand of Rs.5,59,053/-.

Aggrieved, assessee preferred appeal before the First Appellate Authority.

Considering the facts of the case, following the decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT [2022] 143 taxmann.com 178 (SC), learned First Appellate Authority upheld the addition made by the CPC , by giving a finding vide para No. 6.3 of the order that ‘in the present appeal, the facts indicate that the sum of Rs. 14,56,847/- being employee’s contribution to PF/ESI has been paid after the due date under the Act’.

Aggrieved by the said order of the Ld. First Appellate Authority, assessee is in appeal before the Tribunal, raising as many as nine grounds. But at the time of hearing of the appeal before the Tribunal, the learned AR appearing on behalf of the assessee submitted that Ground No. 1 and 9 are general in nature and not pressing Grounds No. 7 & 8, hence these grounds did not require any specific adjudication. Grounds No. 2 to 5 relates to the disallowance of Rs. 14,56,847/- towards employee’s contribution to PF/ESI and Ground No. 6 relates to set off of the disallowance made on account of employee’s contribution to PF/ESI from brought forward business losses of Rs. 2,88,80,12,064/-.

With regard to Grounds No. 2 to 5, learned AR submitted that all the payments corresponding to the addition of Rs. 14,56,847/- towards employee’s contribution to PF/ESI, have been paid before filing of return of income. Hence, the same should have been allowed by the Ld. First Appellate Authority u/s. 36(1)(v) of the Act.

Learned DR, on the other hand, while placing heavy reliance on the orders of the Revenue authorities, vehemently opposed the submission made on behalf of the assessee and argued that the impugned order is a well reasoned order and the same may be upheld.

We have heard the rival contentions, perused the material available on record and gone through the orders of the Revenue authorities. It is an undisputed fact that Rs. 14,56,847/- towards employee’s contribution to PF/ESI, has been paid after the due date prescribed under respective PF/ESI Act. Similar issues came up before the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., Vs. CIT [2022] 143 taxmann.com 178 (SC). Following the said decision of the Hon’ble Supreme Court (supra), the addition of Rs. 14,56,847/- towards employee’s contribution to PF/ESI was upheld and dismissed the claim of the assessee.

Now coming to Ground No. 6, relating to set off of the disallowance made on account of employee’s contribution to PF/ESI, which resulted in increase of income of the assessee from brought forward business losses, this ground has been raised for the first time before the ITAT as an additional ground. Learned AR submitted that this is legal ground, which goes to the root of the matter and requires no verification of facts from the records. Hence learned AR requested to accept the additional ground. Learned AR further submitted that the disallowance made on account of PF/ESI would result in increase of income under the head ‘business and profession’ and hence would be eligible for set off said disallowance against the brought forward business losses, as per the provisions of Section 72(2) of the Act. Hence, he requested the Bench to allow set off of the said addition made on account of PF/ESI from the brought forward business losses.

Per contra, learned DR, agitated to accept the contention raised by the learned AR. It was submitted that the eligibility of assessee needs to be verified by the learned AO.

We have heard the rival contentions, perused the material available on record and gone through the orders of the Revenue authorities. As far as the additional ground raised by the learned AR, we entertain the same, relying on the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., Vs., CIT [229 ITR 383] (SC) as considered in Tribunal’s Special Bench’s decision in All Cargo Global Logistics Ltd., Vs. DCIT (2012) [137 ITD 217](SB) (Mumbai), holds that ‘tribunal can very well entertain a new ground going to root of the matter so as to determine correct tax liability of a taxpayer’.

In the result, appeal of the assessee is treated as partly allowed for statistical purposes.