AMITKUMAR S. SOLANKI,VADODARA vs. THE ITO, WARD-2, GODHRA

This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 23.11.2022 for the Assessment Year 2017-18.

The assessee had filed his return of income for A.Y. 2017- 18 declaring an income of Rs.49,44,188/-. The return was processed u/s. 143(1) of the Act on 20.03.2019 and while processing the return an addition of Rs.25,99,845/- was made in respect of unpaid employees’ contribution to EPF/ESI u/s. (Amitkumar S. Solanki vs. ITO) A.Y.– 2017-18 - 2 – 36(1)(va) of the Act. This adjustment was made on the basis of the tax audit report and for the reason that the employees’ contribution to EPF/ESI was not paid within the due dates. The assessee had challenged this addition before the CIT(A), which was dismissed vide the impugned order and against which the present appeal has been filed.

The sole ground of the appeal raised by the assessee is as under: “1. The CIT(A) has erred in passing the order u/s 250 of Income Tax Act, 1961 by making the disallowance of expenditure claimed u/s. 36(1)(va) of the said Act amounting to Rs.25,99,845.”

Shri Palak Pavagadhi, ld. AR for the assessee submitted that there was a delay of 131 days in filing this appeal for the reason that the intimation u/s. 143(1) of the Act was not available with the assessee. The same was also not available on the e-filing portal and communications were made by the assessee on various occasions for providing a copy of the intimation. There was also a delay on the part of the previous AR of the assessee. The department has not raised any serious objection to the condonation of delay. Considering the explanation of the assessee, the delay in filing of the appeal is condoned.

On merits, the ld. AR submitted that in the absence of intimation u/s. 143(1) of the Act, the exact reason for addition to the return of income was not known to the assessee. It was for this reason that no proper compliance could be made before the ld. CIT(A). He further submitted that there was a wrong (Amitkumar S. Solanki vs. ITO) A.Y.– 2017-18 - 3 – reporting in tax audit report based on which disallowance has been made while processing the return u/s. 143(1) of the Act. The ld. AR clarified that there was no delay on the part of the assessee in depositing the employees’ contribution to EPF/ESI and the same were deposited within the due dates as per the respective Acts. In this regard, the assessee has filed additional evidences in support of the claim of payment of EPF/ESI contributions being made within the due dates. It was further explained that these additional evidences could not be filed before the ld. CIT(A) due to non-availability of the order under Section 143(1) of the Act.

The ld. DR, on the other hand, submitted that the disallowance has been made in the order u/s. 143(1) of the Act on the basis of audit report and that the assessee had not revised the audit report in case it was found that there was certain mis- reporting in the audit report. On the issue of verification of payment of the employees’ contribution to EPF/ESI, the department has no objection if the matter was set aside for this purpose.

We have considered the submissions of both the parties. The disallowance of Rs.25,99,845/- u/s. 36(1)(va) of the Act, while processing the return u/s.143(1) of the Act, was made on the basis of tax audit report filed by the assessee. In column 26(i)(B)(b) of the tax audit report it was clearly mentioned that ESIC of Rs.5,40,238/- and PF of Rs.20,59,606/- was not paid on or before the due date. The assesse has, however, contended that this was (Amitkumar S. Solanki vs. ITO) A.Y.– 2017-18 - 4 – a mis-reported figure as the details of contributions received from employees for various funds as referred in section 36(1)(va) of the Act was to be reported in column 20(b) of the tax audit report. According to the assesse the outstanding employees’ contribution of PF & ESI for March was Rs.11,21,444/- only which should have been reported in column 20(b) of the tax audit report. Further, outstanding employer’s contribution of EPF & ESI for March was Rs.14,08,372/- which should have been reported in column 26(i)(B)(a) of the tax audit report. The balance amount of Rs.70,028/- was stated to be administrative charges.

It is seen from the tax audit report that the figures reported in column 26 of the report are in respect of provision of section 43B of the Act. Therefore, no addition in respect of outstanding employees’ contribution of EPF & ESI could have been made on the basis of the figures as reported in column 26. The employees’ contribution was to be reported in column 20 and not in column 26. Thus the contention of the assesse that there was misreporting in the tax audit report is found to be apparently correct. It was further submitted that the outstanding employees’ as well as employer’s contribution to EPF & ESI were all paid within the due dates for which additional evidences have been brought on record. These facts as well as the additional evidences filed by the assessee in the course of this appeal are required to be verified in order to ascertain whether the addition was correctly made while processing the return of income. Therefore, the matter is set aside to the file of the AO to verify the actual (Amitkumar S. Solanki vs. ITO) A.Y.– 2017-18 - 5 – liability on account of employees’ / employer’s contribution of EPF/ESI and whether the same were paid within the due dates of the respect Acts / within the due date as per Income Tax Act. After carrying out the necessary verification the AO may decide the issue afresh in accordance with the provisions of law. The assessee may be allowed a reasonable opportunity to produce the evidence for payments made towards the outstanding employees’/employer’s contribution to EPF/ESI as reflected in the tax audit report.

In the result, appeal preferred by the assessee is allowed for statistical purposes.