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Income Tax Appellate Tribunal, PANAJI BENCH : PANAJI
Before: SHRI SATBEER SINGH GODARA & SHRI G.D. PADMAHSHALI
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI (THROUGH VIRTUAL HEARING) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI G.D. PADMAHSHALI, ACCOUNTANT MEMBER ITA.No.1/PAN./2022 Assessment Year 2018-2019 M/s. Veejay Facility The DCIT, (Central Management Pvt. Ltd., 416, Processing Centre), 4th Floor, Gera’s Imperium-II, Circle-1(1), Aayakar vs. EDC Patto Plaza, Goa. Bhavan, Plot No.5, EDC PIN – 403 001. Complex, Patto Plaza, PAN AACCV8557A Panaji-Goa – 403 001. (Appellant) (Respondent) For Assessee : -None- For Revenue : Shri N. Shrikanth Date of Hearing : 07.08.2023 Date of Pronouncement : 08.08.2023 ORDER PER SATBEER SINGH GODARA, J.M. :
This assessee’s appeal arise against the National Faceless Appeal Centre [in short “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2021-22/1037668778(1), dated 10.12.2021, involving proceedings u/s. 154 of the Income Tax Act, 1961 (in short “the Act”).
None appears at assessee’s behest. It is accordingly proceeded ex-parte. Case file perused.
The assessee pleads the following substantive grounds in the instant appeal :
2 ITA.No.1/PAN./2022 1) “The order of CIT (appeals) is incorrect on fact and in law. 2) Sufficient opportunity was not given to the appellant to make personal appearance and hence the order is bad in law. 3) There have been various case decisions including by High Court holding that provision of section 36(1)(va) should be interpreted in the same way as that of section 43B and that delayed contribution of employees towards PF and ESI should be allowed as a deduction as long as the amounts are paid before the due date of filing the return. Both the Assessing Officer and CIT (appeals) have not followed these judgments. 4) The CIT (appeals) has erroneously interpreted that the amendment introduced in section 36(1)(va) by Finance Act, 2021 is retrospective in nature, ignoring the memorandum of object presented to the parliament at the time of introduction of the finance bill as well as the case decision of Tribunals which clearly hold that the amendment is prospective and applicable with effect from A.Y. 2021-22. 5) The CIT (appeals) has completely ignored the fact that the adjustment made by way of addition under section 36(1)(va) towards delayed contribution of employees PF and ESI was made under section 143(1) (a). Section 143(1)(a) permits addition arising only due to errors and mistakes appearing on the face of the record and doesn’t permit addition on issues which are contentious in nature. At the time when addition was made by the assessing Officer the issue was contentious and there were number of case decisions in favour of appellant
3 ITA.No.1/PAN./2022 and thus there was no justification for making addition under section 143(1) (a). 6) The CIT (appeals) has completely ignored the fact that delays in payment of employees’s contribution to PF and ESI were on account of genuine reasons beyond the control of the appellant, that the delays were not Material delays and the amounts were paid well before the due date of filing of income tax return.”
Suffice to say, it has come on record that the assessee’s sole substantive grievance canvassed in the instant appeal challenges correctness of both the learned lower authorities action invoking sec.36(1)(va) r.w.s. 43B disallowance representing employees contribution to the tune of Rs.53,30,556/- which had not been deposited before the due date under the corresponding statute(s). That being the case, we quote hon’ble apex court’s recent landmark decision in Checkmate Services P. Ltd., vs. CIT & Ors. [2022] 448 ITR 518 (SC) and confirm the impugned disallowance in very terms. Ordered accordingly.
Learned counsel next submitted that such a disallowance could not have been made in sec.143(1)(a) “processing” of the assessee’s return. We see no merit in the assessee’s instant latter arguments as well in light of tribunal’s recent decision Cementile Industries vs. ITO, Ward-14(1), Pune in ITA.No.693/PUN./2022 etc., batch dated 23.11.2022 holding as under :
4 ITA.No.1/PAN./2022 “7. We fully agree with the proposition bolstered by the ld. AR that adjustment to the total income or loss can be made only in the terms indicated specifically u/s.143(1) of the Act. Now, we proceed to examine if the case falls under any of the clauses. The rival parties are consensus ad idem that the case can be considered as falling either under clause (ii) or (iv) of section 143(1). For ready reference, we are extracting the relevant provision 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:—
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(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’
Sub-section (1) of section 143 states that a return shall be processed to compute total income by making six types of `adjustments’ as set out in sub-clauses (i) to (vi). As noted supra, we are concerned only with the examination of two sub- clauses, viz., (ii) and (iv). Sub-clause (ii) talks of ‘an incorrect
5 ITA.No.1/PAN./2022 claim, if such incorrect claim is apparent from any information in the return”. The expression “an incorrect claim apparent from any information in the return” has not been generally used in the provision. Rather, it has been specifically defined in Explanation (a) to section 143(1) as under:
`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 return;
(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;’
Clause (i) of Explanation (a) refers to a situation in which there is a claim of income or expenditure at two places in the return of income and there is inconsistency in them. For example, if deduction is claimed under a specific section for a sum of Rs.100/- in the Profit and loss account accompanying the return, but in the computation of income, the amount has 6 ITA.No.1/PAN./2022 been taken as Rs.110/-, leading to inconsistency, requiring an adjustment. Clause (ii) of Explanation (a) covers a situation in which claim is made, say, for a deduction u/s.80IA for which audit report is required to be furnished, but such report has not been furnished along with the return. Clause (iii) contemplates a situation in which deduction exceeds specified statutory limit. For example, section 24(a) provides for a standard deduction for a sum equal to 30% of the annual value, but the assessee has claimed deduction at 40%. These situations warrant an adjustment. It is obvious that none of the three clauses of Explanation (a), defining an incorrect claim apparent from any information in the return, gets magnetized to the facts of the present case.
Now we turn to clause (iv) of section 143(1)(a) which provides for `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’. The words “or increase in income” in the above provision were inserted by the Finance Act, 2021 w.e.f. 01-04-2021. As such, this part of the provision cannot be considered for application during the years under consideration, which are anterior to the amendment. We are left with ascertaining if the disallowance made u/s 36(1)(va) in the Intimation under section 143(1)(a) can be construed as a `disallowance of expenditure indicated in the audit report not taken into account in computing the total income in the return’.
7 ITA.No.1/PAN./2022 Point 20(b) of the audit report in Form 3CA has columns – Serial number; Nature of fund; Sum received from employees; Due date for payment; The actual amount paid; and The actual date of payment to the concerned authorities. A copy of audit report in one of the cases under consideration, namely, S.M. Auto Stamping Pvt. Ltd. (ITA No.521/PUN/2022) has been placed on record. Point 20(b) of the audit report gives the `Sum received from employees’ at Rs.21,800/-. `Due date for payment’ has been reported as 15-07-2017 and `The actual date of payment to the concerned authorities’ has been given as 20-07-2017. Similar is the position regarding other items disallowed u/s.36(1)(va) having `The actual date of payment’ after the `Due date for payment’. Thus, it is manifest that the audit report clearly points out that as against the due date of payment of the employees’ share in the relevant fund on 15.7.2017 for deduction u/s 36(1)(va), the actual payment is delayed and deposited on 20.7.2017. The legislature, for the disallowance under sub-clause (iv) of section 143(1)(a), has used the expression `indicated in the audit report’. The word `indicated’ is wider in amplitude than the word `reported’, which envelopes both the direct and indirect reporting. Even if there is some indication of disallowance in the audit report, which is short of direct reporting of the disallowance, the case gets covered within the purview of the provision warranting the disallowance. However, the indication must be clear and not 8 ITA.No.1/PAN./2022 vague. If the indication in the audit report gives a clear picture of the violation of a provision, there can be no escape from disallowance. Turning to the facts of the case, it is clear from the mandate of section 36(1)(va) that the employees’ share in the relevant funds must be deposited before the due date under the respective Acts. If the audit report mentions the due date of payment and also the actual date of payment with specific reference in column no. 20(b) having heading: `Details of contributions received from employees for various funds as referred to in section 36(1)(va)’, it is an apparent indication of the disallowance of expenditure u/s 36(1)(va) in the audit report in a case where the actual date of payment is beyond the due date. Though the audit report clearly indicated that there was a delay in the deposit of the employees’ share in the relevant funds, which was in contravention of the prescription of u/s.36(1)(va), the assessee chose not to offer the disallowance in computing the total income in the return, which rightly called for the disallowance in terms of section 143(1)(a) of the Act.
The ld. AR vehemently argued that it was a case of “increase in income” which has been enshrined in clause (iv) of section 143(1)(a) w.e.f. 01-04-2021 and hence cannot be take note of for the year under consideration. In our considered opinion, the contention is ill-founded. We have noted above that clause (iv) of section 143(1)(a) talks of two different limbs, namely, `disallowance of expenditure’ and `increase in income’
9 ITA.No.1/PAN./2022 by means of indication in the audit report. Both the limbs are independent of each other. The indication in the audit report for `Increase of income’ should be qua some item of income and not increase of income because of the `disallowance of expenditure’. Every disallowance of expenditure leads to increase of income. If the contention of the ld. AR is taken to a logical conclusion, then the second expression `or increase in income’ inserted by the Finance Act, 2021 would be rendered a redundant piece of legislation. It is trite interpretation has to be given to the statutory provisions in such a manner that no part of the Act is rendered nugatory. Distinction in the scope of the two aspects can be understood with the help of the present context only. We have noted that point no. 20(b) of the audit report, dealing with section 36(1)(va), has columns, inter alia, (i) `Sum received from employees’; (ii) `Due date for payment’; and (iii) `The actual date of payment to the concerned authorities’. The column (i) having details of the amounts received from employees indicates about the `increase in income’ as per sub-clause (iv) of section 143(1)(a) if the assessee does not take this sum in computing total income. The columns (ii) and (iii) having details of due date for payment and the actual date of payment indicate about `disallowance of expenditure’ if the assessee does not make suo motu disallowance in computing total income. Right now, there is no case of `increase in income’ because the AO did not make adjustment for non-offering of income of the `Sums received from 10 ITA.No.1/PAN./2022 employees’, but made the adjustment for `disallowance of expenditure’ with the remarks that :`Amounts debited to the profit and loss account, to the extent disallowance under section 36 due to non-fulfillment of conditions specified in relevant clauses’. Thus, it is evident that it is a case of `disallowance of expenditure’ and not `increase of income’. Further, the entire challenge by the assessee throughout has been to the disallowance of expenditure made by the AO. It set up a case before the authorities below, including the ld. CIT(A), taking shelter of section 43B of the Act by arguing that the disallowance cannot be made because such payment was made before the due date u/s.139(1) of the Act. As such, the contention of adjustment u/s 143(1)(a)(iv) due to `increase in income’ is jettisoned.
Another argument point was put forth on behalf of the assessee that the assessee did not claim any deduction in the Profit and loss account of the amount under consideration and hence no disallowance should have been made. This argument is again bereft of force. The assessee claimed deduction for salary on gross basis, inclusive of the employees’ share to the relevant funds. To put it simply, if gross salary is of Rs.100, out of which a sum of Rs.10 has been deducted as contribution to relevant fund, then the debit of Rs.100 in the Profit and loss account means deduction has been claimed for Rs.10 as well. Ex consequenti, if deduction of Rs.10 is not allowed u/s 11 ITA.No.1/PAN./2022 36(1)(va) for late deposit of the amount before the due date under the respective Act, it would mean that the claim of Rs.10 included in Rs.100 is not allowed deduction.
The ld. AR referred to section 5 of the Payment of Wages Act, 1936, to contend that deduction made from an employee’s salary for the month of October should suffer disallowance only if it is not paid by 15th December. This argument was premised on the language of section 5, which says that the wages of every person employed upon or in any railway, factory or industrial or other establishment upon or in which less than one thousand persons are employed, shall be paid before expiry of the seventh day, after the last day of the wage-period in respect of which the wages are payable. It was contended that salary for the month of October, 2022 will be paid before the 7th of November, which will result into income of the employer only at the time of payment, making the due date of payment into relevant fund as on or before 15th December and not 15th November.
There is no merit in the contention of linking the date of deposit of the employees’ share in the relevant funds with the date of payment of wages. Section 5 of the Payment of Wages Act simply deals with the ‘Time of payment of wages’. It does not stipulate any time limit for deposit of the employees share in the relevant funds. For that purpose, the relevant Acts give a 12 ITA.No.1/PAN./2022 window for depositing the contribution within 15 days of the last month's salary. Thus, contribution to the relevant fund towards the salary for the month of October-ending should be deposited before 15th November.
In view of the foregoing discussion, we are satisfied that the ld. CIT(A) was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made in these cases for late deposit of employees’ share to the relevant funds beyond the date prescribed under the respective Acts.”
We accordingly, see no reason to accept both these assessee’s sole substantive identical grounds in above terms. The same stand rejected.
No other ground or argument has been raised before us.
This assessee’s appeal is dismissed in above terms.
Order pronounced in the open court on 08.08.2023.