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Income Tax Appellate Tribunal, [ DELHI BENCH “S.M.C.” : DELHI ]
Before: SHRI CHALLA NAGENDRA PRASAD
आदेश / O R D E R PER C. N. PRASAD, J. M. :
These two appeals are filed by the assessee against the orders of the ld. Commissioner of Income Tax (Appeals) [hereinafter referred to CIT (Appeals)]/National Faceless Appeal Centre [NFAC] 1 & 1232/Del/2023 both dated 13.12.2022 for assessment years 2018-19 and 2019-20 in sustaining the disallowance made u/s 43B of the I.T. Act in respect of PF & ESI contributions.
2. The assessee has raised the following common grounds of appeal (except for the amounts) in both the appeals:-
“1. That on the facts and in the circumstances of the case and in law, it is objected that the adjustment of Rs.31,81,554/- was made in the intimation dated 21/02/2020 issued u/s.143(1) [ here in after referred as intimation] by the ADIT CPC, Bangalore [here in after referred as AO] against the assessee without issuing any prior intimation/show cause notice and without following the mandatory procedure given in Proviso 1 to section 143(1)thus the adjustment of Rs.31,81,554/- made in the intimation is bad in law and deserves to be deleted in full.
That with out prejudice to the contention raised in the Grounds of Appeal
No.1 above, it is objected that the adjustment of Rs.31,81,554/- was made by the AO in the intimation by using casually assigned reasons on a standard template "As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of section 143(1)(a)", and has not even struck off the portion inapplicable, without appreciating the fact that intimation u/s.143(1) is an appealable order thus failure to pass a judicious order specifying the reasons of adjustment including issuing a stereotyped intimation the rights of the assessee for the appeal against the intimation is affected and Principles of Natural Justice offended, thus adjustment of Rs.31,81,554/- made in the intimation deserves to be deleted in full.
3. That on the facts and in the circumstances of the case and in law, it is objected that the adjustment of Rs.31,81,554/- was made in the intimation dated 21/02/2020 specifying several limbs such as u/s.143(1)(a)(i).u/s.143(1)(a)(ii) and u/s.143(1)(a)(iv) without appreciating the fact that mentioning the correct limb of adjustment is an integral part of the process of finalizing the intimation thus intimation dated 21/02/2020 has 2 & 1232/Del/2023 to be held as defective, accordingly the rights of the assessee for raising specific objection before the CIT(A) against the adjustment of Rs.31,81,554/- in the intimation gets affected including principles of natural justice offended thus adjustment of Rs.31,81,554/- made in the intimation deserves to be deleted in full. 4. That with out prejudice to the contention raised in the Grounds of Appeal
No.3 above it is objected that adjustment of Rs.31,81,554/- is neither covered under any of the limbs under section 143(1)(a)(i) [Arithmetical Error], section 143(1)(a)(ii) [an incorrect claim] nor under section 143(1)(a)(iv) [disallowance of expenditure indicated in the audit report] as specified in the intimation dated 21/02/2020 where as the adjustment of Rs.31,81,554/- is actually increase of deemed income u/s.2(24)(x)which was made applicable w.e.f 01/04/2021, thus adjustment of Rs.31,81,554/- in the intimation dated 21/02/2020 is without jurisdiction accordingly deserves to be deleted in full.
5. That on the facts, and in the circumstances of the case and in law, it is objected that AO erred in charging interest u/s.234C of Rs.33,180/- without appreciating the fact that admitted tax liability as per the return of income was satisfied by the TDS credit accordingly assessee prays for deletion of interest in full.
6. That with out prejudice to the contention raised in the Grounds of Appeal No.5 above it is objected that the AO erred in charging interest of Rs.1,05,450/- ie. [u/s.234B Rs.72,270/- and u/s.234C Rs.33,180/] without appreciating the fact that deduction towards employees contribution to PF and ESI u/s.36(1)(va) was claimed in the return of income applying the jurisdictional Punjab & High Court Order in the case of "CIT Vs. Hemla Embrodiery Mill (P) Ltd [2014] 366 ITR 167 (P&H HC) & CIT Vs. Mark Auto Industries Ltd 2014] 358 ITR 43 (P&H.HC)", accordingly assessee shall not be liable for interest on account of disallowances of Rs.31,81,554/-us.36(1)(va) relating to employees contribution to PF & ESI thus prays for deletion of interest in full.
I.T.A. Nos. 275 & 1232/Del/2023 GROUNDS OF APPEAL
RELATING TO MERITS AND FACTS OF THE CASE:
7. That on the facts, and in the circumstances of the case and in law, the CIT(A)-NFAC, Delhi [here in after referred as CIT(A)] erred in sustaining the adjustment of Rs.31,81,554/- made u/s.36(1)(va) in the intimation without appreciating the fact that processing of return of income u/s.143(1) is not an 'assessment and scope of adjustment in the intimation is very limited thus Hon'ble Supreme Court decision in the case of "Checkmate Services Pvt Ltd Vs. CIT [2022] 143 taxmann.com 278 (SC)" held in the context where assessment was framed u/s.143(3) may not be applicable to adjustment made in the intimation accordingly the adjustment of Rs.31,81,554/- made in the intimation deserves to be deleted in full. GROUNDS OF APPEAL RELATING TO MERITS AND FACTS OF THE CASE NOT RAISED BEFORE CIT(A)-NFAC,DELHI:
8. That on the facts, and in the circumstances of the case and in law the CIT(A) erred in sustaining the adjustment of Rs.31,81,554/- u/s.36(1)(va) in the intimation dated 20/02/2020 without appreciating the fact that employees contribution to PF and ESI are treated as 'Deemed Income u/s.2(24)(x) in the books of accounts and not being deposited within the due dates specified under the relevant acts as given in Explanation-1 to section 36(1)(va)deduction u/s.36(1)(va) was not claimed thus on its subsequent accounting in the books of account including deposit with additional liability of interest and penalty as specified under the relevant Acts such expenditure changes its colour and is allowable in the hands of the assessee - employer under the following heads: (i) As normal business expenditure under section 37 of the I.T. Act 1961; (ii) As business expenditure incurred on account of Business and Commercial Expediency' eligible for deduction under section 37 of the I.T Act 1961. Assessee-Appellant prays before the Hon'ble Tribunal to held the expenditure incurred by the Assessee-Employer on depositing the 4 & 1232/Del/2023 employees contribution to the revenant Acts due to 'business and commercial expediency as normal business expenditure deserves to allowed under section 37 of the I.T Act 1961.
9. That the above grounds of appeal are independent and prejudice to each other and the appellant craves leave to add, alter, withdraw or replace any ground or grounds of appeal before or at the hearing of the appeal.”
The Ld. Counsel for the assessee submits that in other words, the Ld. Counsel submits that for computing the period of delay “month” to be taken should be the month in which salary/wages are disbursed by the assessee as held by the Kolkata Bench of the Tribunal in the case of Kanoi Paper Industries Ltd. Vs. ACIT (75 TTJ 448) and the Delhi Bench in the case of Vigilant Security Placement and Detective Services Pvt. Ltd. Vs. DCIT in dated 13.06.2023. Reliance was also placed on the decision of the Mumbai Bench of the Tribunal in the case of Fluid Air (India) Ltd. Vs. DCIT (63 ITD 182).
Heard rival submissions, perused the orders of the authorities below. 5. In so far as employees contributions towards PF & ESI it is noticed that identical issue came up for adjudication in the case of Bercos Melody House Vs. DCIT in ITA Nos. 277 & 278/Del/2023 and the Tribunal by order dated 25.09.2023 held as under: - “4. Heard rival submissions. Identical issue came up before the coordinate bench in the case of Rekha Vs. ITO, ITA No.584/Del/2020 dated 09.08.2023 and also in the case of Sentinel Consultants Pvt. Ltd. Vs. ACIT, ITA No. 7 & 8/Del/2023 dated 12.06.2023. The coordinate bench in the case of Sentinel Consultants Pvt. Ltd. Vs. ACIT (supra) 5 I.T.A. Nos. 275 & 1232/Del/2023 restored the issue to the file of the AO with the following observations: - “9. We have carefully considered the rival submissions and perused the material available on record. The disallowance of employees’ contribution to PF/ESIC for breach of condition under Section 36(1)(va) is in controversy. 9.1 We notice at the outset that an opportunity was given via electronic platform of the deptt. for the proposed adjustments and in the absence of e- response, the adjustments were carried out the CPC- Bangluru and intimation was issued enhancing the assessed income in the captioned assessment years. The CIT(A) in the first appeal has sustained the adjustments towards belated deposits of employees’ contribution to PF/ESIC in the light of the judgment rendered by the Hon’ble Supreme Court in Checkmate Pvt. Ltd. vs. CIT (2022) 143 taxmann.com 178 (SC). The contention of the Assessee that such additions cannot be made under the umbrella of S. 143(1) is covered against the assessee the decision of the co- ordinate bench in the case of Weather Comfort Engineers Private Limited vs. ACIT-CPC order dated 15/02/2023. The action of CPC and CIT(A) thus cannot be faulted where some opportunity was admittedly given for e- response. 9.2 We now turn to alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure under S. 37 of the Act. We do not see any merit in such plea that the belated deposit of employees contributions to PF/ESIC governed under Section 36(1)(va) is also simultaneously amenable to deduction under Section 37(1) of the Act. In terms of the provision, Section 37(1) permits deduction of expenditure which is not in the nature of expenditure prescribed in Sections 30 to 36 of the Act and also not being in the nature of capital expenditure or personal expenses of the assessee. Thus, in view of such mandate of law, the deduction of expenditure under the general clause of Section 37(1) would not extend to expenditure 6 I.T.A. Nos. 275 & 1232/Del/2023 specially covered within the ambit of Section 36(1)(va) of the Act. The Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. (supra) itself explains this position in Para 32 of the Judgment. Such view also draws support from the observations made in recent judgment of the Hon’ble Supreme Court in the case of Pr.CIT vs. Khyati Realtors (P) Ltd. (2022) 141 taxmann.com 461 (SC). The alternate plea is thus without any merit. 9.3 We also take note of yet another plea made out on behalf the assessee towards methodology of calculation of default under the relevant PF/ESIC Act. The Ld. Counsel contends that the month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd. vs. ACIT (2002) 75 TTJ 448 (Cal). This aspect has not been found to be examined by the Assessing Officer or CIT(A). Hence without expressing any opinion on merits on this aspect, we deem it expedient to restore the matter to the file of designated AO. It shall be open to the assessee to place factual matrix before the AO and take such plea for evaluation of the AO. The AO shall examine this aspect and fresh order in accordance with law after giving proper opportunity.”
Following the decision of the coordinate bench, we restore this issue to the file of the AO to decide the issue in the light of the observations made by the coordinate bench in the case of Sentinel Consultants Pvt. Ltd. and also the decision of the Kolkata Bench in the case of Kanoi Paper & Industries Ltd. Vs. ACIT (supra). Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee, the assessee is at liberty to provide all the necessary information in support of its contention.”
I.T.A. Nos. 275 & 1232/Del/2023
Following the said order, I restore this issue to the file of the AO to decide the issue in the light of the observations made by the Tribunal in the case of Kanoi Paper & Industries Ltd. Vs. ACIT (supra). Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee, the assessee is at liberty to provide all the necessary information in support of its contention. Ground no.1 of grounds of appeal
is allowed for statistical purpose.
7. The delay in filing the appeal in for assessment year 2019-20 is condoned. Facts being identical the decision taken for assessment year 2018-19 applies Mutatis Mutandis to the appeal for assessment year 2019-20. We order accordingly.
8. In the result, both the appeals of the assessee are partly allowed as indicated above.
Order pronounced in the open court on : 16/10/2023.