M/S JAGDAMBA SERVICE SOLUTION PRIVATE LIMITED, MUMBAI V. ITO-12(3)(1), MUMBAI

CO 80/MUM/2022

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The case involves Jagdamba Service Solutions Pvt. Ltd., which appealed against the disallowance of deductions for contributions to PF and ESI funds amounting to Rs.6,50,16,753. The initial disallowance was made by the Central Processing Centre (CPC) under section 143(1) of the Income Tax Act, 1961, due to late deposit of these contributions. The Commissioner of Income Tax (Appeals) allowed the deductions, which the Revenue contested. The Tribunal, referencing the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT-1, recalled its earlier order and directed a re-examination of the contributions to determine if they were deposited within the statutory deadlines.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299228 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 13-07-2022
• Assessment Year: 2019-2020
• Appeal Filed On: 05-07-2022
• Other Referred Cases: CIT vs Alom Extrusions 319 ITR 306(SC), Checkmate Services Pvt. Ltd. Vs. CIT-1(448 ITR 518), Ghatge Patil Transport Ltd. (2015) 53 taxmann.com 141 (Bombay), CIT Vs. Hindustan Organics Chemical Ltd. (2014) 48 taxmann.com 421 (Bom)
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANUSHIJ NAIR
• Keywords: Set aside
• Section: 154; 43B; 10AA; 143(1); 139(1); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI AMARJIT SINGH, AM आयकर अपील सं/ I.T.A. No.7041/Mum/2022 (निर्धारण वर्ा / Assessment Year: 2019-20) ITO-12(3)(1) G-3, Bandra Liberty CHS, Hill Road, Bandra (West), Mumbai-400051. बिधम/ Vs. M/s. Jagdamba Service Solutions Pvt. Ltd. Room No.145, 1 st Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. Cross Objection No. 80/Mum/2022 Arising out of I.T.A. No.7041/Mum/2022 (निर्धारण वर्ा / Assessment Years: 2019-20) M/s. Jagdamba Service Solutions Pvt. Ltd. Room No.145, 1 st Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. बिधम/ Vs. ITO-12(3)(1) G-3, Bandra Liberty CHS, Hill Road, Bandra (West), Mumbai-400051. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AADCJ0686K (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 16/06/2023 घोषणा की तारीख /Date of Pronouncement: 21/08/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: These appeals have been filed by the revenue and cross- objection (CO) of the assessee are against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the “CIT(A)”] National Faceless Appeal Centre [hereinafter referred to as the “NFAC”], Delhi dated 30.07.2021 for A.Y.2019-20. Assessee by: Shri Anushij Nair Revenue by: Shri Soumendu Kumar Dash (Sr. AR) ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 2 2. The main grievance of the revenue is against the action of the Ld. CIT(A)/NFAC allowing the claim of assessee in respect of the employee’s contribution to ESI and PF which was disallowed by the CPC u/s 143(1) of the Income Tax Act 1961 (herein after the Act) to the tune of Rs.6,50,16,753/- on account of not depositing the same before the due date prescribed by the PF and ESI Act by relying on Hon’ble Supreme Court decision in CIT vs Alom Extrusions 319ITR 306(SC). According to Revenue Ld CIT(A) failed to appreciate that order of Supreme court in Alom Extrusions (supra) was in respect of Employers Contribution to PF/ESI and not Employee’s Contribution. And CO of assessee is supporting the action of Ld CIT(A) allowing deduction of Rs 6,50,16,753/-. 3. This is second round before this Tribunal. In the first round, we had dismissed both the Appeal of Revenue and cross-objection of the assessee, thereby upheld the action of Ld CIT(A) allowing the deduction since assessee had deposited the employer/employee’s contribution before due date u/s 139(1) of the Act.. Against the action of Tribunal, a Miscellaneous Application (MA. No. 223/Mum/2023) was preferred by the revenue, and we have recalled the impugned Tribunal order dated 20.07.2022 in the light of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1(448 ITR 518). Since we have restored the appeal of revenue & cross objection filed by assessee against Ld. CIT(A) order dated 30.07.2021, we are inclined to adjudicate the issue raised by both the ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 3 parties i.e. deduction of employer/employee’s contribution to PF/ESIC. 4. We note that assessee’s return of income was processed by the CPC, Bangalore u/s 143(1) of the Act wherein assessee’s claim of deduction in respect of Employer/Employee’s Contribution towards PF and ESI Funds to the tune of Rs.6,50,16,753/- was disallowed. Aggrieved by the action of CPC, the assessee on 29.05.2020 preferred rectification petition u/s 154 of the Act which was rejected vide order dated 25.06.2020. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC which was allowed, wherein the AO was directed to delete the disallowance. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue has preferred the appeal and assessee has filed the CO before us. 5. At the outset, the Ld. AR of the assessee brought to our notice that CPC erred in disallowing employer’s contribution to the tune of Rs.3,70,05,280 (out of total disallowance of Rs.6,50,16,753/- including the employees contribution). According to the Ld. AR, the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) is only applicable in case if the assessee/employer fail to deposit the employee’s contribution within due date in the relevant account as per the PF/ESIC Act and not the employer’s contribution to PF/ESIC which can be made till the due- date of filing of return of income u/s 139(1) of the Act. We find force in the submission of the Ld. AR that employer’s contribution made by the assessee/employer’s in the relevant account before the due date of ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 4 filing of return of income u/s 139(1) of the Act u/s 43B of the Act need to be allowed as deduction as held by Hon’ble Supreme Court in CIT Vs. Aom Extrusions Ltd. (319 ITR 306) and therefore, we direct AO to examine this fact and after verification if found correct to allow deduction of Employer’s Contribution if deposited in relevant fund of PF/ESI before due date specified for filing of return of income u/s 139(1) of the Act. 6. As per the assessee (in the first round) it had deposited the employee’s contribution of PF/ESI in the relevant accounts before filing of return of income and for supporting such an action/claim of deduction has referred to the decision of Hon’ble Jurisdictional High Court in the case of Ghatge Patil Transport Ltd. (2015) 53 taxmann.com 141 (Bombay), the case of CIT Vs. Hindustan Organics Chemical Ltd. (2014) 48 taxmann.com 421 (Bom) and various other decisions of other High Courts and Tribunals. However, we find that the case laws relied upon by the assessee cannot come to its aid in the light of the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd (supra) wherein, the Hon’ble Supreme Court held that the deduction claim of an assessee/employer who deposit employee’s contribution to PF/ESIC would be allowed (as a deduction) only if it is deposited in the relevant accounts by assessee/employer within the due date as prescribed in the PF/ESI Act. And if the employer/assessee fails to deposit the amount towards employee’s contribution on or before the due date as prescribed under ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 5 the EPF/ESIC Act, the assessee was not entitled to the deduction of employee’s contribution to such funds. In the light of the Hon’ble Supreme Court decision in Checkmate Services Pvt. Ltd (supra), unless the assessee is able to show that it has deposited the employee’s contribution towards PF/ESIC in the relevant fund within the due date as prescribed in the respective PF/ESIC Act, disallowance u/s 36(1)(va) of the Act as made by AO/Ld CIT(A) needs to be confirmed. And we find from perusal of impugned order that, CPC disallowed Rs.6,50,16,753/-. But before us, the Ld AR contended that employee’s contribution to PF/ESI fund was only to the tune of Rs 2,80,11,473/- [Rs.6,50,16,753/- (-) Rs.3,70,05,280/-] which amount was not made within the due date prescribed under the PF & ESI Act. Therefore action of Ld CIT(A) cannot be countenanced to the extent of allowing deduction of employee’s contribution to PF/ESI fund which is hit by section 36(1)(va) of the Act. Therefore, we direct AO to disallow the employee’s contribution towards PF/ESI if assessee failed to deposit it in the relevant account within the the due date as prescribed in the PF/ESI Act. AO to first verify the claim of assessee regarding deduction of Employers Contribution to PF/ESI as directed at para 5 (supra) and thereafter disallow the employee’s contribution as discussed (supra) 7. For completeness, (as well as the elaborate submission of Ld AR Shri Anusij Nair ), we address the question whether in the light of the Hon’ble Supreme Court decision in the case of Checkmate (supra) ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 6 adjustment made by CPC u/s 143(1) of the Act is valid or not?. Section 143(1)(a) of the Act provides for following adjustment: - “i) any arithmetical error in the return; 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 "for increase in income indicated in the audit report but not taken into account in computing the total income in the return; (v). Disallowance of deduction claimed under "[section 10AA or under any of the provisions of Chapter VI-A under the heading "C-Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139.” 8. Thus, while processing the return [by CPC u/s 143(1) of the Act] if it finds any incorrect claim apparent from any information in the return of income filed by the assessee, then adjustment is permissible. Here in this case, once the claim of deduction as per the law is not allowable, same can be disallowed by CPC in the intimation order u/s 143(1) of the Act. It is trite law that when the Hon’ble Supreme Court lays down the law by interpreting the same, then it relates back to the date when the law was brought into the statute by legislature. Further, clause (iv) states that, if any disallowance of expenditure has been indicated in the audit report [TAR], but not taken into account in computing the total income in the return, same also can be adjusted. The auditor in the audit report specifies the due date as prescribed u/s. 36(1)(va) of the Act and the date on which deposit has ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 7 been made, then in the computation of income, the same cannot be claimed as deduction, because the law envisages that such payment is disallowable, because it has not been made within the due date. 9. Accordingly, we hold that such an adjustment is permissible while processing the return under section 143(1) of the Act. And since assessee’s case was not that it had deposited the employee’s contribution in the relevant funds within the due date as prescribed in PE/ESI Act, we find the impugned action of Ld. CIT(A) not valid to the extent regarding Employee’s Contribution to PF/ESI, and direct AO to disallow the deduction claimed in respect of late deposit of Employee’s Contribution to PF/ESI; and also direct AO to allow deduction of amount deposited on account of Employer’s contribution to PF/ESI if deposited in relevant fund of PF/ESI before due date specified for filing of return of income u/s 139(1) of the Act. Therefore, we set aside the impugned order of Ld CIT(A) and restore the matter back to the file of AO with the aforesaid directions to verify and thereafter, allow/disallow the assessee’s claim of deduction in respect of Employer/Employee’s Contribution deposited in the relevant account of PF/ESI as discussed ( supra) and in accordance to law. And AO to give opportunity to Assessee to furnish documents to substantiate its claim of deduction and assessee to furnish relevant documents to substantiate its claim. Therefore, the appeal of Revenue and cross objection filed by the assessee are allowed for statistical purpose. ITA No.7041/Mum/2022 C.O. 80/Mum/2022 A.Y. 2019-20 Jagdamba Service Solutions Pvt. Ltd. 8 11. In the result, the appeal of Revenue and cross objection filed by the assessee are allowed for statistical purpose. Order pronounced in the open court on this 21/08/2023. Sd/- Sd/- (AMARJIT SINGH) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 21/08/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. ववभागीय प्रवतवनवि, आयकर अपीलीय अविकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यावपत प्रवत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai