MAGNESITA REFRACTORIES PVT. LTD, MUMBAI V. DY. CIT CPC, BENGALURU

ITA 186/MUM/2022

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0874 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC-1
• Assessment Year: 2017-2018
• Appeal Filed On: 30-01-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEVANG K. SHAH
• Keywords: FORM 26AS
• Section: 2; 43B; 143(3); 143(1); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC-1” MUMBAI BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 186/MUM/2022 Assessment Year: 2017-18 Magnesita Refractories Pvt. Ltd., Room No. 604C, Neelkanth Business Park, Opp. Railway Station, Vidhyavihar (West), Mumbai-400086. Vs. Deputy Commissioner of Income Tax, Centralized Processing Centre, Bengaluru-560500. PAN No. AAHCM 1962 H Appellant Respondent Assessee by : Mr. Devang K. Shah, AR Revenue by : Mr. Kiran P. Unavekar, DR Date of Hearing : 30/05/2022 Date of pronouncement : 30/05/2022 ORDER PER OM PRAKASH KANT, AM This appeal has been preferred by assessee against the order dated 20.12.2021 passed by the Ld. Commissioner of Income Tax (Appeals) [National Faceless Appeal Centre] [in short ‘the Ld. CIT(A)’] for assessment year 2017-18 arising from order u/s 143(1) Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 2 of the Income-tax Act, 1961 (in short ‘the Act’). The grounds raised by the assessee are reproduced as under: “Adjustment for deposition of employees contribution to provident fund after the due date specified under Section 36(1) (va) of the Income-tax Act, 1961 (Act), but before the due date of filing of return of income ₹7,7,43,377/- On the facts and circumstances of the case and in law, the National Faceless Appeal Centre, Delhi (NFAC) has erred in confirming the adjustment made by the Deputy Commissioner of Income Tax, Centralized Processing Centre, Bengaluru (CPC') for deposition of employees contribution to provident fund after the due date specified under Section 36(1) (va) of the Act but before the due date of filing of return of income, on the premise that amendment to Section 36(1) (va) of the Act and Section 43B of the Act is clarificatory and retrospective in nature. The Appellant prays that the said amendment is prospective in nature and applicable to the Assessment Year 2021-22 and subsequent assessment years - as noted in the Memorandum to the Finance Bill 2021 and confirmed in several judicial precedents as on date and thereby the impugned adjustment aggregating to ₹7,7,43,377/- in the Intimation is unwarranted, erroneous, bad-in- law and be deleted”. 2. We have heard rival submissions of the parties on issue in dispute and perused the relevant material on record. The brief issue in appeal is that the Assessing Officer while processing the return in Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 3 terms of section 143(1) of the Income-Tax Act, 1961 (in short ‘the Act’) made disallowance for Employees Contribution to ESIC/PF deduction u/s 36(1)(va) of the Act. The Ld. CIT(A) also upheld the disallowance holding that such adjustments have been correctly made by the Assessing Officer u/s 143(1) of the Act. The relevant finding of the Ld. CIT(A) is reproduced as under : “The submissions made on behalf of the appellant have been duly considered. The only issue in appeal is admissibility of deduction u/s 36(1) (va) of the Income Tax Act, 1961 relating to employees contribution to ESI & PF fund if the employer deposits the same after the due date as prescribed under the relevant ESI & PF Act but before the due date of filing of return of income. A bare reading of the provisions of Section 36(1 )(va) of the Income Tax Act, 1961 makes it clear that the 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. As some judicial pronouncements created some confusion by treating the due date to be meant to be due date for filing of return of income, Finance Act, 2021 made an amendment to make the meaning of the provisions absolutely clear. Finance Act, 2021 made the following amendments: Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 4 "Amendment of section 36. 9. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely: 'Explanation 2.-For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;' Amendment of section 43B. 11. In section 43B of the Income-tax Act, after Explanation 4, the following Explanation shall be inserted, namely:- "Explanation5.-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub- clause (x) of clause (24) of section 2 applies."." Memorandum explaining the provisions in the Finance Bill, 2021 on the issue reads as under: Rationalization of various Provisions- Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 5 contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head "Profits and gains of business or profession". Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (×) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, "due date" to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would been titled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 6 employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as SI and PF needs to be clearly distinguished from the employee's contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee's contributions. Accordingly, in order to provide certainty, it is proposed to - (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section43B does not apply and deemed to never have been applied for the purposes of determining the -due datel under this clause; and (li) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 7 the assessee from any of his employees to which provisions of sub- clause (x) of clause (24) of section 2applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. [Clauses 8 and 9] Here there is a plea / question as to whether the amended provisions would apply only from the assessment year 2021-22 and subsequent assessment years or retrospectively. In this context, it would be pertinent to bring attention to three case laws of Supreme court on retrospectively of an amendment. These three cases are co-related, and need to be read in a sequence, as below: - a. Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR (SC) 733 b. CIT vs. Raman Lal C. Hathi (2008) 217 CTR (SC) 105 c. CIT Vs. Gold Coin Health Food (P) Ltd., (2008) 304 ITR 308 (SC) In the case of Virtual Soft Systems Ltd. amendment to section 271(1)c) was held to be prospective by the Apex Court, as the statute categorically stated that it would apply w.e.f. 01.04.2003. On this ground, the supreme Court held that the amendment cannot be applied to the period prior to 01.04.2003. However, subsequently while deciding the case of Raman Lal C. Hathi, the Apex Court once again examined the same amendment to section 271(1)(c), and came to the conclusion that the law laid Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 8 down by the Division Bench in the case of Virtual Soft Systems Ltd. (supra) needed reconsideration. Accordingly, the issue was placed before a larger bench of Supreme Court in the case of Gold Coin Health Foods. On receiving the this reference, the larger Bench held as below. "6. It would be of some relevance to take note of what this Court said in Virtual's case (supra). Pointing out one of the important tests at para 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The Court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive." After discussing the issue in detail and referring to various case laws, the Supreme Court in the case of Gold Coin Health Food held that amendment to section 271(1)c) was retrospective, even though as per the amended statute it came into force w.e.f. 1st April, 2003. In another important case of CIT vs Vs. Podar Cement (P) Ltd., 226 ITR 0625 (1997), the Supreme Court placed reliance on the Memorandum explaining provisions in Finance Bill, 1987, and held that amendment to be retrospective. The said amendment was brought in Sec.27 of the Act, by Finance Act 1987, and it was held to be retrospective in this case, despite the fact that Memorandum explaining the amendment/provisions in Finance Bill, 1987, said Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 9 that "These amendments will take effect from 1st April, 1988, and will, accordingly, apply in relation to the Asst. Year 1988-89 and subsequent years". The above case laws settle the position that the date/ year from which the amendment is made operative does not conclusively decide the question, and the scheme of the statute must be examined prior to the amendment and subsequent to the amendment, to determine whether amendment is retrospective or prospective. ITAT Delhi 'F' Bench, New Delhi in the case of M/s Vedvan Consultants Pvt Ltd vs DCIT, CPC. Bengaluru in ITA No. 1312/Del/2020 for Assessment Year 2018-19 has dismissed the appeal of the assessee after discussing the issue in details and after elaborate discussions and after keeping in view the order of the Co- ordinate Bench of the Tribunal in the case of Eagle Shipping & Logistics (India) (P) Ltd vs CIT in ITA No. 324/Del/2017 order dated 25/07/2019 which relied on the judgment of the Hon'ble High Court of Delhi in the case of CIT vs Bharat Hotels Ltd. (410 ITR 417). As per the above discussions, it is amply clear that the amended provisions being clarificatory in nature would apply retrospectively. In view of the above discussions and after finding no illegality or perversity in the impugned order of the Assessing Officer, the appeal filed by the assessee is hereby dismissed.” 3. The contention of the Ld. CIT(A) that employees contribution to ESIC/PF paid after due dates of the relevant Act is not allowable Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 10 in terms of section 36(1)(va) of the Act whereas the contention of the assessee is that in view of the decision of Jurisdictional High Court in the case of CIT Vs. Ghatga Patil Transport Ltd in Income Tax Appeal No. 1002 & 1034 of 2012 order dated 14.10.2014 both the employer and employee contribution paid before the due date of filing of return of income are allowable in terms of section 43B of the Act. We find that the Tribunal in the case of Kalpesh Synthetics Pvt. Ltd. v. Deputy Commissioner of Income Tax, CPC Bangalore in ITA No. 1785/Mum/2021 for assessment year 2018-19 has allowed the appeal of the assessee holding that adjustment for disallowance of ESIC and PF are not permissible under the proceedings u/s 143(1) of the Act. The relevant finding of the Tribunal is reproduced as under : “4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 5. In our considered view, it is quite evident, from a careful look at the related statutory provisions, that there is a material difference in the scheme of processing the income tax return under section 143(1)(a) as Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 11 it stands now vis-à-vis as it stood at the point of time when Khatau Junkar judgment (supra) by Hon’ble jurisdictional High Court was delivered. That was the time when incorrect claims could be disallowed only when such a deduction was “on the basis of information available in such return, accounts or documents is prima facie inadmissible” [see Section 143(1)(a)(iii) as it then stood] and it was in this context that the connotations of the expression “prima facie inadmissible” came up for consideration before Hon’ble Courts above. While the expression used in section 143(1)(a)(i) is materially similar inasmuch as its wordings are “an incorrect claim, if such incorrect claim is apparent from any information in the return”, there are two important things that one must bear in mind- (a) firstly, the expression “an incorrect claim, if such incorrect claim is apparent from any information in the return” is well defined in Explanation to Section 143(1), and; (b) secondly, and perhaps much more importantly, that is just one of the permissible types of adjustments, denying a deduction, under section 143(1)(a) which goes well beyond such adjustments and includes the cases such as “(iii) disallowance of loss claimed, if the 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 indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub- section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return”. So far as the first point is concerned, it must be noted that the expression “incorrect claim apparent from any information in the return”, for the purpose of Section 143(1)(a), is further defined, under Explanation to Section 143(1), and Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 12 it means that 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. On the second point, it is useful to bear in mind the fact that the scheme of Section 143(1)(a) thus permits the processing of the income tax return in the manner that the total income or loss of the assessee is computed after making the adjustments for (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 indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return”. The adjustments under clause (vi) above are no longer permissible after 1st April 2018. Clearly, thus, there is a significant paradigm shift in the processing of income tax returns under section 143(1), and the decisions rendered in the context of old Section 143(1)(a) cease to be relevant. Learned counsel thus derives no advantage from the judgments rendered in the context of old Section 143(1)(a)- such as Hon’ble jurisdictional High Court’s judgment in the case of Khatau Junkar Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 13 (supra). To that extent, we must uphold the plea of the learned Departmental Representative. 6. Coming to the mechanism of application of Section 143(1), we find that the first proviso to Section 143 (1) mandates that “no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode” and, under the second proviso to Section 143(1), “the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made”. The scope of permissible adjustments under section 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Section 143(1), is indeed permissible. It is, however, important to take note of the fact that unlike the old scheme of ‘prima facie adjustments’ under section 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of ‘such adjustments’ [as proposed under section 143(1)], in writing or by electronic mode, and “the response received from the assessee, if any” to be “considered before making any adjustment” makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter- one way or the other, and such disposal of objections is a quasi-judicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 14 essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi-judicial function that he is performing, and, in performing a quasi-judicial function, he has to set out his specific reasons for doing so. Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same. Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that “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. To put a question to ourselves, can such casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications for a quasi-judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. It is important to bear in mind the fact that intimation under section 143(1) is an appealable order, and when consideration of objections raised by the assessee is an integral part of the process of finalizing the intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the first appellate authority sits in judgment over correctness or otherwise of such a Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 15 rejection of submissions. Whether the statute specifically provides for it or not, in our considered view, the need for disposal of objections by way of a speaking order has to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee, is performing a quasi-judicial function, and the soul of a quasijudicial decision making is in the reasoning for coming to the decision taken by the quasi-judicial officer. While on this aspect of the matter, we may usefully refer to the observations made by the Hon’ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi and Ors., [2021] 4 SCC 516. While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi-judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon’ble Justice Chandrachud, Hon’ble Supreme Court has made the following observations: ..... Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations since what we have encountered in this case is no longer an isolated aberration. This has become a recurring phenomenon. .........How judges communicate in their judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary 7. These observations of Their Lordships apply equally, and in fact with much greater vigour, to the quasi-judicial functionaries as well. Viewed thus, reasons in a quasi-judicial order constitute the soul of the quasi- judicial decision. A quasi-judicial order, without giving reasons for arriving at such a decision, is contrary to the way the functioning of the quasi-judicial authorities is envisaged. A quasi-judicial order, as a Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 16 rejection of the objections against the proposed adjustments under section 143(1) inherently is, can hardly meet any judicial approval when it is devoid of the cogent and specific reasons, and when it is in a standard template text format with clear indications that there has not been any application of mind as even the inapplicable portion of the template text, i.e whether there was no response or whether the response is unacceptable, has not been removed from the reasons assigned for going ahead with the proposed adjustment under section 143(1). In any event, there is no dispute that the precise and proximate reasons for disallowance in all these cases admittedly are the inputs based on the tax audit report. The question then arises about the status and significance of the tax audit report. Can the observations in a tax audit report, by themselves, be justifications enough for any disallowance of expenditure under the Act? As we deal with this question, we are alive to the fact section 143(1)(a)(iv) specifically an adjustment in respect of “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return”. It does proceed on the basis that when a tax auditor indicates a disallowance in the tax audit report, for this indication alone, the expense must be disallowed while processing under section 143(1) by the CPC. It is nevertheless important to bear in mind the fact that a tax audit report is prepared by an independent professional. The fact that the tax auditor is appointed by the assessee himself does not dilute the independence of the tax auditor. The fact remains that the tax auditor is a third party, and his opinions cannot bind the auditee in any manner. As a matter of fact, no matter how highly placed an auditor is, and even within the Government mechanism and with respect to CAG audits, the audit observations are seldom taken an accepted position by the auditee- even when the auditor is appointed by the auditee himself. These are mere opinions and at best these opinions flag the issues which Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 17 are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon’ble Courts have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant- more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon’ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous. Learned Departmental Representative’s contentions in this regard that the observations made in the tax audit report, in the light of the specific provisions of Section 143(1)(a)(iv), must prevail- more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While Section 143(1)(a)(iv) does provide for a disallowance based purely on the “indication” in the tax audit report, inasmuch as it permits “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return”, and it is for the Hon’ble Constitutional Courts Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 18 above to take a call on the vires of this provision, we are nevertheless required to interpret this provision in a manner to give it a sensible and workable interpretation. When the opinion expressed by the tax auditor is contrary to the correct legal position, the tax audit report has to make way for the correct legal position. The reason is simple. Under Article 141 of the Constitution of India, the law laid down by the Hon’ble Supreme Court unquestionably binds all of us, and the Hon’ble Supreme Court has, in numerous cases- including, for example, in the case of East India Commercial Co. Ltd. v. Collector of Customs [1963] 3 SCR 338, speaking through Hon’ble Justice Subba Rao observed, inter alia, as follows: ............Under article 215, every High Court shall be a Court of record and shall have all the powers of such a Court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all Courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate Courts can equally do so, for there is no specific provision, just like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 19 8. When the law enacted by the legislature has been construed in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read it in any other manner than as read by the Hon’ble jurisdictional High Court. The views expressed by the tax auditor, in such a situation, cannot be reason enough to disregard the binding views of the Hon’ble jurisdictional High Court. To that extent, the provisions of Section 143(1)(a)(iv) must be read down. What essentially follows is that the adjustments under section 143(1)(a) in respect of “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon’ble Courts above”. That is where the quasi-judicial exercise of dealing with the objections of the assessee, against proposed adjustments under section 143(1), assumes critical importance in the processing of returns. It is also important to bear in mind the fact that what constitutes jurisdictional High Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, Rule 11(i) of the Central Processing of Returns Scheme 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer”. Then situs of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether the CPC is within the jurisdiction of Hon’ble Bombay High Court or not, as long as the regular Assessing Officer of the assessee and the assessee are located in the jurisdiction of Hon’ble Bombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon’ble Bombay Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 20 High Court. In our considered view, it cannot be open to the Assessing Officer CPC to take a view contrary to the view taken by the Hon’ble jurisdictional High Court- more so when his attention was specifically invited to the binding judicial precedents in this regard. For this reason also, the inputs in question in the tax audit report can not be reason enough to make the impugned disallowance. The assessee must succeed for this reason as well. 9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be ‘due date’ in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression ‘due date’ has been defined under Explanation (now Explanation 1) to Section 36(1)(va) provides that “For the purposes of this clause, ‘due date’ means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise”, one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted “disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return” as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 21 computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is “indicative” of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon’ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the Magnesita Refractories Pvt. Ltd. ITA No. 186/Mum/2022 22 situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage”. 3.1 Respectfully following the finding of the Tribunal, the order of the Ld. CIT(A) on the issue in dispute is set aside and the disallowance made by the Assessing Officer is deleted. The grounds raised by the assessee are accordingly allowed. 4. In the result, the appeal of the assessee allowed. Order pronounced in the open Court. Sd/- Sd/- (KULDIP SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/05/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai