M/S. ORICON ENTERPRISES LTD, MUMBAI V. DCIT RG. 8(2) (1) , MUMBAI

ITA 1933/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3573 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2019-2020
• Appeal Filed On: 20-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B; 143(1); 250; 139(1); 48; 2(A); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1933/MUM/2021 (ASSESSMENT YEAR: 2019-20) M/s Oricon Enterprises Limited, 1076, Dr E Moses Road, Worli, Mumbai - 400018 [PAN:AAACO0480F] Deputy Commissioner of Income Tax, Range-8(2)(1), 6 th Floor, Aayakar Bhavan, Mumbai - 400020 .................. Vs ................... Appellant Respondent Appearances For the Appellant/ Assessee For the Respondent/Department : : Shri Sunil Mehta Shri B.K. Bagchi Date of conclusion of hearing Date of pronouncement of order : : 28.04.2022 25.07.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 25.08.2021 passed by the Ld. Commissioner of Income Tax (Appeals), [hereinafter referred to as „the CIT(A)‟] National Faceless Appeals Centre (NFAC)], Delhi under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] in appeal [CITA) 51, Mumbai-10001/2020-21] for the Assessment Year 2019-20, whereby the CIT(A) (NFAC) had partly allowed the appeal filed by the Assessee against the intimation/order, dated 05.05.2020, issued/passed by Assistant Director of Income Tax, CPC under Section 143(1) of the Act. ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 2 2. Appellant has raised the following grounds of appeal: “1.(a) On the facts and in circumstances of the case and in law, the ld. NFAC, CIT(A) erred in confirming the action of Ld. ADIT-CPC of disallowing a sum of Rs. 10,69,789/- being delayed payment of employees contribution to Provident Fund/Employee‟s State Insurance (PF/ESI) by invoking the provision of section 36(1)(va) r.w.s. 2(24)(x) of the Act and the reasons assigned for doing so is wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961 and Rules made thereunder. 1(b) The ld. NFAC, CIT(A) ought to have allowed deduction of Rs. 10,69,789/- u/s 43B of the Act on account of delayed payment of employee‟s contribution to PF/ESI being paid on or before the due date for furnishing return of income as per section 139(1) of the Act. 2(a) On the facts and in the circumstances of the case and in law, the learned NFAC CIT(A) erred in confirming the action of Ld. ADIT-CPC of disallowing Rs. 1,084/- u/s 36(1)(va) r.w.s. 2(24)(x) of the Act being excess payment of PF of Rs. 1,084/- and doing so is wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961 and Rules made there under.” 3. The brief facts are that the Appellant filed its return of income for the Assessment Year 2019-20 on 31.10.2019, declaring total income of INR 28,80,15,000/- which was processed under Section 143(1) of the Act by the Deputy Commissioner of Income Tax, CPC computing income at INR 29,65,20,144/- after making addition of INR 10,70,873/- under Section 36(1)(va) of the Act being aggregate employees‟ contribution to Employees‟ State Insurance Corporation (ESIC) and Provident Fund (PF) deposited after the due date specified in the applicable statute but before the due date of filing income tax return prescribed under Section 139(1) of the Act. ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 3 4. Being aggrieved, the Appellant filed appeal against intimation/order under Section 143(1), dated 05.05.2020 before the CIT(A) which was dismissed by the CIT(A) vide order, dated 25.08.2021. 5. Now the Appellant is before us challenging the order dated 25.08.2021 passed by CIT(A). Ground No. 1(a) to 1(b) 6. The Ld. Authorised Representative for the Appellant appearing before us submitted that the addition of INR 10,70,873/- under Section 36(1)(va) of the Act has been made without appreciating that the employee‟s contribution to PF and ESIC was deposited before the due date of filing return and was allowable as deduction under Section 36(1)(va) read with Section 43B of the Act in terms of the following decisions of the Hon‟ble Bombay High Court in the case of CIT vs. Ghatge Patil Transports Ltd. (2015) 53 taxmann.com 141 (Bombay), CIT vs. Hindustan Organics Chemicals Ltd. [2014] 366 ITR 1 (Bombay) and decision of Hon‟ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC). Further, the Tribunal has in number of decisions held that the amendments introduced by the Finance Act, 2021 are applicable for Assessment Year 2021-22, and therefore, the CIT(A) has erred in confirming the disallowance by placing reliance on the same. 6.1. The Ld. Departmental Representative submitted that Circular 22 of 2015 issued by the Central Board of Direct Taxes clearly states that employee's contribution to welfare funds are governed by Section 36(l)(va) of the Act. Further, the amendments to Section 36(l)(va) made vide Finance Act 2021 are also applicable to the facts of the present case and are to be applied retrospectively, as the same are curative/declaratory in nature. He relied upon the order passed by the CIT(A) to support the aforesaid disallowance of INR 10,70,873/-. ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 4 6.2. We have heard rival submissions and perused the material available on record. It is not in dispute that Appellant had deposited the employees‟ contribution of PF and ESIC before the due date of filing of Return under Section 139(1) of the Act, though the same were deposited belatedly beyond the due date specified under the respective statutes. The intimation/order under Section 143(1) of the Act was issued/passed on 05.05.2020. The CIT(A) has sought to justify the additions/adjustments made under Section 143(1) of the Act vide order/intimation dated 05.05.2020 by placing reliance upon the amendments introduced by the Finance Act, 2021 which was passed much later on 28.03.2021 by contending that the amendments are to be interpreted as being clarificatory in nature and therefore, applicable retrospectively. We note that the date on which intimation/order under Section 143(1) of the Act was passed the issue stood decided in the favour of the Appellant by virtue of the decisions of the jurisdictional High Court in the case of CIT vs. Ghatge Patil Transporters Ltd. (2015) 53 taxmann.com 141 (Bom HC) and CIT vs. M/s Hindustan Organics Chemicals Ltd. 48 taxmann.com 421 (Bom HC) cited by the Ld. Authorised Representative of the Appellant in proceedings before CIT(A). Further, even after the introduction of amendments to Section 36(1)(va)/43B of the Act by way of Finance Act, 2021, Hyderabad Bench of the Tribunal had, vide order dated 15.06.2021, in the case of Salzgitter Hydraulics (P.) Ltd. vs ITO, Ward 3(1), Hyderabad : 189 ITD 676 (Hyderabad - Trib.) held that the aforesaid amendments are applicable from Assessment Year 2021- 2022. Accordingly, the adjustments/additions made by the Deputy Commissioner of Income Tax, CPC in respect of employees contribution to ESIC and PF fell outside the scope of Section 143(1) of the Act. Identical view has been taken by the Mumbai Bench of the Tribunal in the case of M/s. Salasar Balaji Ship Breakers Pvt. Ltd vs. ACIT, Circle-4(3)(2), Mumbai: ITA No. 1947/Mum/2021 (dated 14.06.2022) following the decision of co–ordinate bench of the ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 5 Tribunal in case of Kalpesh Synthetics Pvt. Ltd., vs. DCIT, CPC, Bangalore, : 137 taxmann.com 475 wherein it has been held as under: “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 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 ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 6 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 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 quasi-judicial decision making is in the reasoning ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 7 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 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 ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 8 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 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 ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 9 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 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 ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 10 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” 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 ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 11 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 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.” 6.3. In view of the above, Ground No. 1(a) and 1(b) are allowed and addition/disallowance of INR 10,70,873/- made by the Assessing Officer under Section 36(I)(va) of the Act pertaining to deposit of employees‟ contribution to ESIC/PF after the due date specified in the applicable statute but before the due date of filing income tax return prescribed under Section 139(1) of the Act stands deleted. Ground No. 2(a) 7. Ground No. 2(a) is directed against the order of CIT(A) confirming the disallowance of INR 1,084/- under Section 36(1)(va) read with Section 2(24)(x) of the Act being excess PF of INR 1,084/- paid by the Assessee during the relevant previous year. ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 12 7.1. We note that during the relevant previous year, Assessee had made sought payments of PF amounting to INR 19,794/- and made excess payment of INR 1,084/- and therefore, had offered a disallowance of INR 18,701/- (INR 19,794 Less INR 1,084/-) under Section 36(1)(va) read with Section 2(24)(x) of the Act. However, while processing the return of income under Section 143(1) of the Act disallowance was made for the short payment of INR 19,794/- without granting the benefit of excess payment of INR 1,084/-. The Assessee has placed on record details of short payment and excess payment of employees contribution to PF, ESIC and other welfare funds which at page 18 and 19 of the paper book. We note that the excess payment of PF has been made on 12.01.2019 which is before the date of filing of return i.e. 31.10.2019. Since, there was a shortfall, in our view, the aforesaid amount of excess payment should have been treated as delayed payment for making good the short payment made by the Assessee during the relevant previous year. Therefore, in terms of our finding in paragraph 9 above, the Assessee was entitled to deduction for the same in terms of Section 36(1)(va) read with Section 2(24)(x) and Section 43B of the Act. Accordingly, Ground No. 2(a) raised by the Assessee is allowed and addition of INR 1,084/- is deleted. 8. In the result, the present appeal is allowed. Order pronounced on 25.07.2022. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.07.2022 Alindra, PS ITA. No. 1933/Mum/2021 Assessment Year: 2019-20 13 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai