RAVIRAJSINH KISHORSINH JADEJA, RAJKOT V. THE ASSISTANT DIRECTOR OF INCOME TAX, CPC, BANGLORE

ITA 48/RJT/2022

AI Insights

This case involves an appeal by Ravirajsinh Kishorsinh Jadeja against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, which upheld the disallowance of Rs. 46,70,653 made by the Assessing Officer. The disallowance pertained to the late deposit of employees' contributions to provident funds, which was not in accordance with the due dates prescribed under the respective statutes. The Tribunal examined several legal arguments presented by the assessee, including the debatable nature of the issue under Section 143(1)(a), the requirements of the Tax Audit Report, and the principles of natural justice regarding the opportunity of hearing.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138284 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-10-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 07-03-2022
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs. CIT, Quality Motel Shiraz, Prashanti Engineering Works (P.) Ltd., Harrisons Malayalam Ltd. vs. CIT, Ms. Nalina Dyave Gowda vs. Asstt. DIT, Cemetile Industries vs ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice
• Section: 2; 43B; 10AA; 14A; 143(1); 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .4 8 / R j t/2 0 2 2 ( A s se ss m e nt Y e a r : 20 18- 19 ) R a v ir a j si n h K is h o r s inh J ad ej a , 31 2, Si lv e r C ha m b e r s, T a g o r e R o a d, R aj k o t- 36 0 0 02 Vs .AD I T, C P C , B a ng a lo re [ P A N N o. A H JP J0 9 61 H ] (Appellant) .. (Respondent) Appellant by : Shri Sumit Shingala, A.R. Respondent by: Shri V. J. Boricha, Sr. DR D a t e of H ea r i ng 04.10.2023 D a t e of P r o no u n ce me nt 13.10.2023 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi in DIN/Order No. ITBA/NFAC/S/250/2021-22/1037495120(1) vide order dated 03.12.2021 passed for Assessment Year 2018-19. 2. The assessee has taken the following grounds of appeals:- “1. The AO has erred in law as well as in Facts while making adjustment u/s. 143(1) to returned income. 2. The AO has erred in law as well as in Facts while making disallowance (of Rs. 4720653/-) towards PF Contributions. ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 2 - Appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal on / or before the hearing of appeal. ” 3. The brief facts of the case are that the assessee is engaged in the business of providing security services. The Assessing Officer while processing the return of income under Section 143(1) of the Act made a disallowance of Rs. 46,70,653/- being contribution received from the employees deposited beyond the due date under the respective statute in view of the provisions of Section 36(1)(va) of the Act. 4. In appeal, Ld. CIT(A) dismissed the appeal of the assessee on this issue. 5. The assessee is in appeal before us against the order passed by Ld. CIT(A). Before us, the Counsel for the assessee took several arguments challenging the disallowance made by CPC under Section 143(1)(a)(iv) of the Act. Firstly, it was submitted that the aforesaid adjustment is a debatable issue and it is a well settled law that no adjustments can be made with respect to issues which are debatable in nature, under Section 143(1)(a) of the Act. Secondly, the Counsel for the assessee submitted that disallowance of expenditure under Section 143(1)(a)(iv) of the Act must be one which is indicated in the Audit Report. The Counsel for the assessee submitted that Clause 20(b) of the Tax Audit Report reads as “details of contribution received from employees for various funds as referred to in Section 36(1)(va)”. Accordingly, it was submitted that the Tax Audit Report does not talk about any disallowance of expenditure. ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 3 - Thirdly, the Counsel for the assessee argued that in view of the language of Section 36(1)(va) of the Act, this was a case of “increase in income” which has been incorporated in Clause (iv) of Clause 143(1)(a) w.e.f. 01.04.2021 and hence no adjustment can be made for the assessment year under consideration. Fourthly, it was argued that while making the adjustment under Section 143(1) of the Act adequate opportunity of hearing was not granted to the assessee and hence the order has been passed against the principle of natural justice. 6. In response, Ld. D.R. placed reliance on the observations made by the Ld. CIT(A) in the appellate order. 7. We have heard the rival contention and perused the material available on record. 8. We shall now deal with each of the contentions put forth by the Ld. Counsel for the assessee before us for our consideration. The first argument of the Counsel for the assessee is that no adjustment can be made in respect of an issue which is debatable in nature under Section 143(1)(a) of the Act. We are of the considered view that in light of decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. 143 taxmann.com 178 (SC), this issue is no longer debatable. Further, we observe that the aforesaid issue has been decided by the ITAT Indore Bench against the assessee in the case of Quality Motel Shiraz 149 taxmann.com 490 and also in the case of Prashanti ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 4 - Engineering Works (P.) Ltd. 490 taxmann.com 488. While deciding the issue, the ITAT has made the following observations:- “6.3 With regards to the second argument of the counsel for the assessee that at the time when the disallowance was made, the issue was debatable,we observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19 wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was held in trust by assessee-employer as per section 2(24)(x), thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. The Supreme Court observed that there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be borne while interpreting obligation of assessee-employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. v. CIT [2022] 145 taxmann.com 608, dismissed the SLP of the Assessee against order of High Court that where assessee-company failed to pay employees' contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. Recently in the case of Ms. Nalina Dyave Gowda v. Asstt. DIT [2023] 146 taxmann.com 420 (Bang. - Trib.) the assessee during, financial year 2018-19 (assessment year 2019-20) made payment of employees' contribution to ESI and PF beyond due date specified under relevant Act and claimed deduction of same under section 36(1)(va). The Assessing Officer made disallowance of employees' contribution to ESI and PF while electronically processing return of income under section 143(1)(a) of the Act. The ITAT held that disallowance under section 143(1)(a) was valid in view of Supreme Court's decision in case of Checkmate Services (P.) Ltd. (supra) and the assessee will not be entitled ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 5 - to deduction of belated payment of ESI and PF of employees' share of contribution as per provisions of section 36(1)(va) of the Act. Again, recently Pune ITAT in the case of Cemetile Industries v. ITO [2022] 145 taxmann.com 209/[2023] 198 ITD 322 held that where assessee-employer deposited amount of employees contribution towards employees' provident fund and employees' state insurance corporation beyond due date stipulated in respective Acts, disallowance made under section 36(1)(va) was justified. The ITAT further held that adjustment under section 143(1)(a) by means of disallowance made for late deposit of employees' share to relevant funds beyond date prescribed under respective Acts was proper.” 9. Accordingly, in view of the above, it is now settled issue that delay in making payment of employees’ ESI / PF contribution is not a debatable issue and can be a subject matter of adjustment under Section 143(1)(a) of the Act. 10. The second contention raised by the Ld. Counsel for the assessee was that the Audit Report has to speak of a specific disallowance of expenditure before an adjustment can be made under Section 143(1)(a)(iv) of the Act. We observe that the ITAT Indore in the case of Kwality Motel Shiraz (supra) has specifically dealt with this issue while passing the order. The relevant extract of the ruling for reading reference:- “6. We have heard the rival contentions and perused the material on record. Regarding the argument that the auditors did not specifically mention in the audit report regarding inadmissibility of claim with respect to contributions received from the employees for various funds as referred to in section 36(1)(va) of the Act, it would be useful to reproduce section 143(1) of the Act, which reads as under: Assessment. ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 6 - 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (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 [or 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 69[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; 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: A perusal of section 143(1) of the Act shows that the words used are "(iv) disallowance of expenditure ...indicated in the audit report" 6.1 Therefore, there is no specific requirement under section 143(1) of the Act that the auditor has to make a specific observation regarding " admissibility/inadmissibility" with regard to any claim of expenditure and all that is required under section 143(1) of the Act is that disallowance of such expenditure should be "indicated in the audit report". Now, on going through the specific clauses of the Tax Auditors Report in Form Number 3CD issued under section 44AB of the Act, we observe that serial number 20(b) of Form Number 3CD, which is specific to allowability of claim of deduction u/s 36(1)(va) of the Act, does not require the auditor to make any specific observation regarding admissibility of the amount under section 36(1)(va) of the Act. At the same time, when we observe several other parts of the tax audit report viz. serial number 21(b)-amounts inadmissible under section 40(a), serial number 21(c)-amounts inadmissible under section 40(b)/40(a)(ia) of the Act (ba), serial number 21(e)- the provision for payment of gratuity not allowable under section 40A(7), serial number 21(f)- any sum paid by the assessee as an employer not allowable under section 40A(9), serial number 21(h) amount of deduction inadmissible in terms of section 14A etc, there is a specific requirement that the auditor has to mention whether the expenditure is admissible/allowable or not. However, so far as section 36(1)(va) of the Act, the audit report does not require the auditor to make a specific observation regarding "admissibility/inadmissibility" of the above expenditure. ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 7 - 6.2 Therefore, once the auditor has mentioned the "actual" dates of ESI/PF remittance and the "due" dates of ESI/PF remittance by the assessee u/s 36(1)(va) of the Act at serial number 20(b) of the audit report, then, in our considered view, the requirement of section 143(1) of the Act viz. "disallowance of expenditure ....indicated in the tax audit report" stands satisfied and the Department is permitted to make disallowance in terms of section 143(1) of the Act.” 11. With respect to third argument of the assessee that in view of the amendment Section 143(1)(a)(iv) which has inserted the term “increase in income” w.e.f. 01.04.2021 such adjustment cannot be made under Section 143(1)(a)(iv) of the Act, for impugned year under consideration we observe that this argument has been analyzed in the case of Cemetile Industries Vs ITO (ITAT Pune) ITA No. 693/PUN/2022, wherein the ITAT Pune made the following observations while adjudicating on the specific point raised by the assessee: “10. Now we turn to clause (iv) of section 143(1)(a) which provides for ‘disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return’. The words “or increase in income” in the above provision were inserted by the Finance Act, 2021 w.e.f. 01-04-2021. As such, this part of the provision cannot be considered for application during the years under consideration, which are anterior to the amendment. We are left with ascertaining if the disallowance made u/s 36(1)(va) in the Intimation under section 143(1)(a) can be construed as a `disallowance of expenditure indicated in the audit report not taken into account in computing the total income in the return’. Point 20(b) of the audit report in Form 3CA has columns – Serial number; Nature of fund; Sum received from employees; Due date for payment; The actual amount paid; and The actual date of payment to the concerned authorities. A copy of audit report in one of the cases under consideration, namely, S.M. Auto Stamping Pvt. Ltd. (ITA No.521/PUN/2022) has been placed on record. Point 20(b) of the audit report gives the `Sum received from employees’ at Rs.21,800/-. `Due date for payment’ has been reported as 15- 07-2017 and `The actual date of payment to the concerned authorities’ has been given as 20-07-2017. Similar is the position regarding other items disallowed u/s.36(1)(va) having `The actual date of payment’ after the `Due date for payment’. Thus, it is manifest that the audit report clearly points out ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 8 - that as against the due date of payment of the employees’ share in the relevant fund on 15.7.2017 for deduction u/s 36(1)(va), the actual payment is delayed and deposited on 20.7.2017. The legislature, for the disallowance under sub- clause (iv) of section 143(1)(a), has used the expression `indicated in the audit report’. The word `indicated’ is wider in amplitude than the word `reported’, which envelopes both the direct and indirect reporting. Even if there is some indication of disallowance in the audit report, which is short of direct reporting of the disallowance, the case gets covered within the purview of the provision warranting the disallowance. However, the indication must be clear and not vague. If the indication in the audit report gives a clear picture of the violation of a provision, there can be no escape from disallowance. Turning to the facts of the case, it is clear from the mandate of section 36(1)(va) that the employees’ share in the relevant funds must be deposited before the due date under the respective Acts. If the audit report mentions the due date of payment and also the actual date of payment with specific reference in column no. 20(b) having heading: `Details of contributions received from employees for various funds as referred to in section 36(1)(va)’, it is an apparent indication of the disallowance of expenditure u/s 36(1)(va) in the audit report in a case where the actual date of payment is beyond the due date. Though the audit report clearly indicated that there was a delay in the deposit of the employees’ share in the relevant funds, which was in contravention of the prescription of u/s.36(1)(va), the assessee chose not to offer the disallowance in computing the total income in the return, which rightly called for the disallowance in terms of section 143(1)(a) of the Act. 11. The ld. AR vehemently argued that it was a case of “increase in income” which has been enshrined in clause (iv) of section 143(1)(a) w.e.f. 01-04- 2021 and hence cannot be take note of for the year under consideration. In our considered opinion, the contention is ill-founded. We have noted above that clause (iv) of section 143(1)(a) talks of two different limbs, namely, `disallowance of expenditure’ and `increase in income’ by means of indication in the audit report. Both the limbs are independent of each other. The indication in the audit report for `Increase of income’ should be qua some item of income and not increase of income because of the `disallowance of expenditure’. Every disallowance of expenditure leads to increase of income. If the contention of the ld. AR is taken to a logical conclusion, then the second expression `or increase in income’ inserted by the Finance Act, 2021 would be rendered a redundant piece of legislation. It is trite interpretation has to be given to the statutory provisions in such a manner that no part of the Act is rendered nugatory. Distinction in the scope of the two aspects can be understood with the help of the present context only. We have noted that point no. 20(b) of the audit report, dealing with section 36(1)(va), has columns, inter alia, (i) `Sum received from ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 9 - employees’; (ii) `Due date for payment’; and (iii) `The actual date of payment to the concerned authorities’. The column (i) having details of the amounts received from employees indicates about the `increase in income’ as per sub-clause (iv) of section 143(1)(a) if the assessee does not take this sum in computing total income. The columns (ii) and (iii) having details of due date for payment and the actual date of payment indicate about `disallowance of expenditure’ if the assessee does not make suo motu disallowance in computing total income. Right now, there is no case of `increase in income’ because the AO did not make adjustment for non- offering of income of the `Sums received from employees’, but made the adjustment for `disallowance of expenditure’ with the remarks that :`Amounts debited to the profit and loss account, to the extent disallowance under section 36 due to non-fulfillment of conditions specified in relevant clauses’. Thus, it is evident that it is a case of `disallowance of expenditure’ and not `increase of income’. Further, the entire challenge by the assessee throughout has been to the disallowance of expenditure made by the AO. It set up a case before the authorities below, including the ld. CIT(A), taking shelter of section 43B of the Act by arguing that the disallowance cannot be made because such payment was made before the due date u/s.139(1) of the Act. As such, the contention of adjustment u/s 143(1)(a)(iv) due to `increase in income’ is jettisoned. 12. Another argument point was put forth on behalf of the assessee that the assessee did not claim any deduction in the Profit and loss account of the amount under consideration and hence no disallowance should have been made. This argument is again bereft of force. The assessee claimed deduction for salary on gross basis, inclusive of the employees’ share to the relevant funds. To put it simply, if gross salary is of Rs.100, out of which a sum of Rs.10 has been deducted as contribution to relevant fund, then the debit of Rs.100 in the Profit and loss account means deduction has been claimed for Rs.10 as well. Ex consequenti, if deduction of Rs.10 is not allowed u/s 36(1)(va) for late deposit of the amount before the due date under the respective Act, it would mean that the claim of Rs.10 included in Rs.100 is not allowed deduction.” 12. Accordingly, in light of the detailed observation made by the ITAT on the specific issue, and also in light of the decision of Checkmate Services Pvt. Ltd. vs. CIT 448 ITR 518 (SC) we are of the considered view that Ld. CIT(A) has not erred in facts and law in holding that ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 10 - appropriate adjustments can be made under Section 143(1)(a)(iv) of the Act in respect of late deposit of employees’ contribution to ESI and PF. 13. The next contention raised by the Counsel for the assessee is that there was lack of adequate opportunity while making the aforesaid adjustment under Section 143(1) of the Act and the objections of the assessee were disposed of by way of non-speaking order, which makes the same a nullity. However, we are unable to accept the aforesaid contention for the reason that vide intimation dated 19.12.2019, the assessee was given a specific opportunity to file any response with respect to the aforesaid proposed adjustments. Further, the assessee also filed response to the proposed adjustments, which was taken on record by the Department before making the proposed adjustment within (Refer Page 8 of the Paper Book). Accordingly, from the facts placed on record before us, it can be inferred that there was no lack of opportunity while making adjustment under Section 143(1) of the Act and the objections of the assessee were taken note of, while making the adjustment under Section 143(1)(a) of the Act. 14. In the result, in light of the above observations, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 13/10/2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/10/2023 TANMAY, Sr. PS TRUE COPY ITA No.48/Rjt/2022 Ravirajsinh Kishorsinh Jadeja vs. ADIT Asst.Year –2018-19 - 11 - आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation 11.10.2023 2. Date on which the typed draft is placed before the Dictating Member 12.10.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 12 .10.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .10.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 13.10.2023 7. Date on which the file goes to the Bench Clerk 13.10.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................