AMUDHA, CHENNAI V. ADIT,CPC, BANGALORE

ITA 72/CHNY/2023

AI Insights

This case involves an appeal by Ms. Amudha against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which confirmed the action of the Assistant Director of Income Tax, CPC, Bengaluru. The dispute centered on the disallowance of ESI and PF contributions that were paid beyond the due dates prescribed by the respective statutes. The Tribunal examined whether such disallowances were permissible under Section 143(1) of the Income Tax Act, 1961, and referenced several judicial precedents, including decisions from the Supreme Court and High Courts, which supported the view that such adjustments are within the scope of Section 143(1). The Tribunal dismissed the appeal, agreeing with the lower authorities that the disallowance was correctly made.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135071 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-02-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 22-01-2023
• Other Referred Cases: Sri Gokulam Chit and Finance Co. Pvt. Ltd. in ITA No.765/Chny/2022, Checkmate Services Pvt. Ltd., South Industrial Corporation Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india
• Section: 43B; 143(1)

Judgement Text

आयकर अपीलीय अिधकरण, ‘सी/एस एम सी’ यायपीठ, चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C/SMC’ BENCH, CHENNAI ी महावीर सह, उपा य के सम BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT आयकर अपील सं./ITA No.: 72/CHNY/2023 िनधा रण वष /Assessment Year: 2020-21 Ms. Amudha, No.46/A, 2 nd Floor, Halls Road, Kilpauk, Chennai – 600 010. PAN: BEKPA 6778D Vs. The CPC, Bengaluru - 560500 (अपीलाथ /Appellant) ( यथ /Respondent) अपील ाथ क ओर से/Appellant by : Shri B. Suresh, CA यथ क ओर से/Respondent by : Shri AR.V. Sreenivasan, Addl.CIT सुनवाई क तारीख/Date of Hearing : 23.02.2023 घोषणा क तारीख/Date of Pronouncement : 23.02.2023 आदेश आदेशआदेश आदेश /O R D E R This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No.NFAC/2019-20/10076370 dated 01.12.2022. The return of income was processed and intimation u/s.143(1) of the Income Tax Act, 1961 (hereinafter the ‘Act’) was issued by the Assistant Director of Income Tax, CPC, Bengaluru for the assessment year 2020-21 vide order dated 28.10.2021. - 2 - ITA No.72/Chny/2023 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the A.O in processing the return of income u/s. 143(1) of the Act and disallowing the belated payment of ESI & PF beyond the due dates as prescribed under the respective statutes u/s. 36(1)(va) of the Act. According to CPC, Bengaluru, the audit report categorically states that the amount of Rs. 29,33,637/- i.e., employees contribution to Provident Fund and ESI was beyond the prescribed due date under the respective statutes and therefore, the CPC, Bengaluru disallowed the same u/s. 143(1) of the Act. The CIT(A)confirmed the action of the A.O. 3. Before me, the Ld. counsel for the assessee argued that this information of delayed payment was taken from the tax audit report and not from the return of income. He disagreed for the proposed reasons that such adjustment is outside the scope of Sec.143(1) of the Act and also it is a question of law decided in favour by a number of High Courts including Jurisdictional High Court and the Hon’ble Supreme Court i.e., both on the date of disallowance proposed and on the date of issuing intimation u/s. 143(1) of the Act. The Ld. counsel for the assessee stated that the subsequent judgement of Hon’ble Supreme Court will not give power to the Department to make adjustment u/s. 143(1) of the Act and hence, he asked the Bench to delete the disallowance. - 3 - ITA No.72/Chny/2023 4. After hearing both the sides and going through the facts and circumstances of the case, we noted that this issue has already been considered by the order of Co-ordinate Bench in the case of Sri Gokulam Chit and Finance Co. Pvt. Ltd. in ITA No.765/Chny/2022 vide order dated 21.12.2022, wherein it is held as under: 10. Coming to another angle that this issue has been settled by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra and what will be the impact of law laid down by Hon’ble Supreme Court and this has been explained by Hon’ble High Court of Madras in the case of South Industrial Corporation Ltd., (2002) 258 ITR 481, wherein it is held as “When a statutory provisions is interpreted by the apex court in a manner different from the interpretation made in the earlier decisions by a Smaller Bench, the order which does not conform to the law laid down by the Larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. The rectification under section 154(1) on the ground that the order sought to be rectified is not in conformity with the law declared by the apex court is required to be upheld”. It means that there is no ambiguity of law after Hon’ble Supreme Court judgement. Even it cannot be said that this is a debatable issue because Hon’ble Supreme Court has interpreted the law and is to be regarded as law as it always was unless declared by the court itself to be prospective in operation. 11. Coming to judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra, wherein the Hon’ble Supreme Court has considered the aspect of deemed income in regard to money held by assessee as a custodian on account of employees contribution of ESI and PF payments and that is also held not be an expenditure. The Hon’ble Supreme Court considered that the money held by employer of employees contribution to ESI and PF as custodian is deemed income in view of provisions of section 36(1)(va) as well as section 2(24)(x) of the Act. The Hon’ble Supreme Court held as under:- 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of - 4 - ITA No.72/Chny/2023 the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the - 5 - ITA No.72/Chny/2023 employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 12. In view of the above discussion carried out in view of the amended provisions of the Act by the Finance Act, 2008 w.e.f. 01.04.2008 and subsequently by Finance Act, 2016 w.e.f. 01.06.2016, the legal position is very clear that while processing return of income u/s.143(1)(a)(ii) of the Act, an incorrect claim, if such incorrect claim is apparent from any information in the return of income is to be disallowed and such adjustment is to be made on the total income or loss to the assessee. We find no infirmity in the order of CIT(A) and that of the CPC and hence, the same are confirmed. This issue of assessee’s appeal is dismissed. 5. I noted that this issue has been deliberate in the case of Sri Gokulam Chit and Finance Co. Pvt. Ltd. by Co-ordinate Bench, supra, wherein Hon’ble Supreme Court categorically considered that the statutory provision interpreted by Hon’ble Supreme Court in a manner different from the interpretation made in the earlier decisions by a smaller Bench, the order which does not confirm to the law laid down by the larger Bench in the later decision, which decision would constitute the law of the land and is to be regarded as the law as it is always was, unless declared by the Court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. Even otherwise, the disallowance made by A.O clearly covered u/s. 143(1)(a)(iii) of the Act because, it is an incorrect claim which is clearly discernable from the audit report which is a part of income tax return of income filed by the assessee himself. Even, the dates of payment, due date - 6 - ITA No.72/Chny/2023 under the respective statutes is very much available in the audit report. Hence, the disallowance made by A.O and confirmed by CIT(A) is perfectly within the provisions of law and I uphold the same. 6. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 23 rd February, 2023 at Chennai. Sd/- ( महावीर सह ) (MAHAVIR SINGH) उपा य /VICE PRESIDENT चे ई/Chennai, दनांक/Dated, the 23 rd February, 2023 EDN आदेश क ितिल िप अ! ेिषत/Copy to: 1. अपील ाथ /Appellant 2. यथ /Respondent 3. आयकर आयु# )अपील(/CIT(A) 4. आयकर आयु# /CIT 5. िवभागीय ितिनिध/DR 6. ग ाड' फाईल/GF.