Shri Arun Kumar Shrivastava, Indore V. Asstt, Director Of Income Tax, Indore

ITA 99/Ind/2022

AI Insights

The Income Tax Appellate Tribunal, Indore Bench, heard multiple appeals concerning the disallowance of deductions for delayed payments of employees' contributions to Provident Fund (PF) and Employees State Insurance (ESI). The appeals were filed by different assessees against the orders of the CIT(A), which had confirmed the disallowances made by the Assessing Officer under section 143(1) of the Income Tax Act. The main legal issue was whether the disallowance of these contributions, which were paid after the due dates prescribed under PF/ESI laws, was justified. The tribunal referred to a recent decision by the Supreme Court in Checkmate Services (P.) Ltd. and other judicial precedents, which clarified that such contributions are not deductible if not paid within the statutory due dates.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127184 (ITAT-INDORE)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-01-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 03-05-2022
• Other Referred Cases: M/s Prashanti Engineering Works (P) Ltd. Vs. ADIT, CPC, Bangalore, Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC), Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), Ms. Nalina Dyave Gowda [2023] 146 taxmann.com 420 (Bangalore - Trib.), Cemetile Industries v. ITO [2022] 145 taxmann.com 209 (Pune-Trib.)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: FORM 26AS
• Section: 43B; 10AA; 14A; 143(1); 44AB

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No.118/Ind/2022 (Assessment Year:2018-19) M/s. Nimar Motors P. Ltd. Jetapur Sanawad Road Khargone Vs. DCIT, CPC, Bangalore (Appellant / Assessee) (Respondent/ Revenue) PAN: AACCN 9368 D Assessee by None Revenue by Shri Ashish Porwal, Sr. DR ITA No.330/Ind/2022 (Assessment Year:2020-21) Smt. Chhaya Balwani Green Height, 27, Gulmohar Colony Bhopal Vs. DCIT, CPC, Bangalore (Appellant / Assessee) (Respondent/ Revenue) PAN: AOTPB 5766 P Assessee by Shri Anil Khabya, AR Revenue by Shri Ashish Porwal, Sr. DR ITA No.203/Ind/2022 (Assessment Year:2018-19) Shri Rohit Panchal 47, Roop Ram Nagar, Manik Bagh, Indore Vs. DCIT, CPC, Bangalore (Appellant / Assessee) (Respondent / Revenue) PAN: AMVPP 7291 D Assessee by Shri Hiresh Jain, AR Revenue by Shri Ashish Porwal, Sr. DR ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 2 of 7 ITA No.99/Ind/2022 (Assessment Year:2019-20) Shri Arun Kumar Shrivastava, 9, Shakti Nagar, Kanadia Road, Indore Vs. DCIT, CPC, Bangalore (Appellant / Assessee) (Respondent / Revenue) PAN: AOPPS 9595 H Assessee by Shri Soumya Bomb, AR Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 30 & 31.01.2023 Date of Pronouncement 27.02.2023 O R D E R Per B.M. Biyani, AM: Feeling aggrieved by respective orders appealed against, as per undermentioned details, different assessees have filed these appeals before us. As the issue involved in all these appeals is identical except the difference in amounts involved, we proceed to decide all these appeals by this common order: S. No. ITA No. / Assessee Order appealed against Arising out of order A.Y. Passed by Dated Passed by dated 1 118/Ind/2022 Nimar Motors (P) Ltd. CIT(A)- NFAC, Delhi 30.10.2021 CPC, Bangalore u/s 143(1) 13.11.2019 2018-19 2 330/Ind/2022 Chhaya Balwani - do - 18.07.2022 - do - 16.12.2021 2020-21 3 203/Ind/2022 Rohit Panchal - do - 02.06.2022 - do - 25.10.2019 2018-19 4 99/Ind/2022 Arun Kumar Shrivastava - do - 14.04.2022 - do - 21.02.2020 2019-20 ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 3 of 7 2. The registry has informed that that item at S.No. 1 i.e. ITA No. 118/Ind/2022 is delayed by 135 days and therefore time-barred. The Ld. AR prayed that the delay has occurred due to Covid-19 Pandemic. The Ld. AR further placed reliance on the order of Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, by which suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws has been granted and hence there is no delay in fact. We confronted the Ld. DR who agreed to the submission of Ld. AR. In view of this, the appeal is proceeded with for hearing, there being no delay. 3. In all these cases, the return of income filed by assessee was processed by Ld. AO u/s 143(1) of the Act after making disallowance on account of delayed payment of employees’ contributions to Provident Fund/Employees State Insurance (“PF/ESI”) after the due dates prescribed under PF / ESI laws. The assessees challenged disallowance in first-appeal to Ld. CIT(A). However, Ld. CIT(A) confirmed the disallowance and dismissed assessee’s appeals. Against the order of Ld. CIT(A), the assessees have now preferred appeals before us. 4. The sole issue involved is related to the disallowance u/s 36(1)(va) of the Act in respect of delayed payment of employee’s contributions to PF / ESI made by CPC through intimation issued u/s 143(1). 5. We note that identical issue is recently decided against assessee by the Co-ordinate Bench of ITAT, Indore in ITA No. 171/Ind/2021 M/s Prashanti Engineering Works (P) Ltd. Vs. ADIT, CPC, Bangalore, order dated 22.02.2023, after taking into account the latest decision of Hon’ble Supreme Court in Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC), the legal provision of section 143(1) of the Act and various judicial rulings. The order of Hon’ble Co-ordinate Bench is extracted below: “5. The assessee is in appeal before us against the order passed by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that firstly, in the audit report, the auditor has not made any specific observation ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 4 of 7 regarding inadmissibility of the claim u/s 36(1)(va) of the Act which was required to be made by the auditors in the Tax Audit Report and the Auditors have only mentioned the “actual dates” and “due dates” of remittance. Accordingly, in view of the Mumbai ITAT decisions in the case of PR Packaging in ITA number 2376/Mum/2022 and Kalpesh Synthetics 137 Taxmann.com 475 (Mumbai), this claim of deduction u/s 36(1)(va) of the Act cannot be disallowed u/s 143(1) of the Act (more specifically under sub- clause (d) to 143(1) of the Act). Secondly, the counsel argued that the issue at the time when the disallowance was made, issue was debatable and accordingly could not be the subject matter of disallowance under section 143(1) of the Act. In response, DR relied upon the observations made by the Ld. CIT(Appeals) in the appellate order. 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. 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 ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 5 of 7 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. 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. 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. [2022] 143 taxmann.com 178 (SC) 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. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Assessee against order of High Court that where assessee-company ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 6 of 7 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 [2023] 146 taxmann.com 420 (Bangalore - 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. v. CIT [2022] 143 taxmann.com 178 and the assessee will not be entitled 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 (Pune-Trib.) 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. 6.4 In view of the above observations respectfully following the decision of the Honourable Supreme Court in the case of Checkmate Services Private Ltd supra and Harrisons Malayalam Ltd supra and in the light of our observations, we hereby dismiss the assessee’s appeal. 7. In the result, the appeal of the assessee is dismissed.” 6. Respectfully following the same view, we are also inclined to hold that the employees’ contributions to PF / ESI paid after due date under PF / ESI laws is not an allowable deduction in computing taxable income of business and the revenue-authorities have rightly disallowed the same. Therefore, we uphold the action of lower-authorities in making/ confirming the impugned disallowance. 7. Resultantly, all these appeals of assessee are dismissed. One copy of the order shall be placed in each file. Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 27/02/2023. Sd/- Sd/- (SUCHITRA KAMBLE) (B.M. BIYANI) Judicial Member Accountant Member Indore, 27.02. 2023 ITA No.118/Ind/2022 & others M/s. Nimar Motors Pvt. Ltd. & others Page 7 of 7 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore