Deputy Commissioner Of Income Tax, CPC, Bangalore V. Jagadish Reddy, Bangalore

MA 104/BANG/2023

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The case involves the Income Tax Department's appeal against a Tribunal decision that had initially disallowed the revenue's claim for disallowance on delayed payment of employee's contributions to ESI and PF. The Tribunal's earlier decision was based on its interpretation of section 36(1)(va) of the Income Tax Act, which was contested by the revenue following a Supreme Court ruling in Checkmate Services Pvt. Ltd. vs CIT-1. The Supreme Court's decision clarified the treatment of delayed payments under sections 36(1)(va) and 43B(b) of the Act, leading to the revenue's successful application for rectification of the Tribunal's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130008 (ITAT-BANGALORE)
• Duration Of Justice: 10 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-05-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 08-05-2023
• Other Referred Cases: CHECKMATE SERVICES PVT LTD VS CIT-1, CIT Vs. Saurashtra Kutch Stock Exchange, Honda Siel Power Products Ltd. v. CIT, Vijay Kumar Ruia Vs. CIT, Powan Kumar Jain vs. Dy. CIT, Srinivas Sashidhar Chaganty vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Depreciation; Rectification of order; Period of limitation
• Section: 139(1); 254(2)

Judgement Text

MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. Nos.103 & 104/Bang/2023 (Arising out of ITA Nos.277 & 278/Bang/2022) Assessment Years: 2018-19 & 2019-20 ACIT CPC Bangalore Vs. Jagadish Reddy #14, Hulimangala Village Podu, Hosur Road Bengaluru 562 106 PAN NO : AISPR7585F APPELLANT RESPONDENT Appellant by : N O N E Respondent by : Shri Sankar Ganesh K., D.R. Date of Hearing : 19.05.2023 Date of Pronouncement : 19.05.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These miscellaneous petitions filed by the department seeking recall of order of the Tribunal in ITA Nos.277 & 278/Bang/2022 dated 12.7.2022. 2. None appeared for the assessee in respect of issue of notice to the assessee. We proceed to decide these miscellaneous petitions after hearing the ld. D.R. 3. Facts of the issue are that the Tribunal vide order dated 12.7.2022 has held that the Revenue authorities were not justified in making a disallowance on delayed payment of employee’s MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 2 of 8 contribution to ESI and PF made by the assessee beyond the due date by invoking the provisions of section 36(1)(va) of the Act, but within the due date for filing return of income u/s.139(1) of the Act. On the above issue, it is not disputed that as per the decision of the Hon’ble Supreme Court rendered in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 in CIVIL APPEAL 2833/2016 vide its judgment dated 12 October 2022 decided the issue on allowability/treatment of ‘delayed’ Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of the Act. The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va) of the Act. On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B of the Act and is therefore not lost totally. Therefore, as per the above decision, the disallowance made by the Revenue authorities, were fully justified. 3.1. Through these miscellaneous petitions, the revenue seeks an order to reverse the order of the Tribunal dated 12.07.2022 and hold that the disallowance of deduction by the revenue authorities u/s.36(1)(va) of the Act is fully justified and dismiss the appeals of the Assessee. MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 3 of 8 4. None appeared for the assessee inspite of issue of notice of hearing. 5. On the other hand, ld DR submitted that these orders in appeals have been passed by the Tribunal on 12.07.2022. However, it has been delivered to the PCIT vide their inward No.6740/21 dated 21.2.2023. The MA filed by the department is on 9.5.2023 and the period of limitation for filing application u/s 254(2) of the Act, would start from the point of time when the order u/s 254(1) of the Act is communicated to the assessee and not from the date of passing of the order. He submitted that once the date of communication of order has been considered in the place of date of passing of the order, consequently, the period of 6 months is to be reckoned from the end of the month in which the order was communicated to the assessee to be considered. As such, the revenue has filed the MA on 09.05.2023 is within the time limit and it is to be considered for adjudication. 5.1 Further, the ld. D.R. submitted that in view of the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Cited (supra), the orders are to be recalled or reversed and to be decided in favour of the department. 6. We have heard the rival submissions and perused the materials available on record. Admittedly, the order in this case has been passed on 12.07.2022 and it has been served to the revenue on 21.02.2023 on PCIT, Bengaluru. Now the question is whether the time limit to file application u/s 254(2) of the Act is to be reckoned from the date of passing of the order or from the date of communication of order to the revenue authorities. For this purpose, we go through the provisions of section 254(2) of the Act, which reads as under:- “The appellate may, at any time within 6 months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend in order passed by it under sub section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or AO.” MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 4 of 8 6.1 A bare perusal of the above provisions shows that either parties can file application for rectification of order passed u/s 254(1) of the Act within a period of 6 months from the end of the month in which the order was passed. In the present case, the order was passed on 12.07.2022 and served on 21.2.2023 and MA filed on 9.5.2023. According to the ld. D.R., the time limit to file MA u/s 254(2) of the Act expires on 30.11.2023 and there was no delay in filing this miscellaneous petition and hence, it is to be admitted. 6.2 In context of the provisions of section 254(2) of the Act (as prior to its amendment by Finance Act, 2016 w.e.f. 1.6.2016) the Mumbai Tribunal has in Powan Kumar Jain vs. Dy. CIT (2013) 155 TTJ 14 (Mum-Tribunal), held that for purposes of filing application u/s 254(2) of the Act, the period of limitation would start from the point of time when order u/s 254(1) is “communication to the assessee” and not from the “date of the passing of the order”. In coming to this decision, the Mumbai Tribunal has noted as: "From the principles and maxims laid down by the Hon 'ble Supreme Court in catena of cases as referred to above, it is amply clear that the "date of order" should be construed and reckoned with the date of knowledge of the order i.e., when the order has been communicated to the pacify. The legal maxim behind this is, how a person concerned or a person aggrieved is expected to exercise the right of remedy conferred by the Statute, unless the order is communicated or known to him either actual or constructively. The underlying principles is of fair play and recognition of legal rights of remedy in a constructive manner and not to give any construction or interpretation so as to defeat the purpose for which the legal remedy has been enacted in the provisions relating to limitations. It iso fundamental principle of justice and fair play that parties, whose rights are affected by an order must have a knowledge or notice of it, otherwise, the legal rights to remedy is lost to the party, even when he is not at fault." 6.3 However, in a recent decision, the Hyderabad Tribunal in miscellaneous application proceedings u/s 254 (2) in the case of Srinivas Sashidhar Chaganty vs. ITO ( Hyd. ITAT — "A" Bench — M.A. no. 05/Hyd/2017 arising in ITA no. 1420/Mum/2015 dated MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 5 of 8 12-7-2017 for Assessment Year 2007-08 — reported in www.itatonline.org) in context of the subsequently amended provisions of section 254 (2) by Finance Act. 2016 w.e.f. 1-6-2016 has held diametrically the opposite of what the Mumbai Tribunal held in the case of Pawan Kumar Jain (supra). In the case before it, order u/s 254 (1) was passed / pronounced on 21-06-2016 and from the end of this month (June 2016), the period of six months ended on 31-12-2016. The case of the assessee was that order u/s 254 (1) was served on him on 05-07-2016 and if this date is considered, the miscellaneous application filed on 20-01-2017 was within time and maintainable. 6.4 However, the Hon’ble Allahabad High Court in the case of Vijay Kumar Ruia Vs. CIT (2011) 334 ITR 38 (Allahabad) in the decision concerned in an appeal preferred by the assessee under Rule 86 of recovery proceedings in Schedule II of the Act. The rule prescribed that the appeal must be preferred by the assessee within 30 days of the order passed by the Tax Recovery Officer. The question before the High Court was whether words "date of the order" in Rule 86 should be construed as "date of service or communication of the order" to the assessee? The Allahabad High Court held as under — "The second point of determination is as to whether the limitation for filing the appeal would run from the actual date of the order or from the date of service of the order and, consequently as to whether the appeal is barred by limitation. There is no dispute to the fact that the order confirming the sale was passed on 25-4-1988 and the sale certificate was also issued on the same day. The appeal was presented under rule 86 on 19-9-1988. The limitation for filing the appeal under rule 86(2) is 30 days from the date of the order'. Thus, the appeal apparently appears to be beyond time by 117 days. However, the argument is that the limitation for filing the appeal would start running from the date when the order was served and the date of service of the order would be recognised as the date of the order. MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 6 of 8 Generally speaking, judicial and quasi-judicial orders are required to be passed in the presence of the parties or their representatives and where parties or their representatives are not present, normally the orders are communicated, especially where the order is appealable or revisable so as to enable the party to avail of the remedy so provided. Therefore, communication and knowledge of the order passed is necessary and in consonance with the principles of fair play. If the party aggrieved is not made aware of the order it cannot be expected to take recourse to the remedy available against it. Therefore, the fundamental principle is that the party whose rights are affected by any order must have the knowledge of the order. • Thus, it can be said that for the purposes of calculating limitation the expression ‘from the date of the order’, is to be construed to mean ‘the date of communication or knowledge of the order’. In the instant case, the date of knowledge of the order, according to the petitioner is 18-8-1988 and the date of actual service and communication undisputedly happens to 29-2-1988. The appeal was preferred on 19-9- 988. On 18-9-1988 there was a holiday. Thus, the appeal was within limitation both from the date of knowledge of the order and its service. In this view of the matter, the appellate authority manifestly erred in law in dismissing the appeal as barred by time." 6.5 In view of the above precedents, in our opinion, the time limit to file a miscellaneous petition u/s 254(2) of the Act to rectify the order of the Tribunal passed u/s 254(1) of the Act is to be considered is within 6 months from the end of the month in which the order was communicated so as to rectify the mistake passed u/s 254(1) of the Act. Accordingly, we admit the miscellaneous petition filed by the revenue as the miscellaneous petition has been filed on 9.5.2023 as it was received only on 21.02.2023 by the revenue authorities and in our opinion, miscellaneous petition filed in this case is within time limit allowed u/s 254(2) of the Act and the same is admitted for adjudication. 6.6 Coming to the merit of the issues raised by the revenue in its miscellaneous petition, we not that Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that non-consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 7 of 8 254(2) of the Act. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon’ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows: “Scope of the Power of Rectification 12. As stated above, in this case we are concerned with the application under section 254(2) of the 1961 Act. As stated above, the expression "rectification of mistake from the record" occurs in section 154. It also finds place in section 254(2). The purpose behind enactment of section 254(2) is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003 allowing the Rectification Application has given a finding that Samtel Color Ltd. (supra) was cited before it by the assessee but through oversight it had missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record. 13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case.” 6.7. Article 141 of the Constitution of India provides that the law declared by Hon’ble Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court MP Nos.103 & 104/Bang/2023 Jagadish Reddy, Bangalore Page 8 of 8 operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. 6.8 In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt.Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Consequently, the appeals by the Assessee will stand dismissed. The order of the Tribunal will stand modified /rectified accordingly. 7. In the result, the miscellaneous petitions filed by the revenue stands allowed. Order pronounced in the open court on 19 th May, 2023 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 19 th May, 2023. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore