Deputy Commissioner of Income Tax, Circle-7(1)(2), Bengaluru V. Wave Mechanics Private Limited, Bengaluru

MA 135/BANG/2023

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The case revolves around a miscellaneous application by the revenue seeking to recall an earlier Tribunal order that had deleted the addition on account of disallowance on delayed payment of ESI/PF by the assessee, M/s. Wave Mechanics Pvt. Ltd. The Tribunal's earlier decision was based on the payment being made before the due date of filing the return under section 139(1) of the Income-tax Act, 1961. However, following the Supreme Court's judgment in Checkmate Services Pvt Ltd vs CIT, which clarified the treatment of delayed payments under different sections of the Income Tax Act, the Tribunal revisited its decision. The Tribunal found that the disallowance was justified as per the Supreme Court's ruling, which differentiated the treatment of employee's and employer's contributions to PF/ESI.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124218 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-07-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-06-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 01-06-2023
• Other Referred Cases: Checkmate Services Pvt Ltd Vs CIT, CIT Vs. Saurashtra Kutch Stock Exchange, Honda Siel Power Products Ltd. v. CIT, DCIT v. C. Krishnaiah Chetty Jewellers Pvt. Ltd., M/s. P R Packaging Services Vs. ACIT, Kalpesh Synthetics Pvt Ltd Vs. DCIT, Itek Packz Vs. ITO, Veerappampalayam Primary Agricultural Cooperative Credit Society Vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(1); 195; 139(1); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC “A” BENCH : BANGALORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER MP No.135/Bang/2023 [in ITA No.689/Bang/2021] Assessment year : 2018-19 The Deputy Commissioner of Income Tax, Circle 7(1)(1), Bangalore – 560 095. Vs. M/s. Wave Mechanics Pvt. Ltd., V-3, 1 Main, I Phase, Peenya Industrial Area, Bengaluru – 560 058. PAN: AAACW 3621J APPLICANT RESPONDENT Applicant by : Shri Ganesh R. Ghale, Standing Counsel. Respondent by : Shri Madhukeshwar Hegde, CA Date of hearing : 30.06.2023 Date of Pronouncement : 03.07.2023 O R D E R This miscellaneous application is at the instance of revenue seeking to recall the order of the Tribunal dated 30.5.2022 in ITA No.689/Bang/2021 for the AY 2018-19. 2. The ld. DR submitted that the Tribunal by the aforesaid orders deleted the addition on account of disallowance on delayed payment of ESI/PF by the assessee on the ground that the same was paid before the due date of filing of return u/s. 139(1) of the Income-tax Act, 1961 [the Act]. He submitted that the Hon’ble Supreme Court in a recent MP No.135/Bang/2023 Page 2 of 8 judgment dated 12 October 2022 Checkmate Services Pvt Ltd Vs CIT, Civil Appeal 2833/2016 [2022] 143 taxmann.com 178 (SC) had decided this issue in favour of the revenue and against the assessee. Therefore, the matter warrants revisit in the wake of Apex Court judgment (supra) and accordingly it was prayed that the order of the Tribunal may be rectified. 3. I have heard the rival submissions and perused the material available on record. It is not disputed that as per the decision of the Hon’ble Supreme Court rendered in the case of Checkmate Services Pvt Ltd (supra) it 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 Income Tax Act, 1961. 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/ESI Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Therefore, as per the above decision, the disallowance MP No.135/Bang/2023 Page 3 of 8 made by the Revenue authorities, were fully justified. Reliance is placed on the order of this Tribunal in the case of DCIT v. C. Krishnaiah Chetty Jewellers Pvt. Ltd. in MP No.135/Bang/2022 dated 03.01.2023 where the issue of disallowance u/s. 143(1)(a) has also been dealt. 4. The 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 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. MP No.135/Bang/2023 Page 4 of 8 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.” 5. Article 141 of the Constitution of India provides that the law declared by Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to be the law as it has always been, unless, the Supreme Court, says that its ruling will only operate prospectively. 6. 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. Therefore, I hold that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Consequently, the appeal by the Assessees is to be dismissed. MP No.135/Bang/2023 Page 5 of 8 7. The learned Counsel for the assessee submitted that the Hon’ble ITAT, Mumbai Bench, in the case of M/s. P R Packaging Services Vs. ACIT in ITA No.2376/Mum/2022, for Assessment Year 2019-20, order dated 07.12.2022 has taken the view that while processing return u/s. 143(1) of the Act, the CPC cannot disallow employees’ contribution to PF and ESI which are paid beyond the due dates for payment under the relevant laws relating to ESI and PF contribution while processing return under section 143(1) of the Act. In this regard, I find that the Hon’ble ITAT had taken the aforesaid view on the basis that the CPC has made the addition based on the provisions of section 143(1)(a)(iv) of the Act which lays down that :- “disallowance of expenditure (or increase in income) indicated in the audited report but not taken into account in computing the total income in the return.” 8. The Tribunal in coming the aforesaid conclusion placed reliance on another Coordinate Bench in the case of Kalpesh Synthetics Pvt Ltd Vs. DCIT 195 ITD 142 (Mumbai) wherein the ITAT, Mumbai Bench took the view that where CPC while processing return u/s.143(1)(a) cannot disallow Employee's contributions (PF/ESI) claimed as deduction by an assessee-employer in respect of employee's contribution towards PF by invoking section 143(1)(iv)(a). The Tribunal held that the said disallowance was based on observations made by tax auditor in audit report which stated that payments of employee contribution were made by assessee after due date specified under respective acts as judicial decisions have taken the view that said disallowance would not come into play when payment was made well MP No.135/Bang/2023 Page 6 of 8 before due date of filing income tax return under section 139(1) and therefore information provided in tax audit report would cease to be relevant and no disallowance can be made during assessment proceedings under section 143(1)(iv)(a). 9. On the aforesaid argument, the first aspect which I notice is that no such argument was advanced on behalf of the assessee when the appeal was argued before the Tribunal. Also, the decision was rendered by the ITAT Mumbai Bench in the case of Kalpesh Synthetics (P) Ltd. (supra) on 27.4.2022 prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) and therefore not applicable. The decision rendered by ITAT Mumbai Bench in the case of M/s. P. R. Packaging Services, follows the decision in the case of Kalpesh Synthetics (supra). In paragraph 5 of the order, a reference has been made to the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) but has been distinguished on the ground that the said decision was rendered in the context of assessment framed u/s.143(3) of the Act and therefore not relevant for processing returns u/s.143(1) of the Act. If the basis of decision of ITAT Mumbai in the case of Kalpesh Synthetics (supra) is that clause (iv) of Sec.143(1)(a) cannot be invoked to disallow delayed payment of employee’s contribution to ESI and PF made by the assessee beyond the due date as prescribed under the relevant law relating to ESI and PF for deposit of employees share of contribution, by invoking the provisions of section 36(1)(va) of the Act, if the said contributions are paid within the due date for MP No.135/Bang/2023 Page 7 of 8 filing return of income u/s.139(1) of the Act, owing to decision of High Court in favour of the assessee and if those decisions of High Courts stand overruled by decision of Supreme Court in the case of Checkmate Services Pvt. Ltd., (supra) with retrospective effect, then the very basis of the decision rendered in the case of Kalpesh Synthetics(supra) no longer survives. Alternatively, the adjustment can be justified on the basis of the provisions of section 143(1)(a)(ii) of the Act which lays down that adjustment can be made to the total income in the event of “an incorrect claim, if such incorrect claim is apparent from any information in the return”. The form of return contains clause with regard to amounts disallowable u/s.36 of the Act. The aforesaid my view is also supported by a decision rendered by the ITAT, Bengaluru Bench in the case Itek Packz Vs. ITO ITA No.995/Bang/2022, order dated 28.12.2022. In that decision, the Tribunal, after considering the decision rendered in the case of P R Packaging (supra) held following the decision of Cemetile Industries Vs ITO in ITA No.693/Pun/2022, order dated 23.11.2022 that disallowance can be made under section 143(1)(a) of the Act of employees’ share of ESI and PF paid beyond the due date under the relevant law relating to PF contribution and ESI contribution. The Tribunal has placed reliance on the decision of the Hon’ble Madras High Court in the case of Veerappampalayam Primary Agricultural Cooperative Credit Society Vs. DCIT (2022) 138 taxmann.com 571. The Hon’ble Madras High Court took the view that while processing a return under section 143(1)(a) of the Act, apparent incorrect claim can MP No.135/Bang/2023 Page 8 of 8 be disallowed. In view of the matter, I am of the view that the order of the Tribunal requires to be modified. 10. In view of the above, the appeal by the assessee will stand dismissed. The order of the Tribunal will stand modified/rectified accordingly. 11. In the result, the miscellaneous petition by the revenue is allowed. Pronounced in the open court on this 03 rd day of July, 2023. Sd/- (LAXMI PRASAD SAHU ) ACCOUNTANT MEMBER Bangalore, Dated, the 03 rd July, 2023. / Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.