Sri Peddanna Suresh, Shivamoga V. The Income Tax Officer, Ward-1 & TPS, Shivamogga

MA 182/BANG/2023

AI Insights

The case revolves around the disallowance of Rs.15,96,888 made by the Assessing Officer (AO) from the assessee's account, which was claimed to be the employees' contribution to the provident fund. The assessee, Peddanna Suresh, argued that the amount was merely remitted on behalf of the Municipal Commissioner, Bhadravathi, and thus should not be considered as a receipt or expenditure of the assessee, making Section 36(1)(va) of the Income-tax Act, 1961 inapplicable. Initially, the Tribunal's decision did not address the grounds raised by the assessee, leading to a series of miscellaneous petitions (MPs) to correct the oversight. The Tribunal's later orders acknowledged the misunderstanding of facts and rectified the application of the law, ultimately leading to the recall of the order that had favored the revenue's position based on a Supreme Court judgment, which was not applicable to the case at hand.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129982 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 27-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 10-07-2023
• Other Referred Cases: Checkmate Services Pvt. Ltd. in Civil Appeal No.2833/2016
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1963
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH R. GHALE STANDING
• Keywords: Set aside

Judgement Text

MP No.182/Bang/2023 Peddanna Suresh, Shivamogga IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER MP No.182/Bang/2023 in MP No.83/Bang/2023 (Arising out of ITA No.627/Bang/2021) Assessment Year: 2018-19 Sri Peddanna Suresh S/o Sri Peddanna New Bridge Main Road Opp. Ruchi Complex Bhadravathi Shivamogga 577 301 PAN NO : BARPS8630Q Vs. ITO Ward-1 & TPS Shivamogga APPELLANT RESPONDENT Appellant by : Ms. Sunaina Bhatia, A.R. Respondent by : Shri Ganesh R. Ghale – Standing Counsel for Revenue Date of Hearing : 25.08.2023 Date of Pronouncement : 28.08.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: By this MP, assessee seeks recall of order of the Tribunal in MP No.83/Bang/2023 dated 26.5.2023. 2. Originally, assessee came in appeal before this Tribunal in ITA No.627/Bang/2021 for the assessment year 2018-19 with regard to disallowance of amount of Rs.15,96,888/- being employees’ contribution to provident fund made u/s 36 r.w.s. Rule 87 of Income Tax Rules, 1963 and it was the case of the assessee that Rule 86 was MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 2 of 7 inapplicable to the present case as the assessee was merely remitting the PF on behalf of Municipal Commissioner, Bhadravathi and same was neither a receipt nor expenditure of assessee in order to invoke the provisions of section 36(1)(va) of the Income-tax Act,1961 ['the Act' for short]. However, the Tribunal while adjudicating the appeal of the assessee, it was adjudicated on different grounds results in the failure to adjudicate the grounds raised by the assessee in his appeal. As such, the assessee filed miscellaneous petition in MP No.67/Bang/2022 and the same was disposed of by this Tribunal vide order dated 1.9.2022 in which the order of this Bench in ITA No.627/Bang/2021 dated 12.5.2022 was modified by observing that the issue was wrongly considered on the basis of the disallowance made u/s 36(1)(va) of the Act without noticing the correct grounds of appeal raised by assessee. Accordingly, the Tribunal restored the matter back to the file of AO with certain directions. The relevant part of the order passed in MP No.67/Bang/202 dated 1.9.2022 is as follows: “5. I have heard the rival submissions and perused the materials available on record. The assessee herein came in appeal before this Tribunal with regard to disallowance of Rs.15,96,888/- made u/s 36 read with Rule 87 of I.T. Rules. However, the Tribunal wrongly discussed the issue with regard to belated remittance of employees’ share of PF & ESI without noticing the correct grounds of appeal raised by the assessee. Hence, there is a mistake apparent on record, which require to be corrected. 6. On merit, the contention of the assessee’s counsel is that the addition was made on account of wrong understanding of the facts by AO. The Ld. AO failed to observe that labour works receipts of Rs.48,06,398/- credited in the P&L account includes an amount of Rs.21,96,288/- issued from the Municipal Commissioner, Bhadravati towards the contribution to PF. In fact, the Municipality will pay salary directly to employees’ bank account through Escrow account based on the tri-party agreement entered between Municipal Commissioner, Bhadravati, assessee and bank. The amount of PF contribution (both employees & employer contribution) will be released to the assessee’s bank account towards the PF remittance and service charges for filing formalities MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 3 of 7 under PF Act. According to the Ld. A.R., the AO considered the total receipts credited in the profit & loss account by Rs.48,06,398/- and restricted the contribution to PF at 27% of salary of Rs.22.2 lakhs i.e. Rs.5,99,400/- and disallowed the excess contribution of Rs.15,96,888/-. By invoking the provisions of section 36 of the Act read with Rule 87 of the IT Rules. According to the Ld. A.R., what has debited by the assessee in P&L account is the contribution to PF received from the Municipal Commissioner, Bhadravati for outward remittance to PF authorities. The amount credited to P&L account is the receipt of PF contribution from the Municipal Corporation and service charges towards further correspondence, filing of necessary forms, etc. with PF requirement According to the Ld. A.R., there was no question of receipt of labour charges from the Municipal Commissioner for the respective work or payment of the same to the labourers as it was directly paid by the Municipal Commissioner, Bhadravati to the respective employees through their bank account. 7. The Ld. D.R. submitted that this issue may be remitted on merit to the file of AO for further examination of the claim of the assessee. In my opinion, as argued by the Ld. A.R., there is a total misunderstanding of facts by the Tribunal while disposing of the above appeal vide order dated 12.5.2022. Accordingly, I recall the entire order and thereafter, I adjudicate the appeal by substituting the same with the following paragraphs, which are to be read as follows:- “1. The assessee has filed this appeal challenging the order passed by Ld. CIT(A), NFAC, Delhi and relate to the assessment year 2018-19. The only issue with regard to the disallowance of Rs.15,96,888/- being made u/s 36 read with Rule 87 of the I.T. Rules. 2. In the present case, the AO disallowed the amount of Rs.15,96,888/- out of Rs.21,96,288/- charged to the P&L account by invoking the provisions of section 36 read with Rule 87 of the I.T. Rules. It was the contention of the revenue authorities that the assessee has credited an amount of Rs.22.2 lakhs to the P&L account, hence, the assessee could make payment to PF to the extent of 27% of the said amount works out at Rs.5,99,400/-. Now the contention of the Ld. A.R. is that the salary to the workers has been directly paid by the Municipal Commissioner, Bhadravati through Escrow account and the assessee received the PF contribution of both employees and employer contribution and also service charges at Rs.22.2 lakhs and the AO cannot invoke the Rule 87 on this amount so as to disallow an MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 4 of 7 amount of Rs.5,96,888/-. In my opinion, these facts require to be examined by the AO that whether Municipal Commissioner, Bhadravati has directly paid the labour charge to the workers’ bank account and remitted only PF of both employees’ and employer’s contribution to the assessee to make outward remittance to PF disbursement. Accordingly, the issue in dispute is remitted back to the file of AO for fresh consideration in the light of above observations. 3. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.” 8. In the result, the miscellaneous petition of the assessee is allowed.” 2.1 In the meantime, on 27.12.2022, the revenue filed an MP vide No.83/Bang/2023 against the same order of the Tribunal dated 12.5.2022 without noticing the subsequent order of the Tribunal in MP No.67/Bang/2022 dated 1.9.2022, seeking correction of the order of the Tribunal in ITA No.627/Bang/2021 dated 12.5.2022, wherein it was contended that the belated remittance of employees’ share of PF & ESI should not be allowed having regard to the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. in Civil Appeal No.2833/2016 dated 12.10.2022 though this was not the issue before the Tribunal in assessee’s appeal in ITA No.627/Bang/2021. The Tribunal while disposing of the miscellaneous petition filed by the revenue in MP No.83/Bang/2023 vide order dated 26.5.2023 without noticing the actual grounds raised by the assessee before the Tribunal and also the order of the Tribunal in MP No.67/Bang/2022, recalled the earlier order of the Tribunal in ITA No.627/Bang/2021 dated 12.5.2022 and decided the issue in favour of the revenue. 2.2 Thus, the ld. A.R. submitted that the aforesaid order of the Tribunal vide MA No.83/Bang/2023 dated 26.5.2023 has been passed without appreciating earlier order of the Tribunal in ITA MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 5 of 7 No.627/Bang/2021 dated 12.5.2022, which was no more surviving by virtue of order of the Tribunal in MP No.67/Bang/2022 dated 1.9.2022 and the appeal filed by the assessee in ITA No.627/Bang/2021 was with regard to disallowance of Rs.15,96,888/- made u/s 36 r.w.s. Rule 87 of the I.T. Rules and it was the case of the assessee that Rule 87 was inapplicable to the present case as the assessee was merely remitting PF & ESI on behalf of the Municipal Commissioner and the same was neither a receipt nor an expenditure in order to invoke provisions of section 36 of the Act, which has been rightly noted by the Tribunal in MP No.67/Bang/2022 vide order dated 1.9.2022. Thus, she submitted that the Tribunal passed the order in MP No.83/Bang/2023 vide order dated 26.5.2023 observing that the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. cited (supra) is applicable without appreciating the fact that there was no requirement to amend the order in ITA No.627/Bang/2021 dated 12.5.2022 in view of the order of the Tribunal in MA No.67/Bang/2022 dated 1.9.2022 as the order sought to be amended does not exist at the time of disposal of MP filed by the revenue on 27.12.2022 in MP No.83/Bang/2023 order dated 26.5.2023. Hence, she submitted that in the interest of justice, the order of the Tribunal in MP No.83/Bang/2023 dated 26.5.2023 is having no legs to stand and it is to be recalled. 3. The ld. D.R. fairly submitted that there was no order of the Tribunal sought to be amended exist as on the date of disposal of MP of the revenue in MP No.83/Bang/2023 dated 26.5.2023 as it was already amended by Tribunal vide order in MP No.67/Bang/2022 dated 1.9.2022. 4. I heard the rival submissions and perused the materials available on record. Admittedly, vide MP No.83/Bang/2023 dated 26.5.2023, the revenue wanted rectification of the Tribunal order in MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 6 of 7 ITA No.627/Bang/2021 dated 12.5.2022. However, at the time of disposal of this MA vide order dated 26.5.2023, the order sought to be amended does not exist, since it has been already rectified vide order in miscellaneous petition filed by the assessee in MP No.67/Bang/2022 dated 1.9.2022. Hence, the Tribunal wrongly amended the order of the Tribunal in ITA No.627/Bang/2021 dated 12.5.2022 vide MP No.83/Bang/2023 dated 26.5.2023. Thus, the MP order of the Tribunal in MP No.83/Bang/2023 dated 26.5.2023 is passed wrongly without noticing the fact that the Tribunal order in ITA No.627/Bang/2021 dated 12.5.2022 has already been amended by Tribunal order in MP No.67/Bang/2022 dated 1.9.2022. Hence, the order passed by Tribunal in MP No.83/Bang/2023 dated 26.5.2023 is having no legs to stand and it is void-ab-initio. Hence, I set aside this order in MP No.83/Bang/2023 dated 26.5.2023 and annul the same. Thus, the order of the Tribunal in MP No.67/Bang/2022 dated 1.9.2022 is only surviving order on the basis of which, the ld. AO to pass fresh assessment order as directed in para 7 of that order. Ordered accordingly. 5. In the result, the MA filed by the assessee is allowed. Order pronounced in the open court on 28 th Aug, 2023 Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 28 th Aug, 2023. VG/SPS MP No.182/Bang/2023 Peddanna Suresh, Shivamogga Page 7 of 7 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.