Disallowance of Delayed deposit of Employees contribution towards P.F or ESI by CPC without providing any explanation or description

Disallowance of Delayed deposit of Employees contribution towards P.F or ESI by CPC without providing any explanation or description

1. Now a days specially after the ruling of Hon. Apex Court in the case of Checkmate Services Pvt. Ltd. vs. CIT, The amount of delayed contributed towards Social Security Schemes like Provident Fund or Employees State Insurance are now being disallowed by CPC, Bangalore while issuing Intimation u/s. 143(1) even without any description or explanation note as to why such disallowance or addition was made.

2. This article strives to assist on the issue that how this issue could be taken up before appellate authorities against such disallowance made without any explanation note or description.

3. For ready reference section 143(1) of the Income Tax Act is reproduced as follows:

Quote “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 [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[1]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:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: (Emphasis Supplied)”

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:(Emphasis Supplied)

Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;” Unquote

4. On perusal of the aforesaid section and the provisos attached therein, it is amply clear that the return can be processed u/s.143(1) by making adjustments on aforesaid six types of adjustments only.

5. The first proviso to section 143(1)(a) makes it very clear that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode.

6. The CPC is not following the first proviso to section 143(1)(a) of the Act as no intimations are been given to the assessee for making any adjustment or disallowance either in writing or in electronic mode.

7. Assuming that in some cases, if such an intimation is given to the assessee as per first proviso, then the second proviso stipulates that if any response is received from the assessee, the same should be considered before making any adjustment or disallowance, and also in a case where NO response is received, then only within thirty days of the issue of such intimation, CPC can make any such adjustment.

8. That because CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a). Therefore, the such intimations issued under section 143(1) are against first proviso to section 143(1)(a), and therefore, the entire 143(1) proceedings are invalid in law. Such approach of CPC is also against the fundamental principle of “audi alterm partem”.

9. This view is fortified by the following decisions of the Income Tax appellate Tribunal:

a) Arham Pumps vs. DCIT, CPC Bangalore ITA No. 206/Ahd./2021 order dated 27.04.2022

b) Kalpesh Synthetics Pvt. Ltd. vs. DCIT, CPC Bangalore ITA No. 1785/Mum./2021 order dated 27.04.2022