AO Cannot Act as Appellate Authority to Review CIT(A) Order: Delhi HC

Goodrich Carbohydrates Ltd Vs ACIT (Delhi High Court)

Delhi High Court has nullified an Income Tax Assessing Officer’s (AO) order that declined to implement a favorable ruling for Goodrich Carbohydrates Ltd. by the Commissioner of Income Tax (Appeals) [CIT(A)]. The High Court found the AO acted beyond their jurisdiction by effectively reviewing the CIT(A)’s decision based on a subsequent Supreme Court judgment.

The case pertains to the assessment year 2017-18, where Goodrich Carbohydrates Ltd. had filed its return declaring an income of Rs.2,26,85,350. During scrutiny, the AO made an addition of Rs.5,87,096 to the company’s income, citing a delay in depositing Employees’ State Insurance (ESI) and Provident Fund (PF) contributions under Section 36(1)(va) of the Income Tax Act, 1961.

Aggrieved by this addition, Goodrich Carbohydrates Ltd. lodged an appeal with the CIT(A). The CIT(A), after examining the facts and considering various judicial precedents, ruled in favor of the company. The appellate authority’s decision was rooted in the principle, supported by several court rulings at the time, that if the employee’s contribution to welfare funds was deposited before the due date of filing the income tax return, the disallowance under Section 36(1)(va) was not warranted.

The CIT(A) explicitly referenced several judicial pronouncements in support of this position. These included the Supreme Court’s decision in Commissioner of Income Tax vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC), which, along with decisions from the Bombay High Court in Commissioner of Income-tax vs. Ghatge Patil Transports Ltd. (2014) 368 ITR 749 (Bom.) and the Punjab & Haryana High Court in Commissioner of Income-tax vs. Hemla Embroidery Mills (P) Ltd. (2014) 366 ITR 167 (P&H), was understood to bring both employee’s and employer’s contributions under the ambit of Section 43B of the Act, which allows deduction if payment is made before the return filing date.