TDS in 26AS: AO directed to allow credit after verification

Abhay Kumar Jha Vs DCIT (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT) Delhi has issued a ruling in the case of Abhay Kumar Jha against the Deputy Commissioner of Income Tax (DCIT), addressing appeals for Assessment Years 2017-18 and 2018-19. The Tribunal’s decision, pronounced on September 30, 2022, largely favored the assessee, particularly on issues related to disallowances under Section 43B and Section 36(1)(va) of the Income Tax Act, 1961.

Abhay Kumar Jha, proprietor of Elkosta Security System India and Millennium Meritech, had filed returns of income for both assessment years. For A.Y. 2017-18, the initial return declared an income of Rs.1,49,32,600/-. However, the Centralized Processing Centre (CPC), Bengaluru, through an intimation under Section 143(1), revised the total income to Rs.2,46,36,090/-, primarily due to a disallowance of Rs.96,41,926/- under Section 43B and disallowance of interest on TDS of Rs.61,562/-.

Aggrieved by this adjustment, Jha appealed to the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi. While partial relief was granted, the assessee subsequently brought the matter before the ITAT.

Disallowance under Section 43B (A.Y. 2017-18)

The primary contention for A.Y. 2017-18 revolved around the disallowance of Rs.96,41,926/- under Section 43B of the Act. This amount represented various statutory dues, including DVAT, Service Tax, TDS, and Mumbai VAT. The CPC had made the disallowance on the premise of delayed payment of these amounts.

The assessee’s representative argued that all the statutory dues were paid before the due date for filing the return of income for A.Y. 2017-18, which was November 7, 2017. It was conceded that while the payments were timely, an inadvertent error by the auditor led to the amounts being disclosed under Clause 26(i)(B)(b) of the tax audit report, instead of Clause 26(i)(B)(a). Clause 26(i)(B)(b) typically pertains to liabilities under Section 43B not paid by the due date. A Chartered Accountant’s certificate was presented to substantiate that the payments were indeed made before the return filing deadline.

The Revenue, on the other hand, supported the lower authorities’ orders.

The ITAT, after reviewing the submissions and material, noted that the assessee had provided proof of payment for all amounts before the due date for filing the return. The Revenue did not controvert this fact. Coupled with the Chartered Accountant’s certificate confirming the timely payments and the inadvertent reporting error, the Tribunal concluded that no disallowance under Section 43B was warranted. Consequently, the ITAT directed the Assessing Officer (AO) to delete the addition of Rs.96,41,926/-.

Disallowance under Section 36(1)(va) (A.Y. 2018-19)

For A.Y. 2018-19, Jha had initially declared an income of Rs.1,65,52,800/-. The CPC, Bengaluru, again through an intimation under Section 143(1), determined the total income at Rs.1,81,07,300/-, primarily due to a disallowance of Rs.14,92,677/- under Section 36(1)(va) of the Act. This disallowance pertained to employee contributions to PF/ESIC that were not deposited by the statutory due dates, though they were deposited before the due date of filing the income tax return.

The assessee’s counsel submitted that despite the delay in depositing the PF/ESIC contributions, all such contributions had been deposited with the appropriate authorities before the filing of the income tax return. This fact was also noted in the CIT(A)’s order.

Judicial Precedents on Section 36(1)(va):

The ITAT specifically referred to established judicial precedents regarding belated employee contributions to PF/ESIC. The Tribunal highlighted the decision of the Hon’ble Delhi High Court in PCIT vs. Pro Interactive Service (India) Pvt. Ltd. (ITA no. 983/2018, dated 10.09.2018). In this case, the Delhi High Court had held:

“In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.”

This judgment from AIMIL Ltd. (supra) establishes that if employee contributions to welfare funds are deposited before the due date of filing the income tax return, even if belated according to the respective fund’s regulations, no disallowance under Section 36(1)(va) should be made. The legislative intent, as interpreted by the courts, focuses on the actual payment before the return filing, rather than strict adherence to the fund’s specific due dates.

The Revenue’s argument regarding the amendment introduced by the Finance Act 2021 was also addressed. The ITAT clarified that the “notes on clauses” to the Finance Bill 2021 explicitly state that the amendment would take effect from April 1, 2021, and would apply from Assessment Year 2021-22 onwards. Therefore, this amendment was not applicable to the assessment year under consideration (A.Y. 2018-19).

Given that the Revenue could not demonstrate any overruling, stay, or setting aside of the cited High Court order, and acknowledging that the contributions were deposited before the return filing, the ITAT found the AO’s disallowance unjustified. Consequently, the Tribunal directed the deletion of the addition made under Section 36(1)(va).

Exempt Income and TDS Credit (A.Y. 2018-19)

Two other issues for A.Y. 2018-19 were related to an addition of Rs.61,818/- on account of exempt income and a short credit of TDS amounting to Rs.3,10,000/-.

Regarding the exempt income, the assessee argued that while dividend income of Rs.1,59,640/- was earned and correctly reflected in the computation of income under Schedule BP, an inadvertent error led to a lower figure of Rs.97,822/- being stated in Schedule EI of the Income Tax Return. Both parties agreed to remit this issue back to the AO for verification. The ITAT directed the AO to verify the assessee’s contention and delete the addition if found incorrect, subject to the assessee’s cooperation in furnishing details.

Similarly, for the short credit of TDS, the assessee claimed a credit of Rs.3,10,000/- which was reflected in Form 26AS but not granted in the Section 143(1) intimation. The Revenue did not object to the request for remand. The ITAT instructed the AO to verify the TDS credit reflected in Form 26AS and grant the due credit in accordance with the law, again contingent on the assessee providing necessary details.

Conclusion

In a comprehensive decision, the ITAT Delhi allowed both appeals filed by Abhay Kumar Jha. The rulings on Section 43B and Section 36(1)(va) reiterate the principle that statutory dues and employee contributions, even if deposited late, should not be disallowed if paid before the due date of filing the income tax return, aligning with established judicial precedents. The issues concerning exempt income and TDS credit were remitted back to the AO for re-verification, indicating a procedural resolution.

FULL TEXT OF THE ORDER OF ITAT DELHI

Both the appeals filed by the assessee are directed against the order dated 22.04.2021 & 24.04.2021 of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi relating to Assessment Years 2018-19 & 2017-18.

2. The relevant facts as culled from the material on records are as under :

3. Assessee is proprietor of Elkosta Security System India and Millennium Meritech. Assessee filed his return of income for A.Y. 2017-18 on 26.10.2017 declaring income of Rs.1,49,32,600/-. In the intimation issued u/s 143(1) by CPC, Bengaluru vide order dated 27.02.2019 total income was determined at Rs.2,46,36,090/- inter alia by disallowing Rs.96,41,926/- on account of disallowance u/s 43B of the Act, and disallowance of interest on TDS of Rs.61,562/-.

4. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who vide order dated 24.04.2021 in Appeal No.CIT(A), Delhi-18/10003/2019-20 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds:

1. “On the facts and circumstances of the case and in law, the intimation under section 143(1) passed by the assessing officer/CPC and the adjustment/addition made therein are bad-in-law and without jurisdiction and National Faceless Appeal Centre/(CIT(A)) erred in not holding so.

2. On the facts and circumstances of the case and in law, the National Faceless Appeal Centre/(CIT(A)) erred in confirming the addition of Rs.96,41,926/- made by the assessing officer/CPC on account of disallowance of u/s 43B of the act without appreciating the fact that when the statutory dues had been paid before the due date of filing of return of income, no disallowance could have been made.

3. On the facts and circumstances of the case and in law, the National Faceless Appeal Centre/(CIT(A)) erred in confirming the addition of Rs.96,41,926/- even though the evidences of payment of statutory dues were furnished before him.

The appellant craves leave to add one or more ground of appeal or to alter/modify the existing ground before or at the time of hearing of appeal.

The aforesaid grounds of appeal are without prejudice to each other.”

5. Before us, at the outset, Learned AR submitted that though the assessee has raised various grounds but the sole controversy is with respect to the disallowance u/s 43B of the Act of Rs.96,41,926/-.

6. Before us, Learned AR submitted that in the intimation u/s 143(1) of the Act, the disallowance u/s 43B of the Act has been made of Rs.96,41,926/-, the breakup of which as under:

7. He submitted that the disallowance was made for the reason that there was delay/default in depositing of the aforesaid amounts. He submitted that the allegation of delay in depositing the amounts is factually incorrect. He submitted that the due date of filing of return of income for the year was 07.11.2017 and all the payments are made before the due date of filing of return of income and, therefore, no disallowance u/s 43B of the Act is called for. In support of his contention of all the amounts being paid before the due date of filing of return of income, he pointed to the submissions reproduced by CIT(A) on pages 3 to 5 of his order. He submitted that though the fact of the payments before the due date was brought to the notice of CIT(A) but CIT(A) upheld the addition for the reason that in the tax audit report, the amount was disclosed under Clause 26(i)(B)(b). He submitted that though the amount should have been reflected under Clause 26(i)(B)(a) but due to the mistake at the end of the auditor, the same was reflected under Clause 26(i)(B)(b). In support of his contention that the amount was paid before the due date of filing of return and the amount was inadvertently mentioned in Clause 26(i)(B)(b) instead of Clause 26(i)(B)(a), he placed on record the Certificate of the Chartered Accountant. He, therefore, submitted that the addition made by AO and upheld by CIT(A) be deleted.

8. Learned DR on the other hand supported the order of lower authorities.

9. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to disallowance u/s 43B of the Act. The amount was disallowed u/s 43B of the Act for the reason that in the tax audit report, the amount was reflected in Clause 26(i)(B)(b) which was with respect to liability u/s 43B not paid on or before the due date. Before us, assessee has placed on record the date of the payments of the various amounts and has demonstrated that all the payments have been made before the due date of filing of return of income. The contention of the assessee of the amount being paid before the due date of filing of return has not been controverted by Revenue. Considering the totality of the aforesaid facts coupled with the fact that the Chartered Accountant of the assessee has also given Certificate that all the amounts have been paid before the due date of filing of return of income and due to inadvertent error, the amount was reflected under Clause 26(i)(B)(b) instead of Clause 26(i)(B)(a) of the Tax Audit Report. We are of the view that no disallowance is called for. We, accordingly, direct the AO to delete the addition made by assessee. Thus the ground of assessee is allowed.

10. In the result, appeal of the assessee in ITA No.767/Del/2021 is allowed.

11. Assessee had filed the return of income for A.Y. 2018-19 on 25.10.2018 declaring total income at Rs.1,65,52,800/-. In the intimation issue by CPC, Bengaluru u/s 143(1) vide order dated 08.01.2020, the total income was determined at Rs.1,81,07,300/-.

12. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 22.04.2021 in Appeal No.CIT(A), Delhi-18/10525/2019-20 dismissed the appeal of the assessee.

Aggrieved by the order of CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds:

“1. On the facts and circumstances of the case and in law, the order passed by National Faceless Appeal Centre/(CIT(A)) is against the principles of nature justice.

2. On the facts and circumstances of the case and in law, the addition of Rs.14,92,677/- made by the assessing officer/CPC on the account of disallowance u/s 36(1)(va) of the Act is beyond the scope of provisions of section 143(1) of the Act and the National Faceless Appeal Centre/(CIT(A)) erred in not holding so.

3. On the facts and circumstances of the case and in law, the National Faceless Appeal Centre/(CIT(A)) erred in confirming the addition of Rs.14,92,677/- made by the assessing officer/CPC on the account of disallowance u/s 36(1)(va) of the Act.

4. On the facts and circumstances of the case and in law, the National Faceless Appeal Centre (CIT(A)) erred in confirming the addition of Rs.61,818/- made by the Assessing Officer /CPC on the account of exempt income.

5. On the facts and circumstances of the case and in law, the National Faceless Appeal Centre (CIT(A)) erred in confirming the action of the assessing officer in giving short credit of TDS to the extent of Rs.3,10,000/-.

6. On the facts and circumstances of the case and in law, the intimation under section 143(1) passed by the assessing officer /CPC is bad in law and without jurisdiction and National Faceless Appeal Centre/(CIT(A)) erred in not holding so.

The appeal craves leave to add one or more ground of appeal or to alter/modify the existing ground before or at the time of hearing of appeal.

The aforesaid grounds of appeal are without prejudice to each other.”

13. Before us, at the outset, Learned AR submitted that he does not wish to press the Ground Nos.1 and 6. He further submitted that Ground Nos.2 and 3 are interconnected and are with respect to disallowance u/s 36(i)(va) of the Act.

14. Before us, Learned AR submitted that additions of Rs.14,92,677/- has been made in the intimation issued by CPC, Bangalore u/s 36(1)(va) of the Act for the reason that the contribution received towards PF/ESIC by the assessee from its employees was not deposited before the due date. He submitted that though there has been delay in deposit of PF/ESIC Contributions but all the contributions received by the assessee from its employees have been deposited with the appropriate authorities before the filing of return of income by the assessee. He further pointed to Page 5 of the order of CIT(A) and from where, he pointed out that the PF/ESI dues has been deposited before the filing of return of income. He, therefore, submitted that since the amounts have been deposited before the filing of return of income, no disallowance is called for and for aforesaid proposition, he relied on the decision in the case of Azamgarh Steel & Power vs. CPC in ITA No.1626/Del/2020 dated 31.05.2021 and CIT vs. AIMIL Ltd. [2010] 188 Taxman 265 (Delhi) and various other decisions.

15. Learned DR on the other hand supported the order of lower authorities and also placed reliance on the decision of Delhi Tribunal in the case of Vedvan Consultants Pvt. Ltd. vs DCIT in ITA No.1312/Del/2020 order dated 26.08.2021. He also submitted that the amendment brought out by Finance Act 2021 would be applicable to the present case as by the amendment it has been clarified that provisions of Section 43B of the Act shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of its employees to which the provisions of sub clause (x) of Clause (24) of Section 2 applies.

16. We have heard the rival submissions and perused the material available on record. The issue is no more res-integra. The issue has already been settled in favour of the assessee by various judicial pronouncements by the Tribunal. The Hon’ble Jurisdictional High Court of Delhi in the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd. ITA no. 983/2018 dated 10.09.2018 has already taken a view in favour of the assessee by holding as under:

“In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal.

The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.”

17. As far as reliance by Learned DR on the amendment brought out by Finance Act 2021 is concerned, “notes on clauses” to the Finance Bill 2021 clearly states that the amendment will take effect from 1st April 2021 and will apply in relation to the assessment year 2021-22 and subsequent assessment year. In such a situation, we are of the view that the amendment brought out by Finance Act 2021 does not apply to the assessment year under consideration.

18. Before us, Revenue has not placed any material on record to demonstrate that the aforesaid order cited hereinabove has been overruled/stayed/set aside by higher judicial forum. In view of the aforesaid facts, we are of the view that the AO was not justified in denying the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income. Admittedly in the matter, the Revenue had not contended that the assessee has deposited the contribution after the filing of the return of income. In view of the above, respectfully following the decision of the Hon’ble High Court cited hereinabove, we allow the grounds raised by the assessee and direct the AO to delete the addition.

19. Ground No.4 is with respect to addition of Rs.61,818/-.

20. Before us, Learned AR submitted that during the year assessee had earned dividend of Rs.1,59,640/- which was claimed u/s 10(34) of the Act but however in the Schedule EI, the amount was wrongly mentioned at Rs.97,822/-. He submitted that the addition has been made on the ground that the exempt income credited in Profit and Loss account was higher by Rs.61,818/-than the income that was shown in the Schedule EI of the Income Tax Return.

21. He submitted that the assessee has actually earned dividend of Rs.1,59,640/- which is reflected in computation of income of the return of income under Schedule BP. Computation of income under Clause 5(c) [copy placed at page 23 of the paper book] but however inadvertently in Schedule EI of the Income-tax return filed by the assessee the amount was wrongly stated of Rs.97,822/-. He, therefore, submitted that the issue may be remitted back to AO for verification and the AO be directed to decide the matter after considering the submissions of the assessee.

22. Learned DR did not object to the contention of the assessee to remand the matter back to file of AO.

23. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the addition of Rs.61,818/- which is made in the intimation issue u/s 143(1) of the Act. It is the contention of the assessee that though the assessee had earned dividend income of Rs.1,59,640/- and also reflected in the computation of income under Schedule BP but however erroneously in Schedule EI, the amount was mentioned as Rs.97,822/-. Considering the submissions of the Learned AR, we are of the view that the contention of the assessee needs to be examined by AO. We, therefore, restore the issue back to the file of AO and direct him to verify the contention of the assessee. If the contention of the assessee is found correct about the addition being wrongly made, the same be deleted. Assessee is also directed to co-operate by furnishing of all the details furnished by AO. Thus the ground of assessee is allowed for statistical purpose.

24. Ground No.5 is with respect to the short credit of TDS to the extent of Rs.3,10,000/-.

25. Before us, Learned AR submitted that assessee has not been granted credit to the TDS of Rs.3,10,000/-, though the same is reflected in Form 26AS, the copy of which is placed at page 70 of the paper book. He fairly submitted that the AO be given necessary directions to verify the contention of the assessee and, thereafter, allow the credit of TDS.

26. Learned DR did not seriously object to the request of Learned AR to restore the issue to the file of AO.

27. We have heard the rival submissions and perused the material available on record. The grievance of the assessee is that assessee has not been granted credit of the TDS of Rs.3,10,000/-in the intimation u/s 143(1) of the Act though the same is reflected in From 26AS. Before us, Learned AR has pointed to page 17 of the paper book being the copy of Form 26AS where the amount of TDS of Rs.3,10,000/- is reflected. Considering the submissions of the assessee, we are of the view that the issue of credit of TDS needs to be examined by AO. The AO is, therefore, directed to verify the contention of the assessee and if the contention of the assessee found correct then the AO is directed to grant the credit of TDS reflected in Form 26AS in accordance with law. The assessee is also directed to furnish all the required details called for by AO. Thus the ground of assessee is allowed for statistical purposes.

28. In the result, appeal of the assessee is allowed for statistical purposes.

29. In the combined result, both the appeals of the assessee are allowed.

Order pronounced in the open court on 30.09.2022