Case Law Details
Vinod Malik Vs ADIT (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT), Delhi, was filed by the assessee against the order of the National Faceless Appeal Centre (NFAC) dated 04.08.2021. The assessee raised two primary grounds: first, that the employees’ contribution to ESIC and EPF amounting to Rs. 5,70,838, having been paid before the due date of filing the return under Section 139(1), should not be disallowed; and second, that such disallowance could not be made through an intimation under Section 143(1)(a) without providing an opportunity to establish the claim.
On the first issue, the Tribunal noted that the matter had already been settled against the assessee by the Supreme Court in the case of Checkmate Services Pvt. Ltd. Accordingly, the Tribunal held that the disallowance of employees’ contribution to PF/ESIC was valid, and this ground of appeal was dismissed.
The second issue concerned the procedural validity of the adjustment made by the Centralized Processing Centre (CPC) under Section 143(1)(a). The Tribunal examined the statutory provisions, which clearly mandate that before making any adjustment, an intimation must be given to the assessee either in writing or through electronic mode. Further, the assessee must be given an opportunity to respond, and such response, if any, must be considered before finalizing the adjustment.
Although the Tribunal acknowledged that the disallowance itself fell within the scope of Section 143(1)(a)(iv), it found that the Revenue failed to provide any evidence that an intimation regarding the proposed adjustment had been sent to the assessee. The absence of such intimation constituted a failure to comply with the mandatory procedural requirement laid down in the proviso to Section 143(1)(a).
The Tribunal held that non-adherence to this statutory requirement had a “domino effect” on the validity of the order passed under Section 143(1)(a), rendering it legally unsustainable. The failure to provide prior intimation deprived the assessee of the opportunity to respond, which is a necessary condition before making any adjustment.
In view of this procedural lapse, the Tribunal concluded that the adjustment made by the CPC could not be sustained in law. Accordingly, while dismissing the first ground on merits, the Tribunal allowed the appeal of the assessee on the second ground and set aside the adjustment due to violation of the mandatory procedure.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of National Faceless Appeal Centre (NFAC) , Delhi dated 04.08.2021.
2. Following grounds have been raised by the assessee:
“1. That in the present case, employees contribution Rs.5,70,838/- towards ESIC and EPF having been paid by the appellant employer before the date of filing return of income u/s 139(1) for the present period, such amount could not be added back in the income of the appellant declared in the return of income filed. This addition is against the well settled law on the subject.
2. That the disallowance of deduction as has been made in the present case could not be made by way of intimation u/s 143(1)(a) of the I.T. Act, 1961.
Such a disallowance could be made only after providing an opportunity to the assessee to establish its claim.”
3. The issue of payment of employees contribution towards the PF has been ruled against the assessee by the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I in CA No. 2833/2016 vide order dated 12.10.2022. Hence, the ground no. 1 of the appeal of the assessee is liable to be dismissed.
4. In the ground No. 2 the assessee raised the issue of disallowing the payment without providing an opportunity to establish the claim and the intimation u/s 143(1)(a) of the Income Tax Act, 1961.
5. The provisions of Section 143(1)(a) are as under:
“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 indicated in the audit report but not taken into account in computing the total income in the return;
(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-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:
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:]
[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;]”
6. From the above, we find that the disallowance made by the CPC was in accordance with provisions of Section 143(1)(iv). The act mandates, before making an adjustment, an intimation has to be given to the assessee of such adjustment in writing or in electronic mode. The revenue could not produce evidence of sending the intimation to the assessee with regard to the proposed adjustment.
7. Failure to adhere to the mandatory procedure prescribed in statute has domino effect on the order passed u/s 143(1)(a) culminating in treating the order legally unsustainable.
8. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 25/11/2022.
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