Delayed employees PF remittance -Power to disallow u/s 143(1)- Effect of SC decision in Checkmate Services- Divergent Tribunal decisions
All of us are aware that the hon’ble Apex Court, in its decision dt 12.10.2022 in Checkmate Services Pvt Ltd vs CIT, resolved the judicial conflict on the issue of the ‘due date’ for payment of employees PF etc, setting at rest the long pending dispute and reversing the decisions of the majority of the High courts which had ruled in favour of the assessee.
Post this binding decision, obviously Tribunals have been deciding the issue in favour of the Revenue. In fact the Bangalore Tribunal in the case of DCIT Vs. Automac Diesels, recently in its decision dt 19.12.2022, in Miscellaneous Petition No.127/Bang/2022 filed by the Dept against order passed by the same Tribunal in ITA No.338/Bang/2022 for AY 18-19, wherein the Dept pointed out that there is mistake regarding disallowance due to belated remittance of PF/ESI pursuant to the decision of Hon’ble Supreme Court in the case of Checkmate Services. The Tribunal had earlier in its decision dt 02.06.2022 had held that the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T. Act was an allowable deduction.
The Dept had, then contended/prayed that
- Hon’ble Gujarat High Court had taken a contrary view on this issue in the case of CIT vs. Gujarat Road Transport Corpn. & that the matter was pending before Hon’ble Supreme Court.
- In the event of Hon’ble Apex Court taking a view in favour of the revenue on this issue confirming the view taken by Hon’ble Gujarat High Court, then the Revenue should be given liberty to seek rectification of the present order.
The Tribunal then followed the then prevailing binding decision of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT and had ruled in favour of the assessee with the above caveat.
Tribunal allowed the Miscellaneous Petition in its order dt 19.12.2022 following the SC decision though the asseessee raised the legal ground that the only prime facie arithmetical mistakes has be rectified and referred to the Explanation of the section and one has to examine as to whether it was within the powers of the Revenue authorities to make the disallowance u/s 143(1)(a).
The Dept argued that this disallowance can be made u/s 143(1) relying on judgment of the Hon’ble Madras High Court in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. DCIT reported in (2022) 138 taxmann.com 571 and decision dt 24.11.2022 of the Tribunal for AY 2019-20 in M/s. IV Sanctum vs ADIT, in ITA No. 986/Bang/2022. Tribunal noted that a similar issue has been decided by the coordinate bench of the Tribunal in ITA No.188/Coch/2021 for the AY 2016- 17 vide order dated 28.07.2022 and also following the judgment of the Hon’ble Madras High Court, in which it has been held that the addition can be made u/s 143(1)(a).
Tribunal thus reversed its earlier decision & ruled in favour of the Revenue. However, the Mumbai Tribunal in M/s P R Packaging Service V ACIT, ITA No.2376/Mum/2022 dated 07.12.2022, Mumbai (AY 2019-20), though the Tribunal noted that it is conscious of the fact that the issue on merits is decided against the assessee by the recent decision dated 12/10/2022 of the SC in the case of Checkmate Services Pvt Ltd vs CIT , the Tribunal deleted the disallowance u/s 36(1)(va) made in intimation u/s 143(1)(a) as the disallowance is beyond the scope of section 143(1)(a).
Hence, there are two divergent views at the Tribunal level on the validity of disallowance u/s 36(1)(va) in Intimation u/s 143(1)(a).
But it is pertinent to note that the Bangalore Tribunal relied on decision of coordinate bench of the Tribunal in ITA No.188/Coch/2021 and also following the judgment of the Hon’ble Madras High Court, in which it has been held that the addition can be made under clause (ii) of Section 143(1)(a) – ‘an incorrect claim, if such incorrect claim is apparent from any information in the return’. However, the Mumbai Tribunal held that the disallowance u/s 36(1)(va) is not covered under the scope of clause (iv) of Section 143(1)(a) – ‘disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return’.
The decisions are rendered in two different contexts. Hence, one needs to refer to the communication issued u/s 143(1)(a) proposing the adjustment and verify under which clause the adjustment has been made in Intimation issued u/s 143(1).
The dispute has been put to rest by the Insertion of explanation 2 to section 36(1)(va) vide Finance Act 2021 w.e.f. from 01.04.2021. Hence, the decisions are relevant for disputes pending before various forums relevant for assessment years 2020-21 and prior to that.
Author Bio
Bangalore ITAT has in ITA No. 1142/Bang/2022- decision dt 18.01.2023 has in detail discussed the decisions of the SC in the Checkmate Services (P) Ltd and also
– Mintri Tea Co (P) Ltd Vs CIT 223 CTR 241 [2009] (Cal) — AO couldn’t make a disallowance in respect of Provident fund contribution in proceedings u/s.143(1)(a) or 154.
– Kalpesh synthetics (P) Ltd Vs DCIT [2022] 137 taxmann.com 475 (Mum) — Information provided in tax audit report would cease to be relevant and disallowance u/s.143(1)(a)(iv) is to be deleted in toto.
– Lanjani Co-operative Agri Society Ltd [2022] 218 TR 14 (Chd) — The enabling provision to invoke sec.143(1)(a)(v) came into force only w.e.f.01.04.2021 and the AO, CPC doesn’t have power during AY.2018- 19 to invoke sub-clause(v) in the absence of enabling provision.
– Bajaj Auto Finance Ltd Vs CIT [2018] 93 taxmann.com 63 (Bom) —Provision for bad debts u/s.36(1)(iii) being a debatable issue cannot be disallowed u/s.143(1)(a) of the IT Act
The tribunal finally dismissed the assessee’s appeal giving detailed reasoning