Paris Elysees India Private Limited Vs DCIT (ITAT Jaipur)
ITAT Jaipur held that delayed payment of employee contribution to PF/ESI as prescribed u/s 36(1)(va) of the Income Tax Act is beyond the ambit of adjustments to be carried out u/s 143(1) of the Income Tax Act.
Facts- The assessee filed its Return of Income for A.Y. 2018-19 on dated 31.10.2018. The return was processed u/s 143(1) on 12.11.2019 making adjustment of Rs.4,62,183/- u/s. 36(1)(va) of Income Tax Act, 1961. Aggrieved by the said adjustment made by the CPC, the assessee has filed this appeal before the ld. CIT(A). CIT(A) dismissed the same. Being aggrieved, the present appeal is filed.
Conclusion- On going the tax audit report and provision of section 143(1) of the Act we are of the considered view that the PF and ESI being the deemed income of the assessee as the same is collected from the employee salary and therefore, the same is not under the permissible adjustments.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi (Here in after referred as to “NFAC”), CIT(A) for the assessment year 2018-19 dated 29.07.2022, which in turn arises from the order passed by the Centralized Processing Center [here in after ‘CPC’] passed under Section 143(1) of the Income tax Act, 1961 (in short ‘the Act’) dated 27.12.2019.
2. The assessee has marched this appeal on the following grounds:
“1. In the facts and circumstances of the case and in law, ld. AO)CPC) has erred in passing order under section 143(1) of the Income Tax Act, 1961, without following the procedure as laid down under such section. The action of the ld. AO(CPC) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the entire such order, being illegal and void ab initio.
2. In the facts and circumstances of the case and in law, National Faceelss Appeal Centre / CIT(A) erred in confirming the action of the ld. AO(CPC) in disallowing the Employee contribution of Rs. 4,62,183/-, under Section 36(1)(va), w.r.t. PF/ESI, when the same was deposited by the assessee firm, before the due date of filing the return of income. The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire addition made by Ld. AO(CPC) and confirmed by ld. CIT(A).”
3. The brief fact of the case is that the assessee filed its Return of Income for A.Y. 2018-19 on dated 31.10.2018. The declaring a total income of Rs.69,87,730/-. The return was processed u/s 143(1) on 12.11.2019 making adjustment of Rs.4,62,183/- under section 36(1)(va) of Income Tax Act, 1961.
4. Aggrieved by the said adjustment made by the CPC, the assessee has filed this appeal before the ld. CIT(A). Basically, the assessee has raised two grounds before the ld. CIT(A) one technical ground challenging the adjustment done by the CPC and the other ground on merit. The relevant finding of the ld. CIT(A) is reiterated here in below on both grounds:
“4.6 Since the delay in such payment of employee contribution to PF/ESI beyond the due dates as prescribed u/s. 36(1)(va) clearely falls within the ambit of prima facie adjustments to be carried out u/s. 143(1)(a)(iv) the disallowance made by CPC u/s. 143(1) on this issue is found to be in order and does not merit any inference. Accordingly, the ground raised by the appellant is not acceptable and is dismissed.
“5.48 From the discussions above, it is also clear that the clarificatory amendment brought in by the Finance Act, 2021 applies to the issue in the instant appeal also. The amendment clarifies that provisions of section 43B does not apply and deemed to have never been applied for the purpose of determining the due date for employee’s contribution to PF/ESI. From the above judicial decisions and also the unambiguous wording of the now amended provisions of section 36(1) and 43B, it is clear that the employee’s contribution can be allowed as a deduction only if it had been paid within the prescribed due dates under the relevant welfare funds and this position of law is and has always been the case and the clarifications brought about by the amendment clearly apply retrospectively. The case laws relied on by the appellant which were rendered prior to the clarificatory amendments, therefore are not applicable to the present case. Therefore, the sum of Rs 4,62,183/-being the employee’s contribution to the PF and ESI, not deposited by the appellant within the due date as per the respective Act in accordance with the section 36((1)(va) of the IT Act, 1961, cannot be allowed and accordingly, this ground is dismissed”
5. As the assessee company, aggrieved from the order of the ld. CIT(A) has preferred an appeal before us on the grounds as reiterated here in above para 2. To support the grounds taken by the assessee the ld. AR of the assessee relied upon the written submission and the same is reiterated here in below :
“BRIEF FACTS
I. Assessee appellant is a company registered under the provisions of Companies Act, 1956/2013. The assessee company is engaged in the manufacturing of perfumes. During the year, the assessee company filed its return of income on 31.10.2018, declaring total income of Rs 69,87,730.
II. The return of the assessee company was processed u/s 143(1) vide Intimation dated 12.11.2019 wherein ld. AO (CPC) made disallowance of Superannuation fund and ESI of Rs. 4,62,183, resulting into demand of Rs 1,47,439.
III. The assessee company preferred appeal against such Intimation u/s 143(1) dated 12.11.2019 before National Faceless Appeal Center (“NFAC”), in which the said disallowances have been confirmed. The present appeal has been preferred by the assessee company against the order of NFAC.
GROUNDS OF APPEAL
GROUND NO. 2: DISALLOWANCE u/s 36(1)(va) AMOUNTING TO Rs. 4,62,183
In view of the judgement of Checkmate Services Private Limited Vs CIT- I (Supreme Court), it has been clarified that the amendment brought by Finance Act, 2022 is prospective in nature. Hence, the same is not discussed in detail.
GROUND NO. 1: ADJUSTMENT BEYOND SCOPE OF SECTION 143(1)
1. ASSESSING OFFICER & NATIONAL FACELESS APPEAL CENTRE Ld. AO (CPC), while processing the return of income of the assessee company, made adjustment on account of disallowance of expenditure indicated in the Audit Report u/s 143(1)(a)(iv). The same is decided against the assessee company by the NFAC.
2. SUBMISSION
2.1. The adjustment made while processing the return of income is illegal because the case of the assessee company does not fall under 143(1)(a)(iv).
2.2. Section 143(1)(a)(iv)
2.2.i. It is submitted that u/s 143(1)(a)(iv) only a claim/expenditure whose disallowance has been indicated in the audit report but the same not been taken into account in computing the total income in the return can be adjusted while processing the return of income.
2.2.ii. Attention is drawn towards the fact in Section 143(1)(a)(iv), ‘increase in income’ has been added vide Finance Act, 2021 w.e.f. 1.4.2021. It is submitted that the present processing was done on 12.11.2019 and that too for AY 2018-19. The present addition amounts to increase in income in view of Section 2(24)(x). The right to increase in income u/s 143(1)(a)(iv) has been conferred only w.e.f. 1.4.2021. Thus, invoking this
clause for making adjustment in the returned income is without jurisdiction.
2.2.iii. In the case of assessee company the auditor in clause 20(b) provided details of contribution received from employees for various funds as referred to in section 36(1)(va). Thus, only factual reporting, which was mandated, was done and no opinion was expressed regarding the disallowance. Otherwise also no disallowance can be made on the basis of mere reporting in Audit Report. The disallowance can be made only on the basis of relevant law and taking into account judicial view in that regard.
2.2.iv. It is submitted that in the present case, it has been reported by the tax auditor the following contributions with respect to employee’s contribution to ESI/PF funds. Details are as under:
Superannuation Fund
