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June 15, 2022

The scope of section 143(1) does not include adjustments or intimation on debatable/controversial topics.

by CA Shivam Jaiswal in Income Tax

The scope of section 143(1) does not include adjustments or intimation on debatable/controversial topics.

Facts and Issue of the case

This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), New Delhi [Ld. CIT(A)”, for short], dated 03.12.2021 for Assessment Year 2018-19. Grounds taken in  this appeal of Assessee are as under:

That the Ld CIT(A)-NFAC has erred in facts and in law in sustaining an addition of  Rs. 29,52,674.00 on illegal and untenable grounds. Hence, the addition as such may be deleted.

  • The Ld AO has erred in law and on facts in invoking the provisions of section 36(va) for making addition of late deposits of ESI and EPF as per due date under respective act which is against the spirit of law and intention of legislature. The Honorable CIT(A)-NFAC has erred in confirming the same. Hence, the addition as such may be deleted.
  • The Ld AO has erred in law and on facts for making addition of late deposits of ESI and EPF ignoring the facts that under PF act employer contribution includes employee contribution and hence the section 43B will apply and not 36(va). The Honorable CIT(A)-NFAC has erred in confirming the same. Hence, the addition as such may be deleted.
  • That the LD AO(CPC) has erred in facts and in law in making an addition of Rs. 29,52,674.00 while processing u/s 143(1) on illegal and untenable grounds. The Honorable CIT(A)-NFAC has erred in confirming the same. Hence, the addition as such may be deleted.
  • That the LD AO(CPC) has erred in facts and in law in making an addition of Rs. 29,52,674.00 while processing u/s 143(l)(iv) on illegal and untenable grounds. The Honorable CIT(A)-NFAC has erred in confirming the same. Hence, the addition as such may be deleted
  • That the Honorable CIT(A)-NFAC has erred in law and on facts in sustaining the addition of Rs.29,52,674.00 ignoring the facts that condition stipulated in section 36(va) is impossible to be performed by him. Hence, the addition as such may be deleted.
  • That the appellant craves leave to add, substitute, modify or delete any ground of appeal on or before the date of hearing. All the above grounds of appeal are without prejudice to each other.”

Though there are several grounds of appeal, the only addition in dispute in this appeal is regarding the additions amounting to total of Rs. 29,52,674/- made u/s 36(1)(va) of Income Tax Act. For the sake of convenience, all the grounds of appeal are being taken up together. These payments by way of employees’ contribution to ESI/Provident Fund were deposited by the assessee after the specified date prescribed under the relevant laws governing ESI and Provident Fund. However, payments were deposited by the assessee well before due date of filing of return of income under Section 139(1) of Income Tax Act. The aforesaid additions totaling Rs. 29,52,674/- were made by way of adjustments u/s 143(1) of Income Tax Act; vide intimation dated 14.11.2019. The assessee filed appeal before Ld. CIT(A), which was disposed of by the Ld. CIT(A) vide impugned appellate order dated 03.12.2021; wherein the Ld. CIT(A) confirmed the aforesaid additions amounting to Rs. 29,52,674/-. In coming to this conclusion, the Ld. CIT(A) took the view that the amendment to section 43B of Income Tax Act (by insertion of Explanation-5); and amendment to section 36(1)(va) of Income Tax Act, (by insertion of Explanation -2) by Finance Act, 2021 are retrospective in nature, and are applicable for Assessment Year 2018-19 to which the present case pertains.

Aggrieved, the assessee has filed this present appeal in Income Tax Appellate Tribunal (“ITAT” for short) against the aforesaid impugned appellate order dated 03.12.2021 of the  Ld. CIT(A). Vide order sheet noting dated 08.04.2022, Co-ordinate Bench of ITAT, Delhi ordered Early Hearing of this appeal;  accepting the assessee’s application for grant of Early Hearing. At the time of hearing before us, the Ld. Authorized Representative (“AR” for short) for the assessee submitted  that the  Ld. CIT(A) should  have  deleted the additions, instead of sustaining the aforesaid additions amounting to Rs. 29,52,674/-. The Ld. Sr. DR relied upon the impugned appellate order dated 03.12.2021 of the Ld. CIT(A).

Observation of the case

Court has perused the materials on record. Relevant facts are not in dispute. Employees’ contribution to ESI/Provident Fund, totaling the aforesaid amount of Rs. 29,52,674/- was deposited by the assessee after the specified date prescribed under laws providing ESI/Provident Fund. However, these payments were deposited by the assessee well before due date of filing of return of Income Tax prescribed u/s 139(1) of Income Tax Act. The aforesaid addition of Rs. 29,52,674/ has been made by way of adjustment and intimation u/s 143(1) of Income Tax Act.

The present appeal pertains to Assessment Year 2018-19. The issue before this court is whether, the additions amounting to aforesaid total of Rs. 29,52,674/- by way of adjustments and intimation u/s 143(1) of Income Tax Act in respect of payments of Employee’s contribution to ESI/Provident Fund, made by the assessee [payments made after stipulated dates prescribed under relevant laws governing provident fund and ESI, but before due date of filing of return prescribed u/s 139(1) of Income Tax Act] are to be sustained or deleted. We are aware about amendments to section 36(1)(va) and 43B of Income Tax Act, brought into effect by Finance Act, 2021. As regards whether these amendments are prospective in nature and applicable with effect from 01.04.2021 or retrospective in nature having applicability even before 01.04.2021; it may be mentioned that the present appeal before us pertains to Assessment Year 2018-19; which is before 01.04.2021. Court is aware of some reported orders of ITAT, passed after the aforesaid amendments were brought in by Finance Act, 2021; in which the issue in dispute for Assessment Years prior to Assessment Year 2021-22 (i.e. for periods before 01.04.2021) has been decided in favour of the assessee and against Revenue.

Even if Revenue does not accept the view, that the aforesaid amendments are prospective in nature having no application for Assessment Years prior to Assessment Year 2021-22; it is clearly established in the light of aforesaid decisions of Income Tax Appellate Tribunal (ITAT); referred to in this paragraph earlier, that the issue whether the aforesaid amendments are prospective or retrospective, is at least debatable and controversial, on which a view in faour of the assessee (that the aforesaid amendments are prospective) can legitimately exist, even if such a view favorable to the assessee is contested by Revenue. It is also well settled that retrospective amendment cannot be invoked to make addition by way of adjustment and intimation u/s 143(1) of Income  Tax Act. This view was taken by the Hon’ble Supreme Court in the case of CIT vs. Hindustan Electro Graphites Ltd. [2000] 243 ITR  0048 (SC), in which the view of Hon’ble Kolkata High Court in the case of Modern Fibotex India Ltd. & Anr. Vs. DCIT & Ors.[1995] 212 ITR  0496 (Calcutta) was approved. Same view was taken by the Hon’ble Madhya Pradesh High Court in the case of CIT vs. Satish Traders [2001] 247 ITR 0119 (Madhya Pradesh).

In view of foregoing discussion, court come to the following conclusions: The fact that payments amounting to aforesaid Rs. 29,52,674/- by way of  employees  contribution  to  provident fund and ESI were made by the assessee after stipulated date prescribed under the relevant laws governing  provident  fund and ESI, but before the due date of filing of return of income prescribed u/s 139(1) of Income Tax Act; is not in dispute.
Whether the aforesaid amendments to Income Tax Act by way of Finance Act, 2021 are retrospective or prospective, is debatable and controversial.
Adjustments made by Revenue u/s 143(1) of Income Tax Act, whereby aforesaid additions of Rs. 29,52,674/- were made, were unfair, unjust and bad in law.
Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act on debatable and controversial issues is beyond the scope of Section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments.
Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act, on the basis of retrospective amendment to Income Tax Act is beyond the scope of Section 143(1) of Income Tax Act.
In the present appeal before this court, addition of aforesaid amount of Rs. 29,52,674/- has been made by way of adjustments and intimation u/s 143(1) of Income Tax Act, on a debatable and controversial issue, and Ld. CIT(A) did err in law, in not deleting this addition.
Court sets aside the impugned appellate order dated 03.12.2021 of the Ld. CIT(A), and direct the Assessing Officer to delete the aforesaid addition of Rs. 29,52,674/-.

Conclusion

The appeal of the assessee was partly allowed by the court.

SVS-Guarding-Services-Pvt.-Ltd.-Vs-ITO-ITAT-Delhi

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