Section 143(1) intimation adjustments on arguable reasons are not permitted.

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 10.05.2021 for Assessment Year 2018-19. Grounds taken in this appeal of Assessee are as under:

That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. DCIT, CPC in making aggregate addition of Rs.39741559/- on account of employee’s contribution to ESI and EPF and that too by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating the facts and circumstances of the case and latest law in this regard.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. DCIT/CPC in making aggregate addition of Rs. 39741559/- on account of employee’s contribution to ESI and EPF, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual ground.
That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have quashed the order u/s 143(1) passed by Ld. DCIT, CPC as the jurisdiction was not validly assumed as per law.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. DCIT/CPC in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds 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.3,97,41,559/- made u/s 36(1)(va) of Income Tax Act. For the sake of convenience, grounds 1-3 are being taken up together. These payments by way of employees’ contribution to ESI/Provident Fund were deposited by the assesse 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.3,97,41,559/- were made by way of adjustments u/s 143(1) of Income Tax Act; vide intimation dated 25.11.2019. The assessee filed appeal before Ld. CIT(A), which was disposed of by the Ld. CIT(A) vide impugned appellate order dated 10.05.2021; wherein the Ld. CIT(A) confirmed the aforesaid additions amounting to Rs.3,97,41,559/-. In coming to this conclusion, the Ld. CIT(A) took notice of 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.

Aggrieved, the assessee has filed this present appeal in Income Tax Appellate Tribunal (“ITAT” for short) against the aforesaid impugned appellate order dated 10.05.2021 of the Ld. CIT(A). Vide order sheet noting dated 01.04.2022, 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.3,97,41,559/-. The Ld. Sr. DR relied upon the impugned appellate order dated 10.05.2021 of the Ld. CIT(A).

Observation of the court

Court has heard both sides. 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.3,97,41,559/- 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.3,97,41,559/- 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 us is whether, the additions amounting to aforesaid total of Rs.3,97,41,559/- 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. Court is 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. We are 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. Some such decisions are: Digiqal Solution Services Pvt. Ltd. vs. Assistant Director of Income Tax [2021] 92 ITR (Tribunal) 404 (Chandigarh) for Assessment Year 2019-20 (order dated 4th October, 2021); Shand Pipe Industry Pvt. Ltd. vs. DCIT (CPC), [2022] 93 ITR (Trib.) 54 (Bangalore) for Assessment Year 2018-19 (order dated 27th Dec., 2021); Mahadev Cold Storage vs. Jurisdictional Assessing Officer [2021] 190 ITD 273 for Assessment Year 2018-19 and 2019-20 in ITA Nos. 41 & 42/Agr/ 2021 (order date 14.06.2021); Nikhil Mohine vs. DCIT [2022] 93 ITR (Trib.) 658 (Jabalpur) for Assessment Year 2018-19 (order dated 18th Nov., 2021 of SMC Bench, Jabalpur); Gopalkrishna Aswini Kumar vs. Assistant Director of Income Tax [2022] 192 ITD 562 (Bangalore-Trib.) for Assessment Year 2019-20 (order dated 13.10.2021 in ITA No.359/Bang./2021); Continental Restaurant and Café Co. vs. Income Tax Officer [2021] 91 ITR (Trib.) (S.N.) 60 (Bangalore) for Assessment Year 2019-20 (order dated 11th October, 2021 of SMC Bench of Bangalore); and TML Business Services Ltd. [2022] 93 ITR (Trib.) (S.N.) 35 (Mumbai) for Assessment Year 2017-18 (order dated 29th Dec., 2021). In the cases of Continental Restaurant and Café Co. vs. ITO (supra), Nikhil Mohine vs. DCIT (Supra), Shand Pipe Industry Pvt. Ltd. vs. DCIT (supra); Digiqal Solution Services Pvt. Ltd. vs. Assistant Director of Income Tax (supra) and Gopalakrishna v/s ADIT (supra), the different Benches of Income Tax Appellate Tribunal have, in fact, specifically considered the aforesaid amendments brought to Income Tax Act by Finance Act, 2021; and have taken the view that the amendments are prospective in nature, having no application for the period prior to 01.04.2021. 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.

Further, 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).

The fact that payments amounting to aforesaid Rs. Rs.3,97,41,559/- 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. Adjustments made by Revenue u/s 143(1) of Income Tax Act, whereby aforesaid additions of Rs.3,97,41,559/- 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. In the present appeal before us, addition of aforesaid amount of Rs.3,97,41,559/- 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.

In the light of the foregoing conclusions court is of the view that the aforesaid additions of Rs.3,97,41,559/- by way of adjustment and intimation u/s 143(1) of Income Tax Act, were beyond the scope of Section 143(1) of Income Tax Act; and further, that the Ld. CIT(A) erred in law in confirming the aforesaid addition on a debatable and controversial issue. Accordingly, in respect of the aforesaid additions of Rs.3,97,41,559/-, we set aside the impugned appellate order dated 10.05.2021 of the Ld. CIT(A), and direct the Assessing Officer to delete the aforesaid addition of Rs.3,97,41,559/-. By way of abundant caution, Court hereby clarifies that court has not expressed any view in this order, on whether the aforesaid amendments brought in by Finance Act, 2021 [whereby Explanation-2 was inserted in Section 36(1)(va) of Income Tax Act and Explanation-5 was inserted in Section 43B of Income Tax Act] are prospective or retrospective. In the light of our decision in foregoing paragraph (E) of this order; this issue is merely academic in nature; hence not decided. Ground 4 of the appeal, regarding interest under section 234A, 234B and 234C of Income Tax Act; are consequential in nature. The Assessing Officer is directed to re-compute interest under these provisions of law; and to allow consequential relief to the assessee.