Facts of the Case

The assessee company, engaged in manufacturing of bidis and also carrying on business of hotels, marketing and lubricants, filed its return of income on 22.01.2022 declaring income of Rs.7,16,79,080/-.

The return was processed under Section 143(1) on 17.10.2022 and total income was determined at Rs.7,59,83,430/- after disallowing Rs.43,04,355/- under Section 36(1)(va) on account of delayed deposit of employees’ contribution to Provident Fund (PF) and ESI.

The delay was as under:

  • PF for February 2021 deposited on 17.03.2021 against due date 15.03.2021
  • ESI for August 2020 deposited on 16.09.2020 against due date 15.09.2020
  • Section 36(1)(va) should be read with Section 43B.
  • Contribution paid before filing of return should be allowed.
  • The Supreme Court’s order in Suo Moto Writ Petition (Civil) No.03 of 2020 extended limitation due to COVID-19.

The CIT(A) rejected the contentions relying on Checkmate Services (P) Ltd vs CIT (SC) and confirmed the disallowance.

 Issues Involved

  1. Whether delayed deposit of employees’ PF/ESI contribution beyond statutory due date is disallowable under Section 36(1)(va).
  2. Whether the Supreme Court’s COVID limitation order extended due dates for statutory payments.
  3. Whether adjustment under Section 143(1)(a) was valid.
  4. Whether subsequent assessment under Section 143(3) accepting returned income resulted in merger of orders.
  5. Whether the issue was “debatable” and therefore outside scope of Section 143(1)(a).

 Petitioner’s Arguments

The assessee contended that:

  • The Supreme Court in Suo Moto Writ Petition (Civil) No.03 of 2020 excluded the period from 15.03.2020 to 14.03.2021 (later extended to 28.02.2022) while computing limitation.
  • Therefore, delay in deposit stood condoned.
  • In scrutiny assessment under Section 143(3), the returned income was accepted without addition.
  • Hence, the addition under Section 143(1) should not survive.
  • The issue was debatable prior to Checkmate Services.
  • Adjustment under Section 143(1)(a) could not be made on a debatable issue.
  • Reliance was placed on decisions including:
    • Shagun Foundry (All HC)
    • Satpal Singh Sandhu (ITAT Raipur)
    • Kalpesh Synthetics (P) Ltd
    • PR Packaging Services Ltd

 Respondent’s Arguments

The Revenue submitted that:

  • The Supreme Court’s COVID order applied only to extension of limitation for filing proceedings and not to payment of statutory dues.
  • No notification was issued by EPFO extending due dates.
  • Checkmate Services (P) Ltd vs CIT (SC) clearly held that employees’ contribution must be deposited within due date prescribed under respective Acts.
  • Section 36(1)(va) is distinct from Section 43B.
  • There was no merger between orders under Sections 143(1) and 143(3) since scrutiny was on different issues.
  • Notice under Section 154 had been issued for rectification.
  • Once Supreme Court clarified law, earlier High Court decisions stood overridden.

 Court Order / Findings

1. COVID Limitation Order Not Applicable to Statutory Dues

The Tribunal held that the Supreme Court’s order in Suo Moto Writ Petition (Civil) No.03 of 2020 was confined to limitation for filing suits, appeals, applications and proceedings. It did not extend due dates for payment of statutory dues such as PF/ESI contributions.

2. Binding Effect of Checkmate Services (SC)

Following Checkmate Services (P) Ltd vs CIT, the Tribunal held:

  • Employees’ contributions are governed by Section 36(1)(va).
  • They must be deposited within due date under respective welfare Acts.
  • Section 43B does not override Section 36(1)(va).

3. No Merger of 143(1) and 143(3)

Relying on Orient Craft Ltd vs DCIT, the Tribunal held:

  • Scrutiny under Section 143(3) was on a different issue.
  • PF/ESI issue was not examined.
  • Therefore, there was no merger of orders.
  • Issuance of notice under Section 154 further showed the issue was under rectification.

4. Adjustment under Section 143(1)(a) Valid

The Tribunal relied upon:

  • Nepal Chandra Dey vs ACIT (Ranchi Bench)
  • Prashanti Engineering Works (P) Ltd
  • Rohan Korgaonkar (Bombay High Court)

It was held that information in Form 3CD audit report indicating delayed payment itself “indicates” disallowance and permits adjustment under Section 143(1)(a).

The Tribunal rejected the view that the issue was debatable once clarified by Supreme Court, holding that Supreme Court decisions declare the law as it always stood.

 

Important Clarification

  • Supreme Court judgments operate retrospectively unless expressly stated otherwise.
  • Earlier High Court decisions inconsistent with Checkmate Services stand wiped out.
  • COVID limitation extensions do not automatically extend statutory due dates.
  • CPC is empowered to make adjustment under Section 143(1)(a) based on audit report disclosures.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770885261_SBWUDYOGLIMITEDPRAYAGRAJVS.DCITCIR1ALLAHABAD2.pdf  

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