Case Number: ITA 817/DEL/2021
Appellant: Prowiz Mansystems Private Limited, Meerut
Respondent: DCIT CPC, Bengaluru
Assessment Year: 2018-19
Case Filed On: July 2, 2021
Order Type: Final Tribunal Order
Date of Order: May 24, 2022
Pronounced On: May 24, 2022
Result: The tribunal ruled in favor of the appellant, directing the deletion of the addition of Rs. 3,97,41,559/-.
This article discusses the case between Prowiz Mansystems Private Limited (the appellant) and the Deputy Commissioner of Income Tax, CPC, Bengaluru (the respondent). The central issue was the addition of Rs. 3,97,41,559/- for delayed payment of employee contributions to the Employees’ State Insurance (ESI) and Provident Fund (EPF). The Income Tax Appellate Tribunal (ITAT) delivered its decision on May 24, 2022, in favor of the appellant.
Prowiz Mansystems Private Limited, a company based in Meerut, Uttar Pradesh, filed its return of income for the assessment year 2018-19. During the processing of the return, the Centralized Processing Center (CPC) made an aggregate addition of Rs. 3,97,41,559/- on account of delayed payment of employee contributions to ESI and EPF. These payments were made after the specified date prescribed under the relevant laws but before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961.
The appellant filed an appeal before the Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre (NFAC), New Delhi, challenging the addition. The CIT(A) confirmed the addition, taking notice of the amendments to Section 43B and Section 36(1)(va) of the Income Tax Act, introduced by the Finance Act, 2021.
Aggrieved by the CIT(A)’s decision, the appellant filed an appeal before the ITAT. The primary contention was that the additions were made unfairly and were not in accordance with the principles of natural justice. The appellant’s representative argued that the payments were made before the due date of filing the return of income and hence should not be disallowed.
The respondent relied on the amendments made by the Finance Act, 2021, which inserted Explanation-2 in Section 36(1)(va) and Explanation-5 in Section 43B, asserting that these amendments justified the additions.
The Tribunal, comprising Shri Saktijit Dey (Judicial Member) and Shri Anadee Nath Misshra (Accountant Member), examined the submissions and material on record. The Tribunal noted that the issue at hand was whether the additions made by way of adjustments under Section 143(1) of the Income Tax Act were justified.
The Tribunal observed that the payments were made after the specified dates prescribed under the relevant laws but before the due date of filing the return of income. It also took into account several decisions of the ITAT, where similar issues had been decided in favor of the assessee, holding that such payments do not constitute income if made before the due date of filing the return.
The Tribunal highlighted that the amendments brought in by the Finance Act, 2021, were prospective and not applicable to the assessment year 2018-19. It cited various decisions where the ITAT had ruled that these amendments could not be applied retrospectively to periods before April 1, 2021.
In its detailed order, the Tribunal stated:
“The adjustments made by Revenue under Section 143(1) of the Income Tax Act on a debatable and controversial issue were beyond the scope of Section 143(1). The additions of Rs. 3,97,41,559/- were unfair, unjust, and bad in law. The CIT(A) erred in law in confirming the addition on a debatable and controversial issue.”
The Tribunal also referred to decisions of the Delhi High Court in the cases of CIT vs. AIMIL Ltd. and CIT vs. P.M. Electronics Ltd., which held that delayed payments of employee contributions to ESI and EPF, if made before the due date of filing the return, do not constitute income.
Based on these considerations, the Tribunal directed the deletion of the addition of Rs. 3,97,41,559/- made by the CPC.
The appellant also raised concerns about the charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal directed the Assessing Officer to recompute the interest and allow consequential relief to the appellant.
In conclusion, the ITAT ruled in favor of Prowiz Mansystems Private Limited, holding that the addition of Rs. 3,97,41,559/- for delayed payment of employee contributions to ESI and EPF was beyond the scope of Section 143(1) of the Income Tax Act and should be deleted. This decision emphasizes the importance of fair and just treatment of taxpayers and adherence to the principles of natural justice in tax assessments.
This ruling provides significant clarity for taxpayers and tax authorities regarding the treatment of delayed payments of employee contributions and underscores the necessity to respect established legal precedents and judicial interpretations in tax matters.
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