Kalpesh Synthetics Pvt. Ltd. v. Dy. CIT

Case snapshot

Sections / provisions: 143(1)

Questions before the Court / Tribunal

• S. 143(1) : Assessment -Adjustment based on Audit report – Employees contribution to provident fund-Amendment in Finance Bill 2021-Adjustment is not justified. [S. 2(24(x), 36(1)(va), 43B] Allowing the appeal of the assessee the Tribunal held that adjustment made by the CPC on the basis of Audit report is not valid as it is contrary to the ratio laid down by the Jurisdictional High Court, wherein the High Court held that payment made before due date of filing of return is allowable as deduction. (CIT v. Hindusthan Organic Chemicals Ltd. (2014) 366 ITR 1 (Bom.)(HC), CIT v. Ghadge Patil Transports Ltd. (2014) 368 ITR 749 (Bom)(HC). Tribunal held that no adjustment can be made contrary to judicial decisions. Relied on Union Public Service Commission v. Babu Prasad Sarangi and Ors. (2021) 4 SCC 516. (ITA No. 1785/Mum/2021 dt. 27-4-2022) (AY. 2018-19) Kalpesh Synthetics Pvt. Ltd. v. Dy. CIT…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

Kalpesh Synthetics Pvt Ltd., …………………….. Appellant 8, Kuntal, Modi Estate, L.B.S Marg, Ghatkopar (W), Mumbai 400086 [PAN: AAACK6496P]

1. By way of this appeal, the assessee-appellant has challenged the correctness of the order dated 31st March 2021, passed by the learned CIT(A) in the matter of the processing of income tax returns u/s. 143 (1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2018-19. Grievance of the assessee, as requiring our adjudication in this appeal, is that the learned CIT(A) was not justified in upholding the adjustment, made by the Centralized Processing Centre Bengaluru while processing income tax retu rns under section 143(1) based on certain inputs from the tax audit reports of the assessee in question, in respect of the disallowance of Rs 4,24,634 on account of delay in making the payment towards the employees’ contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) of the Act , particularly when there are judgments of Hon’ble jurisdictional High Court permitting such a deduction . Learned representatives fairly agree that this is the short issue requiring our adjudication and what is raised

as rather an elaborate set of grounds of appeal primarily consist of the arguments in support of this basic grievance.

2. The issue in appeal lies in a very narrow compass of common material facts. While processing the income tax return filed by the assessee, apparently, based on information contained in column 20(b) of the tax audit report under section 44AB(a), which was submitted online, there were certain delays in depositing the provident fund dues vis-à-vis ‘the due date for (such) payments’. The sum total of such, as perceived by the tax auditor, delayed payments, aggregating to Rs 4,24,634 , were sought to be disallowed under section 143(1). When the assessee was put to notice, by the Dy Commissioner of Income Tax, CPC, Bangalore ( hereinafter referred to as ‘the Assessing Officer- CPC’) in respect of the proposed adjustment under section 143(1) for this disallowance, the assesse e objected to the adjustment so proposed .

As evident from the uncontroverted facts set out in the Statement of Facts before the learned CIT(A), it was categorically pointed out by the assessee , through an online communication to the Assessing Officer CPC, that as held by the Hon ’ble jurisdictional High Court, the payments made after the due date under the respective statute but before filing the income tax return are also deductible in the computation of business income, and the adjustment in question, therefore, was unsustainable in law. It was thus contended that dehors the observations made by the tax auditor, what was reported as delayed payment in column 20(b) were delayed payments of contributions received from the employees for various funds, as referred to in Section 36(1)(va) vis-à-vis the respective statute, but not vis-à-vis the provisions of the Income Tax Act.

Appellant / petitioner / assessee submissions

3 Learned counsel for the assessee, has a three -fold submission. His first plea is that in the light of law laid down by Hon’ble jurisdictional High Court, in the case of Khatau Junkar Ltd Vs K S Pathania [(1992) 196 ITR 55 (Bom)] the scope of prima facie disallowance under section 143(1) is inherently very limited and only such a disallowance can be made under this statutory provision as can be conclusively held to inadmissible based on material on record. It is submitted that a claim backed by the binding judicial precedents of Hon’ble jurisdictional High Court- as in this case, at the minimum, cannot fall in this category. Our attention was invited to Hon’ble

In a brief rejoinder, it is submitted that the tax auditor is an independent professional and, even though the tax auditor is appointed by the assessee, the views of the assessee need not be the same as that of the tax auditor and that a statement by the tax auditor ca nnot be binding on the assessee. It is submitted that in any event the tax auditors in question had subsequently revised the tax audit report and corrected the due dates of payment. It is also reiterated that the settled legal position, as binding on the Assessing Officer CPC in view of the situs of the jurisdictional Assessing Officer and in view of the judgment of Hon’ble jurisdictional High Court, is that the payments made beyond the due date under the relevant statute but before the due date of filing of the income tax return under section 139(1) cannot attract the disallowance for the reason of delay.

Revenue / respondent submissions

position regarding the deductibility of payments in question even when it is paid after the due date under the relevant statute but as long as the same is made before the due date of filing of income tax return, learned Departmental Representative submitted that there are decisions on both the sides, i.e. in favour of the assessee as also against the assessee, and that, in any event, this analysis is irrelevant when the income tax return itself points out that there are payments beyond the due date which are clearly inadmissible under the statutory provisions. As regards the amendment having prospective effect only, the learned Departmental Representative relies upon the reasoning adopted by the learned CIT(A) and the unambiguous scheme of the Act .

Court / Tribunal analysis and reasoning

Once again learned counsel has referred to and relied upon the decisions of the coordinate benches holding that the insertion of Explanations to Section 36(1)(va) and 43B, by the Finance Bill 2021, is prospective in nature, and, accordingly, so far as the period prior to 1st April 2021 is concerned, such a disallowance cannot come into play. We are thus once again urged to delete the impugned adjustment. 4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.

To that extent, we must uphold the plea of the learned Departmental Representative. 6. Coming to the mechanism of application of Section 143(1) , we find that the first proviso to Section 143 (1) mandates that “no such adjustments shall be made unless an intimatio n is given to the assessee of such adjustments either in writing or in electronic mode ” and, under the second proviso to Section 143(1), “the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made”. The scope of permissible adjustments under section 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Section 143(1), is indeed permissible.

Therefore, in the present case, whether the CPC is within the jurisdiction of Hon’ble Bombay High Court or not, as long as the regular Assessing Of ficer of the assessee and the assessee are located in the jurisdiction of Hon’ble Bombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon’ble Bombay High Court. In our considered view, it cannot be open to the Assessing Officer CPC to take a view contrary to the view taken by the Hon’ble jurisdictional High Court - more so when his attention was specifically invited to the binding judicial precedents in this regard. For this reason also, the inputs in question in the tax audit report can not be reason enough to make the impugned disallowance.

It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted “disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return” as is sine qua non for disallowance of Section 143(1)(a)(iv).

legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 1 39(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. 10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of proce ssing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va).

That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 14 7 of the Act , or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage.

Operative decision and relief

11. In a result, this appeal is allowed. Pronounced in the open court today on the 27th day of April 2022.

Ratio and legal principle

The narrow proposition associated with Kalpesh Synthetics Pvt. Ltd. v. Dy. CIT concerns s. 143(1) : assessment -adjustment based on audit report – employees contribution to provident fund-amendment in finance bill 2021-adjustment is not justified. [s. 2(24(x), 36(1)(va), 43b] allowing the appeal of the assessee the tribunal held that adjustment made by the cpc on the basis of audit report is not valid as it is contrary to the ratio laid down by the jurisdictional high court, wherein the high court held that payment made before due date of filing of return is allowable as deduction. (cit v. hindusthan organic chemicals ltd. (2014) 366 itr 1 (bom.)(hc), cit v. ghadge patil transports ltd. (2014) 368 itr 749 (bom)(hc). tribunal held that no adjustment can be made contrary to judicial decisions. relied on union public service commission v. babu prasad sarangi and ors. (2021) 4 scc 516. (ita no. 1785/mum/2021 dt. 27-4-2022) (ay. 2018-19) kalpesh synthetics pvt. ltd. v. dy. cit… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in ITA No.1785/Mum/2021.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Allowed” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 143(1) : Assessment -Adjustment based on Audit report – Employees contribution to provident fund-Amendment in Finance Bill 2021-Adjustment is not justified. [S. 2(24(x), 36(1)(va), 43B] Allowing the appeal of the assessee the Tribunal held that adjustment made by the CPC on the basis of Audit report is not valid as it is contrary to the ratio laid down by the Jurisdictional High Court, wherein the High Court held that payment made before due date of filing of return is allowable as deduction. (CIT v. Hindusthan Organic Chemicals Ltd. (2014) 366 ITR 1 (Bom.)(HC), CIT v. Ghadge Patil Transports Ltd. (2014) 368 ITR 749 (Bom)(HC). Tribunal held that no adjustment can be made contrary to judicial decisions. Relied on Union Public Service Commission v. Babu Prasad Sarangi and Ors. (2021) 4 SCC 516. (ITA No. 1785/Mum/2021 dt. 27-4-2022) (AY. 2018-19) Kalpesh Synthetics Pvt. Ltd. v. Dy. CIT… Its practical value lies in the way the ITAT Mumbai connected the governing provisions—143(1)—to the procedural posture and evidence before it.

The authority level is ITAT / Tribunal. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 143(1) and the decision date 2022-04-27; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Kalpesh Synthetics Pvt. Ltd. v. Dy. CIT, the proceeding is ITA No.1785/Mum/2021, and the decision is dated 2022-04-27. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Pramod Kumar (Vice President). A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 143(1). The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Allowed. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is RECTIFICATION_HIGH_COURT_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 143(1) — apply the exact version considered in the judgment.

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