CPC can make adjustments u/s 143(1)(a) on the basis of information contained in the tax audit report: ITAT

The Income Tax Appellant Tribunal (ITAT) in the matter of Sree Gokulam Chit and Finance Co. P. Ltd vs The DCIT discussed that adjustment u/s 143(1)(a) can be made on the basis of information contained in the tax audit report.

ITAT said that the Memorandum to Finance Bill, 2008 & 2016 explaining the provisions of section 143(1)(a)(ii) specifies the incorrect claim particularly if such incorrect claim is apparent from any information in the return of income and that can be any information as such as the audit report or some other information as provided by assessee in the return of income. In this context, it is pertinent to mention that earlier only prima-facie arithmetic adjustments can be made but in view of the amendment provisions by the Finance Act, 2008 w.e.f. 01.04.2008, the amended provisions empowers adjustments to be made interalia on the basis of remarks indicated in the return of income or incorrect claim apparent from any information in the return of income.

Scope of adjustment u/s.143(1) of the Act has widened and enlarged

Post amendment w.e.f. 01.04.2008, the scope of adjustment u/s.143(1) of the Act has widened and enlarged. It provides that total income shall be computed after making adjustments inter-alia on account of incorrect claim, if such incorrect claim is apparent from any information in the return of income. In the present case before us, the adjustment u/s.143(1)(a) has been made on the basis of information contained in the tax audit report with respect to the belated payments of employees contribution of EPF and ESI paid beyond the due dates as prescribed under the respective Act and these various funds are referred in section 36(1)(va) of the Act. The information gives the details of due date of payment, actual date of payment to the concerned authorities and these payments have been made beyond the due dates specified in the respective acts i.e., Provident Fund Act & ESI Act, which attracted the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act leading to disallowance of this sum to the extent not paid on or before the due date stipulated in the respective PF Act and ESI Act.

Law declared by the apex court

Coming to another angle that this issue has been settled by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra and what will be the impact of law laid down by Hon’ble Supreme Court and this has been explained by Hon’ble High Court of Madras in the case of South Industrial Corporation Ltd., (2002) 258 ITR 481, wherein it is held as “When a statutory provisions is interpreted by the apex court in a manner different from the interpretation made in the earlier decisions by a Smaller Bench, the order which does not conform to the law laid down by the Larger Bench in the later decision which decision would constitute the law of the land and is to be regarded as the law as it always was, unless declared by the court itself to be prospective in operation, would clearly suffer from a mistake which would be apparent from the record. The rectification under section 154(1) on the ground that the order sought to be rectified is not in conformity with the law declared by the apex court is required to be upheld”. It means that there is no ambiguity of law after Hon’ble Supreme Court judgement. Even it cannot be said that this is a debatable issue because Hon’ble Supreme Court has interpreted the law and is to be regarded as law as it always was unless declared by the court itself to be prospective in operation.

Supreme Court in the case of Checkmate Services Pvt. Ltd. settled issue of tax deduction  in case of late payment of ESI/PF

Coming to judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd., supra, wherein the Hon’ble Supreme Court has considered the aspect of deemed income in regard to money held by assessee as a custodian on account of employees contribution of ESI and PF payments and that is also held not be an expenditure. The Hon’ble Supreme Court considered that the money held by employer of employees contribution to ESI and PF as custodian is deemed income in view of provisions of section 36(1)(va) as well as section 2(24)(x) of the Act.