Disallowance under Section 40A (3) of the Income Tax Act cannot be made in intimation under Section 143(1) of the Income Tax Act, so was held by the Income Tax Appellate Tribunal (ITAT), Mumbai.
The only issue in the appeal of the assessee, M/s. Shubh Arya Steel Pvt. Ltd. is as to whether the employees’ contribution to Provident Fund and ESI which were not remitted within the due date prescribed u/s.36(1) (va) of the Act but were remitted before the due date of filing of income tax returns u/s.139(1) of the Act, could be subject matter of adjustment u/s.143(1)(a) of the Act by the Central Processing Centre (CPC).
The assessee is a partnership firm carrying on business of ship breaking. The return of income for the Assessment Year.2018-19 was filed by the assessee and the return of income was processed by the CPC u/s.143(1) of the Act. While processing the intimation u/s.143(1), cash payments in excess of Rs.20,000/- which are in violation of Rule 6DD of the Income Tax Rules in the sum of Rs.1,71,043/- was sought to be disallowed u/s.40A(3) of the Act in the intimation. Based on the information reflected in form No.3CD by the tax auditor, the CPC while processing the return had directly resorted to make disallowance u/s.40A(3) of the Act.
The Bench consisting of M. Balaganesh, Accountant Member and Rahul Chaudhary, Judicial Member observed that “In our considered opinion, as stated earlier, this would not fall within the ambit of a prima facie or arithmetical error u/s.143(1) warranting prima facie adjustment thereon. Hence, the disallowance u/s.40A(3) of the Act cannot be made in the intimation u/s.143(1) of the Act. Hence, we have no hesitation in directing the AO to delete the disallowance of Rs.1,71,043/- made u/s.40A(3) of the Act made in the intimation u/s.143(1) of the Act.”
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