No Suggestion by Tax Auditor to disallow EPF u/s 143(1): ITAT directs to delete Additions [Read Order]

In a recent ruling, Mumbai Bench of Income Tax Appellate Tribunal (ITAT) while entertaining an appeal directed the Assessing Officer (AO) to delete the additions made in respect of Employees’ Contribution to Provident Fund (EPF).

The appeal was preferred by the assessee, P. R. Packaging Service against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] National Faceless Appeal Centre, Delhi (NFAC).

The incontrovertible fact is that the assessee properly remitted the EPF before the deadline for filing the return of income required by section 139(1) of the Income Tax Act of 1961, despite having transmitted it after the stipulated due date of the Provident Fund Act, 1952.

Further, this fact was reported by the Tax Auditor in the Tax Audit Report. The Tax Auditor had not even contemplated disallowing the employees’ contribution to Provident Fund wherever it is remitted beyond the due date prescribed under the Provident Fund Act.

In filing the return under Section 143(1) of the Income Tax Act, the Centralized Processing Centre in Bangalore had taken this information from the tax audit report and attempted to disallow it, apparently by applying the rules of Section 143(1)(a)(iv) of the Income Tax Act.

According to Section 143(1)(a)(iv) of the Income Tax Act, it is very clear that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income.

However, it was already mentioned that the tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act.

The bench of Aby T. Varkey, Judicial Member and M. Balaganesh, Accountant Member, observed that, the tax auditor had not stated in the instant case to disallow EPF wherever it is remitted beyond the due date under the respective Act.

Moreover it was noted that action of the CPC Bangalore in disallowing the EPF while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments.

In light of the facts and circumstances of the current case, the tribunal ordered the AO to delete the additions made in regard to the EPF.

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