VGN INFRA INDIA PVT. LTD.,CHENNAI vs. ITO, CORPORATE WARD-3(3), CHENNAI

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ITA 573/CHNY/2025Status: DisposedITAT Chennai15 July 2025AY 2017-18Bench: SHRI GEORGE GEORGE K (Vice President), SHRI S.R. RAGHUNATHA (Accountant Member)5 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee's claim for deduction was based on a bona fide belief, supported by the prevailing Madras High Court judgment in CIT v. M/s. Industrial Security & Intelligence India Pvt Ltd at the time of filing the return, which allowed such deductions if paid before the return filing due date. Since all facts were disclosed in the tax audit report, the assessee's action could not be termed as misreporting of income. Therefore, the penalty levied under Section 270A was deleted.

What were the facts?

The assessee, VGN Infra India Private Limited, had its employee contributions (PF/ESI) of Rs. 27,37,600/- disallowed under Section 36(1)(va) by the AO for Assessment Year 2017-18. This was because contributions were paid beyond the due dates of the respective acts but before the due date for filing the income tax return. Consequently, the AO levied a penalty of Rs. 4,22,959/- under Section 270A for underreporting income, which was subsequently upheld by the CIT(A) in an ex-parte order.

What were the issues?

Whether penalty under Section 270A for underreporting of income is leviable when employee contributions (PF/ESI) are deposited after the statutory due date but before the Income Tax Act's return filing due date, especially when a High Court judgment supporting such deductions was prevailing and all facts were disclosed.

Which sections of the Income-tax Act were involved?

Section 270A,Section 139(1),Section 36(1)(va),Section 143(2),Section 142(1),Section 143(3),Section 44AB

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

For Respondent: Ms. Sita Krishnamoorthy, J.C.I.T
Hearing: 12.06.2025Pronounced: 15.07.2025

आदेश /O R D E R

PER S. R. RAGHUNATHA, AM :

1.

This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, vide order dated 03.12.2024.

2.

The assessee has raised the following grounds of appeal:-

1. The order of the CIT(A) is erroneous as the same is contrary to the facts of the case and provision of law.

2. The CIT(A) erred in upholding the order of AO levying penalty u/s.270A on the ground of under-reporting of income without appreciating the facts of the case.

:-2-: ITA. No:573 /Chny/2025

3.

The CIT(A) having taken note of the fact that the Appellant having remitted the requisite PF & ESI within the due date as contemplated u/s. 139(1), the penalty u/s.270A is unwarranted and uncalled for.

4.

The CIT(A) failed to appreciate that as on the day the assessment order was passed, the decision of the Hon'ble Jurisdictional High Court was operating, which allowed the belated payment of PF, ESI.

5. The CIT(A) failed to consider the fact that there were divergent views of various High Courts on this issue of belated payment of employee's PF & ESI and that the decisions of this Hon'ble ITAT and Jurisdictional High Court had allowed deduction on such payments if the same were remitted before the due date of filing ROI u/s.139(1). 6. The appellant having disclosed all the facts regarding the deduction claimed and having claimed the same on a bona fide reason, the levy of penalty is incorrect and the CIT(A) ought to have deleted the same by considering the provisions of section 270A(6) of the Act. 7. Any other grounds that may be adduced at the time of hearing. 3. The brief facts of the case are that the assessee is a private limited company, is engaged in the business of construction of residential buildings and infrastructure. The assessee had filed the return of income for the A.Y. 2017-18, admitting loss of Rs.13,03,28,701/-. Later, a revised return of income declaring total loss of Rs.18,65,40,072/-. The case was selected for limited scrutiny and accordingly, statutory notices u/s.143(2) and 142(1) of the Act were issued and served on the assessee by official email. The AO mentioned that deductions relating employees contribution to welfare funds which are not deposited within due dates as per the relevant Act shall be disallowed u/s.36(1)(va) of the Act. Accordingly, AO had passed assessment order u/s.143(3) of the Act on 29.12.2019, by disallowing an amount of Rs.27,37,600/- u/s. 36(1)(va) of the Act and added the same to the returned income, to arrive at the assessed loss of Rs.18,38,02,472/-. As the assessee had underreported its income during the year under consideration, AO had initiated penalty proceedings u/s.270A of the Act. Accordingly, show cause

:-3-: ITA. No:573 /Chny/2025 notices were issued to the assessee on 29.12.2019 and 14.05.2021. In response, the assessee stated that ‘the assessment was completed u/s.143(3) of the Act assessing the loss of Rs.18,38,02,472/- without any additions, vide order dated 29.12.2019. The submissions made by the assessee are not accepted by the AO. After considering the facts and submissions of the assessee, the AO satisfied that it is a fit case for penalty u/s.270A of the Act for underreporting of the income and computed the penalty of Rs.4,22,959/- for the A.Y.2017-18. Accordingly, passed a penalty order on 17/01/2022 u/s.270A of the Act.

4. Aggrieved by the order of the AO assessee preferred an appeal before the ld.CIT(A), NFAC, Delhi. However, the assessee did not respond to any of the four notices issued by the ld.CIT(A) from 10.06.2024 to 21.11.2024. Hence, the ld.CIT(A) passed an exparte order dated 03.12.2024 on merits of the case by confirming the order of the AO and dismissed the appeal of the assessee.

5.

Aggrieved by the order of the ld.CIT(A), NFAC the assessee preferred an appeal before us.

6.

The Ld.AR for the assessee submitted that the assessee has failed to take note of hearing notices sent through e-mail, resulting in non-participation of assessee during the appellate proceedings. The ld.AR submitted that the assessee had filed its return of income along with the tax audit report u/s.44AB of the Act in form 3CA and 3CD dated 30.08.2017. The assessee had disclosed entire details of payments made in respect of ESI and PF in Para No.20(b) of Form 3CD giving particulars of due date for payment and actual date of payment. It is clearly stated that the payments of ESI and PF have been made

:-4-: ITA. No:573 /Chny/2025 within the due date prescribed u/s.139(1) of the Act for filing of income tax returns. The ld.AR pointed out that the claim of deductions has been completely disclosed in the return of income and the same were eligible to be deducted as per the decision of jurisdictional Hon’ble High Court of Madras in the case of CIT V. M/s. Industrial Security & Intelligence India Pvt Ltd, TCA No.585 of 2015, wherein it has been held that payment of employees contribution within due date of filing of return of income is allowable as deduction. Hence, the ld.AR submitted that the claim made as per the existing law at the time of filing of return, later reversed by the Hon’ble High Court cannot be considered as misreporting of income and prayed for setting aside the order of ld.CIT(A) by deleting the penalty levied.

7.

Per Contra, the Ld.DR relied on the orders of the AO and that of ld.CIT(A) prayed for confirming the same.

8.

We have heard rival submissions perused the materials on record and gone through the orders of lower authorities along with the case laws relied on. It is an admitted fact that the assessee had remitted the employees contribution beyond the due date for payment of the respective Act, but within the due date for filing the return of income under the Income Tax Act for the A.Y.2017-18. We note that no disallowance could be made of ESI and PF contribution if it is paid before the due date of filing of income tax return as per the judgement of the Hon’ble Madras High Court in the case of CIT V. M/s. Industrial Security & Intelligence India Pvt Ltd, until the decision of Hon’ble Supreme Court in the case of Checkmate Services vs. CIT – 448 ITR 518(SC). Therefore, in the present facts and circumstances of the case the assessee with Bonafide belief

:-5-: ITA. No:573 /Chny/2025 had claimed the deductions as allowable under the Act and also disclosed the entire details of ESI and PF payments (monthwise) in Form 3CD dated 30.08.2017 duly certified by the Chartered Accountant. In view of the above reasons, the said action of the assessee cannot be termed as misreporting and hence we are inclined to delete the penalty levied u/s.270A of the Act for the reason of misreporting. Therefore, we are setting aside the order of ld.CIT(A) and direct AO to delete the penalty levied u/s.270A of the Act.

9.

In the result, the appeal of the Assessee is allowed.

Order pronounced in the court on 15th July, 2025 at Chennai.

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