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Income Tax Appellate Tribunal, A BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax, (hereinafter referred to as “the Ld.PCIT”), Chennai-2, dated 01.03.2024 for the Assessment Year (hereinafter referred to as "AY”) 2017-18.
At the outset, it is noted that there is a delay of ‘120’ days in filing of this appeal and assessee has filed condonation petition. Having perused the same, we are satisfied that there is reasonable cause for delay. So, we condone the delay and proceed to adjudicate the appeal.
At the outset, the assessee has raised many grounds, out of which, he has challenged the jurisdiction of the Ld.PCIT to have invoked his jurisdiction u/s.263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). Since it is a legal issue, we will take up this issue at first.
The brief facts are that the assessee had filed its return of income (RoI) for AY 2017-18 on 07.11.2017 admitting ‘Nil’ income. Thereafter, the CPC has passed the intimation u/s.143(1) of the Act on 02.06.2018.
Thereafter, a search u/s.132 of the Act was conducted in the case of M/s.
VV Group Concerns Tisayanvilai on 25.10.2018 in the business premise of the assessee company. Later, the case of the assessee was centralized to the ACIT, Central Circle-2, Madras vide order dated 21.03.2019.
Thereafter, the AO issued notice u/s.153C of the Act to the assessee on 11.03.2021 and the AO notes that he had issued several notices to the assessee but found no response from the assessee, thereafter, he inter alia gave show cause notice to the assessee and thereafter, notes that the assessee had filed its reply which has been reproduced by the AO from Page Nos.13-14 and thereafter, he made addition of Rs.22,00,000/- as unaccounted cash receipts and disallowance u/s.40(a)(ia) of the Act to the tune of Rs.22,52,914/- assessing total income of the assessee u/s.144 r.w.s.153C of the Act at Rs.44,52,914/- by assessment order passed on 05.07.2021. Thereafter, the Ld.PCIT has exercised his revisional jurisdiction u/s.263 of the Act against the assessment order passed by the AO on 05.07.2021 by holding it to be erroneous and prejudicial to the interest of the Revenue on one issue/ground i.e. the AO erred in allowing the claim of employees’ contribution towards PF/ESI to the tune of Rs.9,97,811/- which action/omission was erroneous and prejudicial to the interest of the Revenue in the light of the decision of the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT in Civil Appeal Nos.2830 to 2833 of 2016 & 159 of 2019 dated 12.10.2022. According to the Ld.PCIT, Form 3CD especially column 20b shows that the employees’ contribution towards PF/ESI amounting to Rs.9,97,811/- was remitted beyond due dates mentioned in the relevant Act which warrants u/s.36(1)(va) of the Act and therefore, as per provisions of sec.2(24)(x) of the Act, a sum of Rs.9,97,811/- remitted belatedly is to be assessed in the hands of the assessee company as income which issue has not been enquired into by the AO while framing the assessment order on 05.07.2021 and therefore, action of the AO is erroneous and prejudicial to the interest of the Revenue and therefore, he partly set aside the assessment order dated 05.07.2021 and directed the AO with a direction to add the income of the assessee amounting to Rs.9,97,811,/- as per section 2(24)(x) r.w.s.36(1)(va) of the Act.
Aggrieved, the assessee has challenged the jurisdiction of Ld.PCIT to have invoked revisionary jurisdiction u/s.263 of the Act before this Tribunal.
We have heard both the parties and perused the material available on record. We find in this case that the Ld.PCIT has invoked his revisional jurisdiction u/s.263 of the Act, which action of Ld PCIT has been challenged. In other words, the jurisdiction of Ld PCIT u/s 263 of the Act is put to test. Hence, we have to first examine the scope of revisional jurisdiction u/s. 263 of the Act. For that, let us take the guidance of judicial precedence as laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s.263 of the Act is exercised by the ld. CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon’ble Supreme Court, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
In light of the settled position of law in respect of invoking valid jurisdiction u/s.263 of the Act, let us examine the facts of the present case. It is undisputed fact that pursuant to search proceedings in the case of VV Group Concerns on 25.10.2018, the AO had framed the assessment order u/s.153C of the Act dated 05.07.2021 against the assessee for AY 2017-18 which assessment order has been interfered by the Ld.PCIT u/s.263 of the Act by terming it as erroneous and prejudicial to the interest of the Revenue. Therefore, we have to examine as to whether the Ld.PCIT has rightly invoked the supervisory/revisionary jurisdiction u/s.263 of the Act to find fault with the AO omitting to disallow the employee’s contribution made to PF/ESI while he framed the assessment on 05.07.2021.
We find merit in the legal issue raised by the assessee on two counts. The first reason is that undisputedly the AO framed the assessment u/s.153C of the Act for AY 2017-18 on 05.07.2021 which the Ld.PCIT finds fault for not following the ratio/decision of the Hon’ble Supreme Court in the case of Checkmate (supra). In this regard, it is noted that the Hon’ble Supreme Court decision in the case of Checkmate Services P. Ltd. v. CIT (Civil Appeal No.2833 of 2016) was dated 12.10.2022 [wherein their Lordships held that deduction u/s.36(1)(va) of the Act in respect of delayed deposit of amount collected towards employees' contribution to PF can’t be claimed even when deposited within the due date of filing of return even when read with Section 43B of the Act]. It is also important to note that before the Hon’ble Supreme Court’s order in Check-mate (supra), i.e., when the AO framed the assessment on 05.07.2021, there was a decision of jurisdictional High Court on this issue in favor of assessee viz., Hon’ble Madras High Court in the case of M/s.Industrial Security & Intelligence India Pvt. Ltd. in Tax Case (Appeal) Nos.585 & 586 of 2015 dated 24.07.2015 had held that if the assessee had remitted employee’s contribution before filing of RoI u/s.139(1) of the Act, no disallowance was warranted. In such a scenario, the AO was bound by the decision of the Hon’ble Madras High Court (supra) when he found that the assessee had already remitted the employees' contribution towards PF/ESI before filing of the RoI u/s.139(1) of the Act, hence, he has not taken any adverse view against the assessee, which view is a plausible view and can’t be termed as erroneous and prejudicial to the interest of the Revenue as held by the Hon’ble Supreme Court in the case of CIT v. G.M. Mittal Stainless Steel (P) Ltd. reported in (2003) 263 ITR 255 (SC).
The second reason is that the search operation u/s.132 of the Act was conducted in the case of VV Group Concerns on 25.10.2018.
Pursuant to it, proceedings u/s.153C of the Act have been initiated against the assessee on 11.03.2021 and directed assessee to file RoI including that for AY 2017-18. In this regard, it is noted that the assessee had filed RoI for AY 2017-18 u/s.139(1) of the Act on 07.11.2017 and the intimation u/s.143(1) of the Act was issued dated 02.06.2018 and the time-limit to issue notice u/s.143(2) of the Act got expired on 30.09.2018; and taking note of the crucial facts in this case i.e. the search commenced on 25.10.2018 and consequent notice u/s.153C of the Act was issued to the assessee on 11.03.2021, it can be safely presumed that assessment for AY 2017-18 was not pending before the AO on the date of search. Therefore, assessment for AY 2017-18 has to be held to be unabated assessment for the purpose of assessment u/s.153C r.w.s.153A of the Act; and as per the settled position of law in respect of unabated assessment, only on the basis of incriminating materials qua assessee qua for AY 2017-18, any addition can be made. [refer to the decision of the Hon'ble Supreme Court in CIT v. Sinhgad Technical Education Society 250 Taxman 225]. It is undisputed fact that there was no incriminating material for making any disallowance under PF/ESI found during search. Therefore, the AO can’t be blamed for not making any disallowance on this count. Therefore, on the aforesaid two (2)
(AY 2017-18) M/s. Alliance Broadcasting Pvt. Ltd. reasons stated supra we find that action of the AO not to take any adverse view against the assessee was a plausible view and can’t be termed as erroneous and prejudicial to the interest of the Revenue. Therefore, assessee succeeds on the legal issue raised before us.
In the light of the aforesaid discussion, we find that the Ld.PCIT erred in invoking his jurisdiction u/s.263 of the Act, therefore, the impugned order u/s.263 of the Act stands quashed.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 18th day of June, 2025, in Chennai.