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Facts
The assessee filed its return of income, which was processed and later subjected to scrutiny assessment. The PCIT initiated proceedings under Section 263, holding that the Assessing Officer's order was erroneous for not disallowing unpaid VAT and belated employee PF contribution, directing a fresh assessment.
Held
The Tribunal held that the PCIT correctly exercised his revisional jurisdiction under Section 263. The Assessing Officer's failure to inquire into or make additions for unpaid VAT and belated employee PF contribution rendered the assessment order erroneous and prejudicial to the revenue.
Key Issues
Whether the PCIT's order under Section 263 is valid when the Assessing Officer failed to make inquiries on disallowable expenses like unpaid VAT and belated employee PF contribution.
Sections Cited
263, 143(1), 143(3), 144B, 43B, 2(24)(x)
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of Pr. Commissioner of Income Tax, Ahmedabad-1 (in short “PCIT”) dated 08.03.2025 passed under his revisional jurisdiction under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (A.Y.) 2020-21.
The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2020-21 on 12.02.2021 disclosing total income of (Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 2 of 9 Rs.11,66,84,640/-. The return was processed under Section 143(1) of the Act on 24.12.2021, wherein certain adjustments were made and the income was computed at Rs.12,66,07,480/-. The case of the assessee was selected for scrutiny and the assessment was completed under Section 143(3) r.w.s. 144B of the Act on 06.09.2022 at total income of Rs.11,66,84,640/-. Subsequently, the Ld. PCIT had examined the case records and found that the Assessing Officer did not make addition in respect of the following amounts as reported in Form 3CD:
1) VAT of Rs.84,12,642/- not paid during the year, which was disallowable under Section 43B of the Act.
2) Employee’s contribution of Provident Fund not paid within the due date Rs.10,65,599/-, which was to be considered as income under Section 2(24)(x) of the Act.
2.1 Therefore, the Ld. PCIT had held that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue and vide the impugned order he had set aside the assessment order of the Assessing Officer with a direction to pass fresh order, after duly examining the facts.
Aggrieved with the order of the Ld. PCIT, the assessee is in appeal before us. The following grounds have been taken in this appeal: -
“1. On the facts and in the circumstances of the case as well in law, the Ld PCIT Ahmedabad 1 ("Ld. PCIT") has erred in law and on facts in exercising jurisdiction under Section 263 of the Income Tax Act, 1961 ('the Act') in as much as the issues sought to be revised have been subject matter of appeal adjudicated by CIT(A) vide order dated 15/03/2024. The action of Ld. PCIT is barred by provisions of clause (c) to the explanation 1 to the Section 263(1).
(Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 3 of 9 2. On the facts and in the circumstances of the case as well in law, the Ld PCIT Ahmedabad 1 ("Ld. PCIT") has erred in law and on facts in exercising jurisdiction under Section 263 of the Income Tax Act, 1961 ('the Act') in as much as on the issue of delayed payment of employees' contribution to PF, the Hon'ble CIT(A) has already dismissed the appeal of the assessee vide order dated 15/03/2024 which is not further appealed by the assessee.
3. On the facts and in the circumstances of the case as well in law, the Ld. PCIT Ahmedabad 1 ("Ld. PCIT") has erred in law and on facts in exercising jurisdiction under Section 263 of the Income Tax Act, 1961 ('the Act') in as much as on the issue of VAT of Rs.84,12,642/- the Hon'ble ITAT has already set aside the matter to the Assessing Officer to examine and thereafter, allow relief to the assessee, as per law vide order dated 14.10.2024.
4. That the Ld. PCIT has failed to consider that the issues for which order u/s 263 is passed are already subject matter of appeal and does not warrant revision under Section 263.
The appellant further reserves its right to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.”
Shri Bandish Soparkar, the Ld. AR of the assessee submitted that the assessee had filed an appeal against the adjustments made while processing the return under Section 143(1) of the Act. He explained that the unpaid VAT of Rs.84,12,642/- and belated payment of employee’s contribution of P.F. Rs.10,65,599/- was already added while processing the return under Section 143(1) of the Act, against which the assessee had filed an appeal and the Ld. CIT(A) vide order dated 15.03.2024 had dismissed that appeal of the assessee. According to the Ld. AR, the assessment order u/s 143(3) for the A.Y. 2020-21 had, therefore, merged with the order of the Ld. CIT(A), on both the issues that was sought to be revised by the Ld. PCIT. He submitted that the Ld. PCIT did not have jurisdiction to revise such merged assessment order under the provision (Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 4 of 9 of section 263 of the Act. The Ld. AR further submitted that the issue of belated payment of employee’s contribution of PF had attained finality as the assessee was not in appeal before the ITAT against this adjustment made while processing the return and to that extent there was no error, which remained to be rectified. On the second issue of VAT, the Ld. AR submitted that the assessee had preferred appeal before the Tribunal on this issue which was decided vide order dated 12.10.2024 and the matter was sent back to the Assessing Officer for verification. Therefore, this issue also did not require any revision under Section 263 of the Act. The Ld. AR assailed the order of Ld. PCIT on the ground that his remanding back the matter to the Assessing Officer for verification was also not correct. In this regard, he relied on the decision of the Co-ordinate Bench of this Tribunal in the case of Comtrade Commodities Services Limited vs. PCIT, [156 taxmann.com 369]. He further submitted that in the order u/s 263 of the Act, the matter can’t be set aside for verification as held by the Co-ordinate Bench of this Tribunal in the case of E-Infochips Pvt. Ltd. [ITA No. 988/Ahd/2025 dated 21.08.2025].
5. Per contra, Shri Alpesh Parmar, Ld. CIT-DR submitted that in the order under Section 143(3) of the Act, the Assessing Officer had wrongly taken the figure of “income as computed under Section 143(1)(a)” at Rs.11,66,84,640/- which was an apparent error in the order; since as per the intimation under Section 143(1)(a) of the Act dated 24.12.2021, the income was determined by the CPC at Rs.12,66,07,480/-. He submitted that the disallowance of expenditures as indicated in the Tax Audit Report was not taken into account by the AO while completing the assessment under Section 143(3) of the Act. According to Ld. CIT-DR the addition for the adjustments made while processing the return under Section 143(1)
(Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 5 of 9 of the Act, should have been made in the assessment order u/s 143(3) of the Act as well. He submitted that since the Assessing Officer had failed to make those additions, the order of the Assessing Officer was certainly erroneous and prejudicial to the interest of the revenue. Therefore, the Ld. PCIT had rightly exercised his revisional jurisdiction under Section 263 of the Act.
We have considered the rival submissions. In the assessment order passed u/s 143(3) of the Act dated 06.09.2022, the returned income of the assessee at Rs.11,66,84,640/- was accepted by the AO. The Ld. PCIT had held that the order of the AO was erroneous and prejudicial to the interest of revenue for the reason that unpaid VAT of Rs.84,12,642/- and belated payment of employee’s contribution to P.F. Rs.10,65,599/- was not added u/s 43B and u/s 2(24)(x) of the Act respectively, by the Assessing Officer while completing the assessment. A copy of the Tax Audit Report has been brought on record in the paper-book. It is found therefrom that at Sl. No. 26(1)(B)(b) the Auditor had reported unpaid tax, duty, cess, fee etc. being VAT of Rs.84,12,642/- which was liable for disallowance under Section 43B(a) of the Act. Similarly at Sl. No.16(d) of Tax Audit Report delay in deposit of employee’s contribution to P.F. Rs.10,65,599/- and of ESI Rs.2,262/- was reported by the Auditor. These amounts were, prima facie, liable for disallowance under the provisions of the Act. It transpires that the AO while completing the assessment u/s 143(3) of the Act had neither made any enquiry in this respect nor these amounts, reported as disallowable under the provisions of the Act by the Auditor, were added to income. Therefore, the order passed by the Assessing Officer was certainly erroneous and prejudicial to the interest of the revenue. The Explanation to section 263 of the Act stipulates that if (Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 6 of 9 the order is passed without making enquiries or verifications which should have been made by the Assessing Officer, the order shall be deemed to be erroneous and prejudicial to the interest of revenue. Since the Assessing Officer did not make any enquiry or verification in respect of unpaid VAT and belated payment of P.F. & ESI, as reported in the Tax Audit Report, the order of the Assessing Officer was certainly erroneous and prejudicial to the interest of revenue.
6.1 The contention of the assessee that the Ld. PCIT could not have revised the order of the Assessing Officer as it had already merged with the order of the Ld. CIT(A), is found to be misplaced. It is found that the adjustment for unpaid VAT and belated payment of P.F. & ESI and certain other additions were made while processing the return u/s 143(1)(a) of the Act. The proceeding under Section 143(3) of the Act is an altogether separate proceeding. The assessee had filed an appeal against the adjustments made in the intimation u/s 143(1) of the Act and no appeal was filed against the order u/s 143(3) of the Act. Therefore, the order of Ld. CIT(A) had merged with the intimation u/s 143(1) of the Act. The appellate order could not have merged with the assessment order passed u/s 143(3) of the Act, as no appeal was called for neither any appeal was filed by the assessee against the order passed u/s 143(3) of the Act. Therefore, the contention of the assessee that the Ld. PCIT was precluded from passing the revisional order u/s 263 of the Act on the ground of application of doctrine of merger, is rejected.
6.2 The error in the assessment order is also apparent from the fact that the Assessing Officer had taken the income computed u/s 143(1)(a) of the Act at Rs.11,66,84,640/- whereas the actual income computed in the intimation u/s 143(1) of the Act was Rs.12,66,07,480/-. The fact that the (Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 7 of 9 assessee had accepted the addition of belated payment of employee’s contribution, as made in the intimation u/s 143(1) of the Act, also substantiates that the order of the AO was certainly erroneous and prejudicial to the interest of revenue. The contention of the assessee is that the Ld. PCIT had set aside the assessment order to the Assessing Officer with a direction to pass fresh assessment order after duly examining the facts and verifying the issue. According to the assessee, the power u/s 263 of the Act cannot be exercised for verification of the issue, for which reliance was placed on the decision of the Co-ordinate Bench of this Tribunal in the case of Comtrade Commodities Services Limited (supra).
6.3 We have carefully gone through the decision in the case of Comtrade Commodities Services Limited (supra). The finding given in the said order is found to be as under: -
“11. On the second issue of the claim of loss in the return of income to the tune of Rs.7,52,06,488/- as opposed to a meagre Rs.7 lakhs reflected in the computation sheet attached to the assessment order, we have noted from the ld. Pr. CIT order that the assessee had explained that there was a mistake in the computation sheet, and the assessee had filed an application seeking rectification of the same. The ld. Pr. CIT taking note of the above facts, has directed verification of the said claim of the assessee. It is settled law that the power under Section 263 of the Act cannot be exercised for verification of the issue. There has to be a finding of error causing prejudice to the Revenue, by the ld. Pr. CIT, for valid exercise of revisionary power under Section 263 of the Act. Verification precedes finding of the error. Therefore, any direction for verification of the claim u/s.263 of the Act is not in consonance with the requirement of law. Accordingly, the ld. Pr. CIT’s order, directing verification of claim of carry forward of current year’s business loss is also set aside.” [Emphasis supplied.] 6.4 It is evident from above that in that case no finding was given by the Ld. PCIT that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue and the matter was remanded for (Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 8 of 9 verification of the claim of the assessee. It was held in that case that only after an error is found in the order of the AO, the verification can be directed and that there can be no verification without finding of an error. In the present case, however, the Ld. PCIT had given a categorical finding that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue. Considering the fact that the Auditor had reported that the unpaid VAT was liable for disallowance u/s 43B(a), which was not made in the assessment order, the order of the AO was erroneous & prejudicial to the interest of revenue. The Ld. PCIT had set aside this matter only to verify the claim of the assessee that the VAT was not debited to Profit & Loss Account and, therefore, no disallowance under Section 43B of the Act was called for. On the other issue of belated payment employee’s contribution of P.F. and ESI, there was no dispute at all and the order was certainly erroneous and prejudicial to the interest of revenue. Thus, the direction for verification in the present case was after recording the finding by the Ld. PCIT that the order of the AO was erroneous and prejudicial to the interest of Revenue.
6.5 The Hon’ble Supreme Court in the case of PCIT vs. V-Con Integrated Solutions (P.) Ltd., 173 taxmann.com 774 (SC) has held as under:
“5. There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue”.
(Assessment Year: 2020-21) Amanta Healthcare Limited vs. Pr. CIT, Ahd-1. Page 9 of 9 Thus, the Hon’ble Supreme Court has held that remanding the matter to the Assessing Officer is justified in the cases where the Ld. PCIT records abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the revenue. In the present case, no investigation was carried out by the Assessing Officer at all, in respect of issues for which the Ld. PCIT has found the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue. Therefore, the Ld. PCIT had correctly exercised his jurisdiction to pass the order under Section 263 of the Act. In the result, the order of the Ld. PCIT is upheld.
The appeal of the assessee is dismissed.
Order pronounced in the open Court on this 26th September, 2025.