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Facts
This appeal challenges a Pr.CIT order passed under Section 263 for AY 2017-18, which directed the AO to treat belated payments of PF and ESI contributions as income under Section 2(24)(x) read with Section 36(1)(va). The assessee argued that the original Section 143(3) assessment was not erroneous, as the AO followed judicial decisions allowing such payments if made before the return filing due date. This marks the second round of appeal, as the matter was previously remanded to the Pr.CIT.
Held
The Tribunal affirmed the Pr.CIT's order, noting that the Assessing Officer failed to conduct any inquiry into the belated payment of employee's contribution to PF and ESI. Relying on the Supreme Court's decision in Checkmate Services, the Tribunal reiterated that such contributions are deductible only if deposited on or before the due dates mandated by welfare enactments. The lack of inquiry by the AO rendered the assessment order erroneous and prejudicial to the interest of the Revenue, justifying the Section 263 revision by the Pr.CIT.
Key Issues
Whether the Principal Commissioner of Income-tax was justified in revising an assessment order under Section 263 for lack of inquiry regarding the belated payment of employee's contribution to PF and ESI under Section 2(24)(x) read with Section 36(1)(va), in light of the Supreme Court's ruling on timely deposits.
Sections Cited
263, 254, 2(24)(x), 36(1)(va), 143(3), 139(1), 143(2), 142(1), 43B, 119
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Income Tax Appellate Tribunal, Visakhapatnam DB Bench, Visakhapatnam
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
(िनधा�रण वष�/Assessment Year: 2017-18) Shree Society Vs. Income Tax Officer Visakhapatnam Ward 1(5) PAN:AANAS1911Q Visakhapatnam (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri I Rama Sastry, CA राज� व �ारा/Revenue by:: Dr. Satyasai Rath, CIT(DR) सुनवाई की तारीख/Date of hearing: 29/07/2025 घोषणा की तारीख/Pronouncement: 31/07/2025 आदेश/ORDER
Per Vijay Pal Rao, Vice President
This appeal by the assessee is directed against the order dated 30/03/2024 of the learned Pr.CIT passed u/s 263 r.w.s. 254 of the Act for the A.Y 2017-18.
The assessee has raised the following grounds of appeal:
This is 2nd round of appeal as this Tribunal vide order dated 20/02/2024 in has remanded the matter to the record of the Principal CIT for fresh consideration after giving an opportunity of hearing to the assessee in Para No.7 as under:
“7. We have heard both the parties and perused the material available on record. It is undisputed fact that the Ld.PCIT treated the assessment order passed by the AO (ITO, Ward- 1(5), Visakhapatnam) u/s 143(3) dated 02.12.2019 as erroneous and prejudicial to the interest of the revenue and accordingly set aside the assessment to the file of the A0(Income Tax Officer), Ward-1(1) to pass consequential order after affording reasonable opportunity to the assessee. The contention of the Ld.AR is that the assessee was not served with the sh0w cause notice due to the reasons mentioned in the condonation petition filed, to controvert the findings of the AO as well as the Ld.PCIT. He, therefore, pleaded for affording another opportunity of being heard to the assessee before the Ld.PCIT to substantiate it's case, keeping in view the principles of natural justice or else, the assessee would be at great financial loss. The assessee filed an affidavit before us, elaborating the reasons for non-compliance to the notices issued by the Ld.PCIT. We find that there is a reasonable cause for the assessee for such non-compliance. Hence, keeping in view the principles of natural justice, we are inclined to remit the matter back to the file of the PCIT and direct the Ld.PCIT to afford the assessee, another opportunity of being heard. The assessee is also directed to adhere to the notices issued by the Ld.PCIT promptly and furnish relevant material evidences to substantiate it's case.”
Thus, it is clear that earlier, the learned Principal CIT passed the order dated 23/03/2022 as ex-parte when there was no participation of the assessee in the proceedings initiated u/s 263 of the Act and consequently, this Tribunal remanded the matter to the record of the learned Principal CIT for deciding the matter after giving an opportunity of hearing to the assessee.
The learned AR of the assessee has submitted that the assessment was completed u/s 143(3) vide order dated 2/2/2019 and thereafter, the learned Principal CIT initiated the proceedings u/s 263 of the Act on the issue of disallowance of belated
Page 3 of 13 payment of employee’s contribution towards PF & ESI. The learned AR has submitted that at the relevant point of time when the assessment order was passed, the issue of belated payment of employee’s contribution towards PF & ESI but before the due date of filing the return of income u/s 139(1) of the Act was decided in favour of the assessee by various High Courts as well as jurisdictional Tribunal by holding that if the payment of employees contribution towards PDF and ESI has been made before the due date of filing the return, then the same is allowable. Thus, the learned AR has submitted that the Assessing Officer has allowed the claim of the assessee by taking a view which is in consonance of the view taken by the Hon'ble High Courts as well as this Tribunal. In support of his contention, he has relied upon the judgment of the Hon'ble Calcutta High Court in the case of Principal CIT vs. M/s. Special Property Management dated 31/03/2023 in and submitted that on an identical issue, the Hon'ble High Court has upheld the order of the Tribunal by holding that on the date when the Assessing Officer completed the assessment, the law on the subject as laid down by the jurisdictional High Court was binding on the Assessing Officer and the Assessing Officer had followed the said decision of the High Court and completed the assessment, Thus, the Assessing Officer having followed the decision of the Hon'ble jurisdictional High Court which held the field on the subject at that relevant point of time, the assessment cannot be held to be prejudice to the interest of the Revenue. He has further submitted
Page 4 of 13 that though there was no judgment of the jurisdictional High Court on this point, however, there are various decisions of the Tribunal on this issue decided in favour of the assessee and therefore, in view of the judgment of the Hon'ble High Court in the case of Principal CIT vs. M/s. Deccan Jewellera P Ltd reported in 438 ITR 131 the order of the Tribunal is binding on the Assessing Officer and therefore, the claim of the assessee allowed by the Assessing Officer as per law as held by the jurisdictional Tribunal cannot be held as erroneous as well as prejudice to the interest of the Revenue. The learned AR has referred to the assessment order and submitted that the case was selected for scrutiny and the Assessing Officer issued notice u/s 143(2) as well as notice u/s 142(1) which were duly replied by the assessee. Therefore, it is not a case of lack of inquiry on the part of the Assessing Officer. Thus, he has submitted that the impugned order of the learned Principal CIT is not sustain able in law and liable to be set aside.
On the other hand, the learned DR has submitted that the Assessing Officer has not conducted any inquiry on this issue of disallowance u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act. Further, this issue is now covered by the judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd vs. CIT reported in [2022] 143 taxmann.com 178 (SC). He has relied upon the impugned order of the learned Principal CIT.
We have considered the rival contentions as well as the relevant material available on record. The assessment was completed u/s 143(3) on 2/12/2019 as under:
Thus, the case was selected for scrutiny under CASS and initially two issues were taken up for examination namely (i) receipts as per 26AS more than return filed and (ii) excess contribution to PF as per rule 87 – statutory limit of 27% of salaries. The Assessing Officer issued notices u/s 143(2) and 142(1). The Assessing Officer has not even raised the issue of belated payment of employees contribution towards PF and ESI but the notice u/s 142(1) was issued only regarding the excess claim of ESI and PF in contravention of Rule 87 of the I.T. Rules which restricts the claim only 27% of the salaries. The assessee in the reply accepted the erroneous reporting of the employees contribution to PF & ESI in Form 3CED. Thus, it is manifest from the record that neither the Assessing Officer raised any query, nor the assessee filed any details on the issue of allowability of the Page 7 of 13 claim u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act. The learned Principal CIT has also stated this fact in para No.5 & 6 as under:
Page 8 of 13 Page 9 of 13 Page 10 of 13
Finally, the learned Pr. CIT set aside the assessment order for conducting necessary inquiry on disallowability of claim u/s 2(24)(x) r.w.s. 36(1)(va) of the Act in para 7 & 8 as under:
The decision of the Hon'ble Calcutta High Court relied upon by the learned AR of the assessee will not help the case of the assessee when the Assessing Officer has neither conducted any inquiry nor taken a view on this point. Further, we find from the notice issued u/s 143(2) of the Act that the Assessing Officer has nowhere stated that the case was selected for limited scrutiny and therefore, the 2 issues initially taken up for the examination does not restrict the jurisdiction of the Assessing Officer to verify and examine the other issues arising from the return of income of the assessee. Accordingly, when the Assessing Officer has not conducted any inquiry on the issue of belated payment of Employee’s contribution to PF and ESI u/s 2(24)(x) r.w.s. 36(1)(va) of the Act, then it is a clear case of lack of inquiry on the part of the Assessing Officer which renders the order of the Assessing Officer erroneous so far as it is prejudicial to the interest of the Page 12 of 13 Revenue. Accordingly, we do not find any reasons to interfere with the order of the learned Principal CIT on this issue.
In the result, appeal filed by the assessee is dismissed.