CONDOR FOOTWEAR (INDIA) LIMITED,SURAT vs. THE PCIT, SURAT-1, SURAT, SURAT

On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income Tax has grievously erred in assuming that the assessing Officer had not verified (i) claim of donation u/s.80G amount of Rs.25,00,000/- and (ii) employees contribution towards delay payment of PF/ESI of Rs.8,79,551/- and deduction u/s.36(1)(a) of the Act was not proper verified and not made proper inquiry on finalized the order of assessment u/s.143(3) rws.1448 of the I.T. Act is contrary to the fact of the case.

On the facts and in the circumstances of the case as well as law on the subject, the entire proceedings are bad-in-law and invalid as assessment order u/s 143(3) r.w.s. 144B of the Act for the same year were framed, wherein due inquiry was made.

On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income Tax has grievously erred in setting aside the assessment order framed u/s.143(3) rws.144B of the I.T. Act without pointing out as to how the order is erroneous and prejudicial to interest of revenue.

It is therefore prayed that the above proposed proceedings may please be revoked as learned members of the tribunal may deem it proper.

Appellant craves liberty to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”

Facts of the case in brief are that assessee filed its return of income for AY. 2018-19 on 31.10.2018, declaring total income of Rs.9,57,74,320/-. The assessee subsequently filed revised return of income on 31.01.2019, declaring total income of Rs.10,06,49,320/-. The case was selected for complete scrutiny assessment under E-assessment Scheme, 2019 on the reasons of (i) duty /AY.2018-19 Condor Footwear (India) Ltd. drawback, (ii) refund claim and (iii) deduction from total income under Chapter VI-A of the Act. After issuing notices u/s 143(2) and 142(1) and after examining the balance sheet, profit & loss account, tax audit report and other details/ documents submitted during assessment proceedings, the Assessing Officer (in short, ‘AO’) accepted the returned income and passed order u/s 143(3) r.w.s. 144B on 23.04.2021, determining total income at Rs.10,06,49,320/-. 3.1 Subsequently, the PCIT, Surat-1, Surat called for the records from the AO and examined the same. He observed that assessee had claimed donation of Rs.50,73,000/- under the head “Administration and other expenses”. In the computation of income, the above amount was added back and deduction of 50% of donation amounting to Rs.25,36,500/- was claimed u/s 80G of the Act. The donations include payment of Rs.39,00,000/- to Shri Arvindo Institute of Applied Scientific Research Trust, whose registration granted u/s 12A of the Act was cancelled with effect from 01.10.2004 by the CIT(E), Mumbai. Hence, claim of deduction of Rs.25,36,500/- was not allowable. Further, assessee had paid Rs.8,79,551/- received from employees to the provident fund of superannuation fund mentioned in section 2(24)(x) of the Act after the due date. Such amount had to be disallowed u/s 36(1)(va) of the Act. The Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. vs. CIT, 290 Taxman 19 (SC) held that employers have to deposit the employees contribution towards EPF/ESI on or before due date for availing deduction u/s 36(1)(va) of the Act. Hence, the order passed by AO was found to be without proper verification and inquiry as stated above. The /AY.2018-19 Condor Footwear (India) Ltd. order was accordingly erroneous in so far as it is prejudicial to the interests of revenue within the meaning of section 263 of the Act. He issued show cause notice u/s 263 of the Act which is at page 5 to 8 of the order u/s 263 of the Act. The reply of the assessee is at para 4.1 at page 8 of the order. In the reply, the assessee submitted that it was ready to offer for taxation, the amount of donation to Sri Arvindo Institute of Applied Scientific Research Trust claimed for deduction u/s 80G of the Act. It also confirmed to make the addition of late payment of PF and ESI. 3.2 The PCIT has considered the facts and decided the matter in para 5 to 8 at pages 8 to 21 of his order u/s 263 of the Act. He has extracted provisions of section 263 and discussed about the interpretation of the expression “erroneous in so far as it is prejudicial to the interests of revenue” and given a finding that though registration granted to Shri Arvindo Institute of Applied Scientific Research Trust has been cancelled to w.e.f. 01.10.2004, the AO has allowed deduction u/s 80G without verification of facts on record and without application of mind and correct law. He has also not disallowed Rs.8,79,551/- u/s 36(1)(va) of the Act. Hence, the assessment order dated 23.04.2021 was erroneous and income was under assessed to the extent of Rs.33,79,551/- resulting in short levy of tax of Rs.11,69,595/-. Accordingly, the assessment order was set aside with a direction to the AO to make fresh assessment order after taking into account the issues which have been discussed in the order u/s 263 of the Act.

Aggrieved by the order of PCIT, the assessee filed appeal before the Tribunal. All grounds of appeal relate to the order passed u/s 263 of the Act by the PCIT. The learned Authorized Representative (ld. AR) filed copy of the computation of total income and a paper book comprising various decisions on the subject issue. The ld. AR submitted that assessee had furnished list of donations amounting to Rs.50,73,000/-, which is mentioned by PCIT at para 2 of the order u/s 263 of the Act. It includes three donations totalling to Rs.39,00,000/- to Shri Arvindo Institute of Applied Scientific Research Trust and the remaining donations of Rs.11,73,000/- were to four other trusts. Registration of Shri Arvindo Institute of Applies Scientific Research Trust was cancelled but the other Trusts still enjoy benefit of deduction u/s 80G of the Act. Hence, deduction u/s 80G should be disallowed only in respect of donations to Shri Arvindo Institute of Applies Scientific Research Trust and not of other Trusts. The ld. AR further submitted that deduction u/s 80G has been limited to 10% of the gross total income amounting to Rs.12,68,250/- and not Rs.25,36,500/-, as mentioned by the PCIT. He further stated that the assessee has also accepted disallowance on account of late payment of ESI/PF. It was submitted that the addition should be restricted accordingly. The ld. AR has not argued separately for various grounds raised in the appeal. 4.1. On the other hand, learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) relied on the order of the PCIT. He submitted that /AY.2018-19 Condor Footwear (India) Ltd. since the assessee itself agreed for the disallowance, there was no need for appeal against the order of PCIT u/s 263 of the Act. 4.2. In the short rejoinder, the ld. AR submitted that the PCIT at page 14 has wrongly mentioned the amount of disallowance of deduction u/s 80G at Rs.25,00,000/- instead of Rs.5,86,500/-.

We have heard both parties and perused the materials available on record. The appellant had admitted before the PCIT during revision proceedings u/s 263 of the Act that deduction u/s 80G in respect of donation to Shri Arvindo Institute of Applied Scientific Research Trust may be withdrawn. Similarly, addition of late payment of ESI and EPF was accepted. Hence, we uphold the findings of the PCIT that the twin conditions of the order being erroneous as well as the same being prejudicial to the interests of revenue are cumulatively satisfied in the present case. Therefore, the order of PCIT passed u/s 263 of the Act is upheld. 5.1 However, the direction of the PCIT to disallow Rs.25,00,000/- u/s 80G is not correct. It is so because assessee had claimed deduction of Rs.12,68,250/-, being 10% of the adjusted gross total income u/s 80G(4) of the Act and not Rs.25,36,500/-, being 50% of the total donation of Rs.50,73,000/-. This is clear from the copy of computation of total income submitted by the ld. AR before us. After reducing the donation of Rs.39,00,000/- made to Shri Arvindo Institute of Applies Scientific Research Trust, the eligible amount for deduction u/s 80G of the Act would be Rs.5,86,000/-, being 50% of Rs.11,73,000/-. Hence, claim of deduction u/s 80G shall be restricted to Rs.5,86,000/- instead of Rs.12,68,250/-