GUARDIAN INDIA OPERATIONS PRIVATE LIMITED,CHENNAI vs. PCIT 1, CHENNAI

आयकर अपील�य अ�धकरण, बी, �यायपीठ,चे�नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय �ी मनु कुमार �ग�र, �या�यक सद�य एवं �ी एस.आर. रघुनाथा, लेखा सद�य के सम� BEFORE HON’BLE SHRI MANU KUMAR GIRI, JM AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.842/CHNY/2024 िनधा�रण वष�/Assessment Year: 2017-2018. M/s. Guardian India Operations The Principal Commissioner of Private Limited, Vs. Income Tax -1, Module No.0506, Chennai. Tidel Park, D Block No.4, Rajiv Gandhi Salai, Taramani, Chennai 600 113. PAN: AABCD 4649J (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri. Ashik Shah, & Ms. V. Rajeswari, C.As. ��यथ� क� ओर से/Respondent by : Shri. V. Nandakumar, IRS,CIT. सुनवाई क� तारीख/Date of Hearing : 25.06.2024 घोषणा क� तारीख/Date of Pronouncement : 07.08.2024 आदेश /O R D E R PER MANU KUMAR GIRI (Judicial Member) The present appeal filed by the assessee is directed against the order passed by the Pr. Commissioner of Income Tax, Chennai-1 (for short ‘PCIT’) u/s. 263 of the Income-tax Act, 1961 (for short ‘Act’), dated 30.01.2024,

- 2 - ITA No.842/Chny/2024 which in turn arises from the order passed by the A.O. u/s.143(3) of the Act, dated 21.04.2021 for A.Y. 2017-18. The assessee has assailed the impugned order on the following grounds of appeal before us: ‘’1. Common Grounds 1.1. The Ld. Principal Commissioner of Income Tax 1, Chennai ("Ld. PCIT") erred in passing an order of revision under section 263 of the Income-tax Act, 1961 ("the Act") which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act, is devoid of merits, are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed. 2. Grounds on validity of the revisionary proceedings under section 263 of the Act 2.1. The Ld. PCIT erred in invoking the provisions under section 263 of the Act without appreciating the fact that the Ld. AO had passed the assessment order dated April 21, 2021, after making proper enquiries and verification of records and therefore, the said order is neither erroneous nor prejudicial to the interest of the revenue and hence the impugned order passed by the Ld. PCTT is liable to be quashed. 2.2. The order of the Ld. AO cannot be treated as prejudicial to the interest of the revenue if two views are possible and the Ld. AO has passed an order adopting one view. 2.3. The Ld. PCTT failed to understand that the powers of revision under section 263 of the Act cannot be exercised to substitute his view with that of the view taken by the Ld. AO based on detailed inquiry and verification. 2.4. The Ld. PCIT has erred in invoking the provisions of section 263 of the Act with a preconceived notion that the Ld. AO had not verified the transaction, without looking into all the records of the assessment proceedings wherein the all the relevant documents/information with regard to the same issue were available with the Id. AO.

- 3 - ITA No.842/Chny/2024 2.5. The Ld. PCTT erred in not appreciating that merely because an issue was not elaborated in the assessment order, the same would not lead to a conclusion that the Ld. AO had not verified the same. Without prejudice to the above grounds that the proceedings under section 263 of the Act cannot be invoked for the impugned AY, the Appellant wishes to submit the following grounds on merits of the case: 3. Allowability of employee's contribution towards EPF and FSI paid before due date for filing income tax return 3.1 The Ld. PCTT erred in holding that employees' contribution to EPF and ESI is liable to be disallowed for the subject AY without appreciating the facts and law’’. 2. The only effective issue to be decided in this appeal is as to whether the Ld. PCIT had validly assumed his revision jurisdiction u/s 263 of the Act both in law and on facts. 3. The assessee company M/s Guardian India Operations Private Limited filed its original return of income for AY 2017-18 declaring a total income of Rs.11,88,48,130/-. The case was selected under complete scrutiny and assessment was completed u/s 143(3) r.w.s 144B of the Act on 21.04.2021 accepting the return income as assessed income. 4. Succinctly stated, the facts involved in the present case which will have a strong bearing on the adjudication of the same are for the sake of clarity are culled out in a chronological manner, as under:

- 4 - ITA No.842/Chny/2024 Sl.No Particulars Page No. 1 Intimation under section 143(1) of the 1 Act dated July 13, 2018 issued by the Centralized Processing Center ("CPC") 2 Notice under section 143(2) of the Act 12 dated September 21, 2018 issued by the Ld. Assessing Officer ("Ld. AO") 3 Submission dated September 24, 16 2018 filed with the Ld. AO, in response to notice under section 143(2) of the Act 3.1. Audited Financial Statements for 18 F.Y. 2016-17 (Annexure 2) 3.2. Return of income along with 33 acknowledgement for AY 2017-18 (Annexure 3) 3.3. Tax Audit Report in Form 3CD 64 for AY 2017-18 (Annexure 4) Notice under section 142(1) of the Act 4 86 dated February 05, 2021 issued by the L.d. AO 5 Submission dated February 16, 2021 89 filed with the Ld. AO, in response to notice dated February 5, 2021 Statement of Total Income for AY 93 2017-18 (Annexure 4) 6 Notice under section 142(1) of the Act 97 dated March 26, 2021

- 5 - ITA No.842/Chny/2024 Submission dated April 03, 2021 filed 7 100 with the Ld. AO, in response to notice dated March 26, 2021 7.1. TDS return acknowledgement for 106 Form 240, 26Q, and 27Q for all the 4 Quarters (Annexure 2) Show Cause Notice ("SCN") under 118 section 263 of the Act dated January 11, 2024 issued by the Ld. Principal Commissioner of Income-Tax ("Ld. PCTT") 9 Response to SCN dated January 24, 121 2024, filed with the Ld. PCIT

- 6 - ITA No.842/Chny/2024 No.ITBA/REV/F/REV1/2023-24/1059628309 (1) and the case was posted for hearing on 18.01.2024’’.

- 7 - ITA No.842/Chny/2024 "The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard." Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, wherein the Court observed that- "There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the income-tax Officer, who passed the order unless the decision is held to be erroneous"

- 8 - ITA No.842/Chny/2024

Since one of the basic conditions required for a valid revisionary proceeding i.e., order being erroneous is not fulfilled, the Assessee humbly submits that the impugned order shall remain valid and not be set aside. The Hon'ble Delhi High Court in the case of AIMIL Limited v. CIT 321 ITR 508 allowed the claim of the Assessee in respect of deduction of employees contribution to PF/ESI paid before date of filing income-tax return by noting as under:- ...if the employees contribution is not deposited by the due date prescribed under the relevant IT Acts and is deposited late, the employer not only prays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the IT Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences in so far as the Income Tax Act is concerned, the Company can get the benefit if the IT Actual payment is made before the return is filed.............’’ The Hon'ble jurisdictional Madras High Court in case of CIT v. Industrial Security & Intelligence India Pvt. Ltd. [TCA No. 585 of 2015, dated 24-7-2015). Further, in the case of CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC), the Supreme Court observed that if the view taken by the Ld. AO, at the time of making the order of assessment was a possible one, there can be no doubt that the order cannot be prejudicial to the interests of the Revenue’’.

- 9 - ITA No.842/Chny/2024 Checkmate Services (P). Ltd. Vs CIT [2022] 143 txmann.com 178 / [2023] 290 Taxman 19 / [2022] 448 ITR 518 SC, partly set-aside the assessment order to the file of the A.O with a direction to adjudicate the issues a fresh as per the judgment of Hon’ble Supreme Court in the case of Checkmate Services (P). Ltd. Vs CIT (supra) and also the decision of Co-ordinate Bench of the Tribunal in the case of Electrical India Vs ADIT [2023] 147 taxmann.com 470. 8. Aggrieved the assessee has assailed the order passed by the PCIT, Chennai-1 u/s.263 of the Act dated 30.01.2024 in appeal before us. 9. The Ld. Authorized Representative (for short ‘AR’) for the assessee at the very outset assailed the validity of the jurisdiction assumed by the ld.PCIT u/s.263 of the Act. The Ld. AR in order to support his aforesaid contention had reiterated the same arguments as mentioned in para 6 supra. 10. Per contra, the Ld. Departmental Representative (for short ‘DR’) rebutting the contentions advanced by the Ld. AR, submitted that the ld. PCIT had validly assumed jurisdiction and relied upon the judgment of Hon’ble Supreme Court in the case of Checkmate Services (P). Ltd. (supra) and also the decision of Co-ordinate Bench of the Tribunal in the case of Electrical India (supra) . 11. We have heard the ld. authorized representatives of both the parties, perused the orders of the ld.PCIT and AO, paper book, and the material available on record, as well as considered the judicial pronouncements that

- 10 - ITA No.842/Chny/2024 have been pressed into service by them to drive home their respective contentions. 12. Considering the rival contentions of the Ld. Authorized Representatives of both the parties, we find that ld.PCIT rightly invoked the jurisdiction u/s.263 based upon the judgment of the Hon’ble Supreme Court in the case of Checkmate Services (P). Ltd.(supra) and Electrical India (supra). In the case of Checkmate Services (P). Ltd (supra), the Hon’ble Supreme Court held as under: ‘’51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd.26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd.27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va)

- 11 - ITA No.842/Chny/2024 and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass

- 12 - ITA No.842/Chny/2024 muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’

- 13 - ITA No.842/Chny/2024 contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed. 13. The Co-ordinate bench of the Tribunal in the case of Electrical India (supra) held as under: ‘’It has finally been held by the Supreme Court that there is clear distinction between employer's contribution which is its primary liability under law [in terms of section 36(1)(iv)) and its liability to deposit amounts received by it or deducted by it from its employees' [in terms of section 36(1)(va)]. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) and therefore, subjected to

- 14 - ITA No.842/Chny/2024 conditions spell out by Explanation to section 36(1)(va) i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two contributions the employer's liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 438. If the same is not deposited as per mandate of section 36(1)(va), the deduction of the same would not be available to the assessee. [Para 3] At the same time, this decision of the Supreme Court would relate back to the date of consequential amendment brought in by Legislatures in respective provisions of the Act and it was to be presumed that the legal position was always like that ie., both the contributions were to be treated differently since inception and the employee's contribution was always subjected to rigours of section 36(1) (va). If the assessee complies with the same only then the deduction would be allowed to the assessee otherwise the same would continue to form the income of the assessee. The said decision, is to be given full consequential effect’’. 14. In view of the aforesaid observations and respectfully following the judicial precedents relied upon in the case of Checkmate Services (P). Ltd. Vs CIT and Electrical India Vs ADIT [2023] 147 taxmann.com 470 supra, we also held that the decision of the Hon’ble Supreme Court would relate back to the date of consequential amendment brought in by Legislatures in respective provisions of the Act and it was presumed that the legal position was always

- 15 - ITA No.842/Chny/2024 since inception and the employee’s contributions was always subject to rigours of section 36(1)(va) of the Act.

Sd/- Sd/- (एस.आर. रघुनाथा) (मनु कुमार �ग�र) (S.R. RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद�य/ ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated, the 7th August, 2024 KV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT, Chennai/Coimbatore/Madurai/Salem. 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.