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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER S. R. RAGHUNATHA, AM: This is an appeal preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax, (hereinafter in short ‘the Ld.PCIT’), Chennai, dated 28.03.2023 for the Assessment Year (hereinafter in short ‘AY’) 2018-19.
At the outset, the Ld.AR of the assessee drew our attention to legal ground raised by the assessee challenging the impugned action of the Ld.PCIT issuing notice and consequently passing an order dated
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 2 :: 28.03.2023 for AY 2018-19 as bad in law because it was passed after the moratorium as well as the order of the Ld.NCLT dated 20.01.2020 approving the resolution plan. The Ld.AR brought to our notice that the facts related to this legal issue and submitted that pursuant to the Financial Creditor (Union Bank of India) approaching/filing application dated 01.11.2018 before the Hon’ble NCLT, Chennai against the assessee (M/s.Empee Distilleries Ltd.), the Hon’ble NCLT ordered insolvency proceedings under the Insolvency & Bankruptcy Code, 2016 (hereinafter in short ‘the Code’) and consequently, pursuant to Corporate Insolvency Resolution Process (hereinafter in short ‘CIRP’) and thus, CIRP commenced against the assessee and the Ld.NCLT ordered moratorium on the same day (i.e.01.11.2018) and thereafter, a Resolution Professional (RP) was appointed on 12.12.2019, who submitted resolution plan on 17.07.2019 and the ‘Committee of Creditors’ (COC) approved offer of Rs.475 Crs. from M/s.SNJ Distillers (successful resolution applicant) on 22.07.2019 and the Hon’ble NCLT approved the said offer on 20.01.2020, which was action of the Hon’ble NCLT was challenged before the Hon’ble NCLAT, which was dismissed on 27.08.2020. The Hon’ble NCLAT decision was challenged before the Hon’ble Supreme Court without any success on 26.11.2020; and the scrutiny assessment u/s. 143(3) of the Act against assessee for the assessment year was completed on 19.03.2021. Thereafter, the Ld.PCIT
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 3 :: exercised his revisional jurisdiction u/s.263 of the Act by issuing notice on 02.02.2023 and passed the impugned order on 28.03.2023.
Aggrieved by the impugned action of the Ld.PCIT passing the impugned order on 28.03.2023, the assessee is in appeal before this Tribunal and has raised another legal issue, wherein, the Ld.AR pointed out that the issue which has been racked up by the Ld.PCIT have been enquired into by the AO during assessment proceedings and assessee had answered the query by letter dated 03.03.2021 (Paper Book page No.126) that assessee had remitted the employee’s contribution to ESI/PF before filing of return of income (RoI) and the AO accepted the contention after verification, which action of the AO cannot be termed as erroneous because prior to the Hon’ble Supreme Court order in the case of M/s.Checkmate Services P. Ltd., [in Civil Appeal No.2883 of 2016 order dated 12.10.2022], the position of law as laid by the Hon’ble High Court of Madras on this issue was that if an assessee remit the employee’s contribution of PF/ESI before due date of filing of RoI u/s.139(1), then no disallowance is warranted. Therefore, action of the AO cannot held to be erroneous and for such a proposition relied on the decision of the Hon’ble Calcutta High Court order in the case of PCIT vs M/s. SPPL Properties Management Pvt Ltd, ITAT/49/2023 dated 31st March, 2023.
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 4 :: 4. Having heard both the parties, and on a careful consideration of the facts and circumstances , we find that in the case in hand the Ld. Pr. CIT invoked jurisdiction u/s 263 of the Act principally on the broad allegation that there was failure to conduct enquiry on the issue of employees’ contribution to PF & ESI to the tune of Rs.58,34,599/-. As a result, in the opinion of Ld. Pr. CIT, AO’s order was erroneous and therefore liable for revision u/s.263 of the Act. The said findings of the Ld Pr. CIT have been seriously contested by the appellant in Gr. Nos. 1&2. In the circumstances, before adjudicating the issues arising from the impugned order, 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 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 without application of mind; or (iv)
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 5 :: 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
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 6 :: prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
Keeping the aforesaid legal principles in mind when we apply the same to the facts of the present case, we note that the sole issue that has been raked up by the Ld.PCIT in the present case, emanated from perusal of Form 3CD which showed in the Ld.PCIT’s own words “contribution of Rs.58,34,599/- was received from employees’ towards PF & ESI and had been paid beyond due date mentioned in respect of the PF/ESI Act and the CBDT Circular No.22/2015 has clarified ‘employees’ contribution to welfare fund’ can be claimed as deduction if it is paid before the due date specified u/s.139(1) of the Act and this is not applicable to employees’ contribution”. Accordingly, the PCIT was of the view that contribution of Rs.58,34,599/- received from the employees’ towards PF/ESI which were beyond due date needs to be disallowed and requires to be added as total income of the assessee and since, the AO has failed to verify this aspect while completing the scrutiny assessment dated 19.03.2021 (u/s.143(3) of the Act) has allowed the assessee’s claim of deduction of Rs.58,34,599/- which action was erroneous and prejudicial to the interest of Revenue.
The aforesaid assertion of the PCIT that the AO while scrutinizing the assessment has failed to verify the issue stated (supra) is contrary to
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 7 :: the facts revealed from the records and found to be incorrect assertion of the Ld.PCIT. This fact is revealed from perusal of the Paper Book filed before us that the AO had issued notice u/s.142(1) of the Act dated 01.03.2021 reflecting DIN: ITBA/AST/F/142(1)/2020-21/1031088780(1), wherein, inter alia, the AO specifically asked the query relevant to the issue in dispute is as under:
Please state whether i) late payment of contributions received from employees for various funds as referred to in section 36(1)(va) as per Col. 20(b) of Form 3CD, ii) payment of gratuity not allowable under section 40A(7) as per Col. 21(e) of Form 3CD and iii) sum referred to section 438 which was not Paid on or before the due date for furnishing the return of income of the previous year under section 139(1) as per Col. 26(i)(B)(b) of Form 3CD have been added back in total income of the year and offered to tax or not?
And the assessee replied the same vide letter dated 03.03.2021 as under: As per the FORM 3CD the above-mentioned disallowance has been mentioned as follows:
S.No. Particulars Clause as per Clause As per Disallowance ITR TAR Amount 1 Late payment of Part A OI 11 26(1)(B)(b)(6) & 20,15,666 contributions (b) 26(1)(B)(b)(7) received from employees for various funds 2 Payment of Part A OI 9 (c) 21 (e) 16,05,338 gratuity not allowable under Section 40A(7) 3 Sum referred to Part A OI 11 26(1)(8)(b) 3,16,73,272 section 438 which (h) was not Paid on or before the due date for furnishing the return
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 8 :: Disallowance of employee contributions due to delay in remittance with respective departments have not been made provided the same is paid on or before the 139(1) due date (or) date of filing the return whichever is earlier. References Invited to the decision of Honorable Madras High Court in the case of CIT vs. Industrial Security and Intelligence India Private Limited"; Honorable Delhi High Court in the case of CIT vs AIMIL Limited"; Honorable Rajasthan High Court in the case of "CIT vs Jaipur Vidyut Vitran Nigam Limited"; and Honorable Karnataka High Court in the case of "CIT vs Sabari Enterprises" wherein, the respective HC's held that the said amount can be allowed as deduction if the said employee contribution has been remitted on or before filling the return or before the due date specified in Section 139(1), Hence, no disallowances has been considered for on filing the ITR with respect to delay in remittance of Employee Contributions.
Thus, we note that the AO had asked the specific question regarding late payment of contribution received from employees’ for various funds including PF/ESI. After taking note of the assessee’s explanation (supra) and also taking note of the 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, the AO accepted the explanation given by the assessee since he was bound by the law laid down by the Hon’ble Madras High Court that no disallowance is warranted if the assessee remits employee’s contribution towards PF & ESI before the due date of filing of return of income u/s.139(1) of the Act; Therefore, the action of the AO allowing the claim of assessee cannot be held to be erroneous as well as prejudicial to the Revenue. For such a preposition, we rely on the decision of the Hon’ble Calcutta High Court in the case of PCIT vs M/s. SPPL Properties Management Pvt Ltd (Supra) wherein, the Hon’ble High Court held that when the AO has passed the assessment order inconsonance with that of the law laid down by the jurisdictional
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 9 :: High Court, cannot be termed to be erroneous as well as prejudicial to the Revenue, even though, later on the Hon’ble Supreme Court has held on this issue against the assessee in the case of M/s. Checkmate Services P. Ltd., in Civil Appeal No.2883 of 2016 dated 12.10.2022.
In the light of the aforesaid facts, we are of the view that the assessee succeeds and the PCIT erred in invoking his jurisdiction u/s.263 of the Act. We are not inclined to consider the legal issue raised by the assessee that since CIRP proceedings had commenced against the assessee by the order of the NCLT and the PCIT has passed the impugned order on 28.03.2023 after the NCLT approved the resolution plan on 20.01.2020 is bad in law is kept open.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 21st day of June, 2024, in Chennai. Sd/- Sd/- (एबी टी. वक�) (एस. आर. रघुनाथा) (ABY T. VARKEY) (S.R.RAGHUNATHA) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated: 21st June, 2024. JPV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore.
ITA No.716 /Chny/2023 (AY 2018-19) M/s.Empee Distilleries Ltd. :: 10 ::
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