SHREE SOCIETY,VISAKHAPATNAM vs. INCOME-TAX OFFICER, WARD-1(5), VISAKHAPATNAM

in ITBA/REV/F/REV5/2021-22/1041355224(1) dated 23.03.2022, arising out of order passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 02.02.2019 for the Assessment Year (A.Y.) 2017-18, with the delay of 63 days. The assessee filed a petition for condonation of delay, Shree Society,Visakhapatnam submitting that, the notices issued by the Ld.PCIT were sent to the email id of the earlier auditor of the assessee, who had neither responded to these notices nor informed about the same to the assessee, as the auditor was changed more than three to four years back. The Ld.PCIT passed an ex-parte order u/s 263 dated 23.03.2022, since there was no response from the assessee, directing the AO to verify the belated payments of PF and ESI contributions amounting to Rs.27,20,319/- and pass consequential order after affording reasonable opportunity of being heard. The assessee came to know about the order passed by the Ld.PCIT, only when a message was received from the income tax department for payment of outstanding demand of Rs.10,55,993/-. Without further delay, the assessee approached the Chartered Accountant on 12.10.2023 and the appeal was e-filed before the Tribunal on 29.10.2023 with the delay of 63 days. The Ld.AR submitted that the delay was caused due to the circumstances beyond the control of the assessee, which were not intentional. He, therefore, pleaded to condone the delay and admit the appeal for hearing.

We have heard the Ld.AR and gone through the condonation petition filed by the assessee. It is evident that the order of the Ld.PCIT was served on the assessee on 28.06.2023 and the appeal before the Shree Society,Visakhapatnam Tribunal ought to have been filed by the assessee on or before 27.08.2023, but the assessee could file appeal only on 29.10.2023 with delay of 63 days. We find there is a reasonable cause for the assessee to file appeal belatedly. We, therefore, condone the delay in the interest of justice and admit the appeal for hearing.

Brief facts of the case are that the assessee, an AOP, engaged in the business of supplying manpower services to various organizations, filed the return of income for the A.Y. 2017-18 on 01.11.2017 declaring an income of Rs.5,05,655/- under the head ‘income from business or profession’. The case was selected for complete scrutiny under CASS. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 and the assessment order dated 02.12.2019 was passed by the Assessing Officer (AO), assessing the income at 5,11,905/- by making certain disallowances. Under the powers vested with the PCIT as per the provisions of Section 263 of the Act, the assessment records for the A.Y. 2017-18 were called for and the same were examined. The Ld.PCIT observed that the assessee company made belated payments of employees’ contribution towards Provident Fund of Rs.22,32,510/- and ESI of Rs.4,87,809/- aggregating to Rs.27,20,319/-, against the due dates for remitting the same to the authorities concerned. The Ld.PCIT held Shree Society,Visakhapatnam that CBDT Circular No.22/2015 dated 17.12.2015 does not apply to the claim of deduction relating to employee’s contribution to welfare funds which are governed by Sec.36(1)(va) of the I.T. Ac, 1961. Accordingly, employees’ contribution recovered and remitted after the due date for deposit thereof as prescribed in the respective PF/ESI Act/Rules were to be added as income u/s.2(24)(x) r.w.s. 36(1)(va) of the I.T.Act, 1961, which the AO omitted to do so, making the assessment erroneous and prejudicial to the interest of the revenue. Accordingly, vide show cause notice dated 05.03.2022, the assessee was asked to show-cause as to why the assessment order u/s.143(3) of the Act, dated 02.12.2019 for the A.Y.2017-18 should not be revised as per the above lines. There was no compliance from the assessee in response to the above show cause notice. Hence, in the interest of natural justice, the assessee was afforded further opportunity vide office letter, dated 17.03.2022 to make objections, if any, on or before 22.03.2022 for the proposed revision of assessment. However, there was no compliance from the assessee. Hence, the Ld.PCIT set aside the assessment to the Assessing Officer for limited purpose of verification of the issue of remittance of payments made in respect of employees’ contribution towards PF and ESI, with a direction to obtain the receipts indicating the date of remittances of the employees’ Shree Society,Visakhapatnam contribution to the respective statutory funds, and to treat the belated payments made beyond the due dates prescribed under respective Acts, as the income of the assessee company u/s.2(24)(x) r.w.s. 36(1)(va) of the Act, for the A.Y.2017-18 by disallowing the deductions claimed. The Assessing Officer was also directed to afford reasonable opportunity of being heard to the assessee before passing the consequential order. Accordingly, consequential order dated 09.09.2022 was passed, modifying the assessment order passed u/s 143(3) of the Act dated 02.12.2019 as the assessee did not respond to submit the receipts indicating the date of remittances of the employee’s contribution to the respective statutory funds.

The order under section 263 dated 23.03.2022 passed by the Principal Commissioner of Income Tax, Visakhapatnam is bad in law not justified and beyond the scope of revision in the facts and circumstances of the case as the Income tax Officer, Ward-1(5), Visakhapatnam has passed the order in accordance with the law existing on the date of passing of the order as per the decision of the Jurisdictional Visakhapatnam Bench of the Honourable Tribunal.

Principal Commissioner of Income-tax, Visakhapatnam is not justified in directing the Income Tax Officer, Ward-1(5), Visakhapatnam to treat the total amount of PF and ESI contributions (both employer’s and employees’) aggregating to Rs.27,20,319/- as income under section 2(24)(x) r.w.s. 36(1)(va).

All the above grounds of appeal

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 AO(ITO, 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 show 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 Shree Society,Visakhapatnam 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. Accordingly, the grounds filed by the assessee are allowed for statistical purpose.

In the result, appeal of the assessee is allowed for statistical purpose.