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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER BENCH:- This is an appeal filed by the assessee for A.Y. 2017-18 against the order of the ld. Principal Commissioner of Income Tax, Jamnagar, vide order dated 21/09/2021 passed for the assessment year 2017-18.
2 The assessee has raised the following grounds of appeal:-
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“1 . Ld. PCIT erred in law as well as on fact in assuming jurisdiction u/s. 263 of the Act. 2. Ld. PCIT erred in law as well as on fact in holding that assessment order is erroneous and prejudicial to interest of revenue. 3. Ld. PCIT erred in law as well as on fact in passing order u/s. 263 of the Act setting aside assessment order passed by assessing officer u/s. 143(3) of the Act. The appellant curves leave to amend, alter, modify and/or raise additional ground of appeal.”
The brief facts of the case are that the original assessment was completed on 10-12-2019. Thereafter, Principal CIT initiated proceedings u/s 263 of the Act on the ground that the assessee firm had claimed total provident fund expenses amounting to � 89,63,667/-, including employee’s contribution of provident fund of � 42,40,977/-. The AO had not disallowed such expenditure while finalising the assessment. The Principal CIT further observed that the assessee had made payments toward employees provident fund after due date as prescribed in section 36(1)(va) of the Act of � 15,62,050/-. The Ld. Assessing Officer has not disallowed the same while finalising the assessment and the AO has simply accepted the assessee submission on its face value without inquiring into such claim. Accordingly, after giving opportunity of hearing to the assessee, the Principal CIT set aside the assessment order as being erroneous and prejudicial to the interests of the revenue, with the following observations:
“5. The submission of the assessee has been considered at length and is not found to be acceptable for the reasons discussed hereunder.
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5.1. On examination of assessment records as well as the submission filed by the assessee firm during the course of assessment proceedings, the Trading Account for F.Y. 2016-17 relevant to A.Y.2017-18 in respect of Provident fund expenses and copy of challan of Provident fund, it is noticed that the assessee firm has claimed total Provident Fund expenses amounting to Rs.89,63,666/-. Thereafter, on verification of the copy of challan of PF submitted by the assessee during the course of assessment proceedings, it is noticed that the assessee firm has claimed Provident fund expenses of Rs,89,63,866/- including employees contribution of Provident Fund of Rs.42,40,977/-. The details of bifurcation as per challan are as under:- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
As the employee's contribution of Provident Fund is deducted from the salary of employees on monthly basis, therefore, the employee's contribution fund totaling of Rs.42,40,977/- is not an allowable expenditure as claimed by the assessee. The Assessee should not have claimed the employee's contribution of Provident Fund which is deducted from the salary of employees. The AO has not verified in this regard and not disallowed such expenditure while finalizing the assessment order. Therefore, to this extent the assessment order passed, by the 15G is erroneous in so far as prejudicial to the interest of the revenue.
5.2. On perusal of the submission filed by assessee in respect of Provident fund for F.Y. 2016-17 relevant to A-Y 2017-18, copy of challan of PF and bank statement, it is noticed that the assessee firm has made payments towards the employees contribution towards Provident fund after due date as prescribed in section 36(1)(va) of the IT Act, 1961 of Rs.15,62,350/-. The details are as under:-
Month of Employee’s Due date Date of payment deduction contribution July, 2016 350084 15.08.2016 16.08.2016 December, 478283 15.01.2017 30.01.2017
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2016 January, 2017 252910 15.02.2017 21.02.2017 February, 221133 15.03.2017 22.03.2017 2017 March, 2017 259940 15.04.2017 22.04.2017
Total 1562350
The Employee's Contribution to PF is the part of a salary of employee and therefore should be deposited timely. The Assessing Officer has not verified in this regard and not disallowed the same while unalizing the assessment. The AO has simply accepted the assessee's submission on its face value without verifying the claim. Such failure on the part of the A.O. has rendered the assessment order erroneous prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. On reading of section 2(24)(x), it is categorical and clear that the contribution received by the assessee from the employee alone was treated as income for the purpose of section 36(1)(va) and therefore, the assessee is entitled to get deduction for the sum received by the assessee towards contribution to the fund or funds so mentioned was credited by the assessee on or before the due date to the in the relevant fund as provided under Explanation to section 36(1)(va) of the Act.”
Vide order No. WSU/9(l)2013 setttlement dated 08. 01.2016 of Employees’ Provident Fund Organization, grace period of 5 days has been removed w.e.f. Contribution for month of January, 2016.
Further, as per the judgement of the Hon'ble jurisdictional High Court in the case of CIT-II v. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj), the Hon'ble Gujarat High Court has upheld disallowance u/s. 38(1)(va) r.w.s. 2(24) of the Act on account of late payment of employees' contribution to PF & ESI where assessee did not deposit contribution to employees account in relevant fund before due date prescribed in Explanation to section 38(l)(va), no deduction would be admissible even though he deposits
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same before due date (for filing of Return of Income u/s 139) under section 43B.
Further, as per CBDT Circular No. 22/2015 dated 17/12/2015, the employee's contribution to welfare funds which are governed by section 36(l)(va), the provisions of section 43B of the I.T. Act are not applicable. In view of the above, to this extent, the assessment order passed by the A.O. is erroneous in so far as prejudicial to the interest of the revenue.
It is settled law that any order is passed by the AO without conducting proper inquiry is deemed to be erroneous order and prejudicial to the interest of revenue. Therefore in such case- where the actions of the A.O is otherwise not lawful and not sustainable as per the provision, of the I.T. Act, then even if some inquiries were made by the AO, initiation of proceedings u/s.263 of the I.T. Act is justified as the same cannot said to be change of opinion. For such preposition of law, reliance is also placed on following judicial decisions wherein the action u/s. 263 were upheld in the circumstances when the assessments were completed without conducting proper inquiries.
a. CJT v. Pushpa Devi [1987] 164 ITR 639 [l988] 29 Taxman 377 (Pat).
b. CIT v. Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490/108 Taxman 464 (Mad.).
c. CIT, Patiala v. Hirnachal Pradesh Financial Corpn. [2010] 186 Taxman 186(HP).
d. CIT. Dehradun v. Sunil Goyal [2005)] 176 Taxman 184 (Uttarakhand).
e. CJT v. Modi Brother [2007] 164 Taxman 331 (MP).
f Mammlal Matadeen v. C!T[2006] 152 Taxman 125 (all.).
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g. CJT v. Bhagwan Das [2005] 142 Taxman 1 (All).
h. Gee Fee Enterprises v. Addl. OT[1975] 99 ITR 375 (Delhi).
L CJT Vs. Amitabh Bachchan (2016) 240 Taxman 221 (SC)
It may further be mentioned that with effect from 01/06/2015, Explanation 2 to the section 263(1) has been inserted which reads as under:-
Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, -
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into the claim.
(c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) The order has not been passed, m accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictions! High Court or Supreme Court in the case of the assessee or any other person.
As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed without making inquiries or verification which should have been made by the AO. As discussed above in Para-5, the AO has not verified and disallowed the expenses claimed by the assessee in respect of employees contribution of Provident fund and also not verified the payments made by the assessee firm towards the Provident Fund after due date as prescribed in section36(1)(va) of the I,T. Act, 1981.
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I, therefore, hold that the assessment order dated 10.12.2019 finalized by the Assessing Officer u/s. 143(3) of the Income-tax Act, 1961 is erroneous and prejudicial to the interests of revenue within the meaning of section 263 of the Income-tax Act, 1961 and hence the order passed by the Assessing Officer u/s. 143(3) dated 10.12.2019 is hereby aside to the above extent of observations at Para-5. The Assessing Officer is directed to reframe the assessment afresh after properly verifying the above aspects and after giving the assessee a reasonable opportunity of being heard.”
Before us, the counsel of the assessee reiterated the submissions made before Principal CIT to the effect that when the issue is debatable as in the instant case in view of contradicting judgments on the issue, then the same cannot be subject matter of adjustment u/s. 143(1) of the Act. In response, the Ld. DR relied upon the order passed by Principal CIT under section 263 of the Act. We have heard the rival contentions and perused the material on record. In our considered view, we find no infirmity in the order of the Principal CIT passed under section 263 of the Act. The issue whether deduction respect of late deposit of employee’s provident fund can be granted has been decided against the assessee by the Gujarat High Court in the case of CIT vs. Gujarat State Road Transportation Corporation (2014) 4 taxman.com 100 wherein it was held that where assessee did not deposit employees' contribution to employees' account in relevant fund before due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B of the Act. Again the Gujarat High Court in the case of Pr. CIT v. Suzlon Energy Ltd. [2020] 115 taxmann.com 340 (Gujarat) held that where assessee had not deposited employees' contributions towards PF
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and ESI amounting Rs. 15.20 lakhs within prescribed period in law and Assessing Officer by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee, impugned addition made to income of assessee was justified. Accordingly, when the issue has been decided by the Gujarat High Court against the assessee, it was on duty of the AO to conduct enquiries in respect of same, and not accept the submission of the assessee on its face value. In the instant facts, no such enquiry was conducted by the AO during the course of assessment proceedings. In view of the above findings, we find no infirmity in the order of the Principal CIT under section 263 of the Act. Accordingly, the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 21-09-2022 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 21/09/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order,
Assistant Registrar, Income Tax Appellate Tribunal, Rajkot