Case Law Details
Parry Engineering & Electronics Ltd. Vs PCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that invocation of section 263 of the Income Tax Act for issue of delayed payment of employees’ contribution to PF/ESIC justifiable as AO’s failure to examine has rendered assessment order erroneous and prejudicial to interest of revenue.
Facts- Pr. CIT issued a notice u/s. 263 of the Act, observing that the AO had erroneously allowed the deduction u/s. 80IA(4) of the Act despite the assessee not submitting the necessary evidence in support of the claim during the assessment proceedings. Pr. CIT also noted that an amount of Rs.1,15,539/- received as employees’ contributions towards PF/ESIC was not credited within the prescribed time limit and should have been disallowed u/s. 36(1)(va) r.w.s. 2(24) of the Act.
Thus, Pr. CIT held that the assessment order passed u/s. 143(3) was erroneous and prejudicial to the interests of the revenue, and therefore, initiated proceedings u/s. 263 of the Act and set aside the order of AO and directed AO to pass a fresh assessment order.
Conclusion- Held that given the complete scrutiny selection and the AO’s duty to examine all relevant aspects, the omission to disallow the delayed payment of employees’ contributions to PF/ESIC under Section 36(1)(va) does constitute an error. This error justifies the invocation of Section 263 by the Pr. CIT to correct the assessment order.
With respect to the disallowance under Section 80IA(4), it is held that the AO had appropriately disallowed the deduction claimed by the assessee. The Pr. CIT’s observation regarding the erroneous allowance of this deduction is factually incorrect as the AO had already made the disallowance while computing the total income.
Thus held that the order passed by the Pr. CIT under Section 263 of the Act is partly sustainable. The invocation of Section 263 for the issue of delayed payment of employees’ contributions to PF/ESIC is upheld, as the AO’s failure to examine this aspect under complete scrutiny renders the assessment order erroneous and prejudicial to the interest of the Revenue.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal by the assessee arises against the order passed by the Principal Commissioner of Income Tax -3, Ahmedabad (hereinafter referred to as “Pr. CIT”) under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 31-01-2024, for the Assessment Year 201819.
Brief Facts of the Case:
2. The assessee company filed its return of income for the Assessment Year (AY) 2018-19 on 30th October 2018, declaring a total income of ₹ 44,58,340/-. The case was selected for scrutiny, and a notice under Section 143(2) of the Act was issued. Subsequently, notices under Section 142(1) of the Act were issued, and the assessee submitted the requisite details and documentary evidence in response.
3. The Assessing Officer (AO) at the National Faceless E-Assessment Centre (NFAC), Delhi, passed an order under Section 143(3) of the Act on 13th April 2021, determining the total income at ₹ 2,79,07,196/- after making the following additions/disallowances:
– Disallowance of deduction under Section 80IA(4) of the Act amounting to ₹ 34,48,856/-.
– Addition of unsecured loans amounting to ₹ 2,00,00,000/-.
4. Being aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as “CIT(A)”) on 13th May 2021, which is currently pending.
5. The Pr. CIT issued a notice under Section 263 of the Act, observing that the AO had erroneously allowed the deduction under Section 80IA(4) of the Act despite the assessee not submitting the necessary evidence in support of the claim during the assessment proceedings. The Pr. CIT also noted that an amount of Rs.1,15,539/- received as employees’ contributions towards PF/ESIC was not credited within the prescribed time limit and should have been disallowed under Section 36(1)(va) r.w.s. 2(24) of the Act.
6. The Pr. CIT, based on these observations, held that the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of the revenue, and therefore, initiated proceedings under Section 263 of the Act and set aside the order of AO and directed AO to pass a fresh assessment order.
7. Therefore, the assessee is in appeal before us with following grounds of appeal:
1. The learned Pr. CIT-3, Ahmedabad has erred in law and on facts in passing the order u/s. 263 of the Act without proper consideration and appreciation of the facts of the case as well as submission filed in support of the same. In view of the facts and the submission filed, the order passed by the learned Pr. CIT-4, Ahmedabad is invalid and the same is required to be quashed.
2 The learned Pr. CIT-3, Ahmedabad has erred in law and on facts while observing that the order passed u/s. 143(3) of the Act dated 13/04/2021 is held to be erroneous and prejudicial to the interest of the revenue without proper consideration and appreciation of the facts of the case. In view of the fact that the order passed u/s. 143(3) of the Act dated 13/04/2021 is a speaking order after taking into consideration all the details and documents submitted by the appellant company during the course of assessment proceedings, the said order u/s. 143(3) of the Act is not erroneous and prejudicial to the interest of the revenue as allegedly observed by the Ld. Pr. CIT-3, Ahmedabad.
8. Before us the Authorised Representative (AR) of the assessee contended that the observation of the Pr. CIT regarding the non-submission of evidence for the deduction under Section 80IA(4) is factually incorrect. The assessee had, in fact, submitted all the required documents, including Form 10CCB, audited financial statements, and previous assessments, supporting the claim. The AR also submitted that the AO had specifically disallowed the deduction under Section 80IA(4) amounting to Rs. 34,48,856/- while computing the total income, and therefore, there was no error in the assessment order. The AR submitted the copy of Computation Sheet annexed to the order u/s 143(3) of the Act.
9. Regarding the delayed payment of employees’ contributions to PF/ESIC, the A.R. argued that the case was selected for limited scrutiny, focusing only on the deduction claimed under Section 80IA. Therefore, the AO was not required to examine other issues such as the disallowance under Section 36(1)(va) of the Act.
10. The Departmental Representative (DR) argued that the case was not selected for limited scrutiny but for complete scrutiny under the Computer-Assisted Scrutiny Selection (CASS). The notice issued under Section 143(2) was to inform the assessee that the case was selected for scrutiny under CASS, which is a system-based selection process. The DR further submitted that the AO, in his assessment order, explicitly stated that the case was selected for complete scrutiny, and therefore, the AO was required to examine all issues, including the delayed payment of employees’ contributions to PF/ESIC.
11. We have heard the arguments of both sides and perused the material available on record. It is evident from the assessment order dated 13th April 2021 that the AO had made specific disallowances, including the disallowance under Section 80IA(4). The computation sheet attached to the assessment order corroborates this, showing that the total assessed income included the disallowance of ₹ 34,48,856/- under Section 80IA(4) of the Act.
12. However, regarding the issue of delayed payment of employees’ contributions to PF/ESIC, we find merit in the DR’s contention. The AO, in the assessment order, clearly mentioned that the case was selected for complete scrutiny. Under complete scrutiny, the AO is required to examine all relevant aspects of the assessee’s return, including the issues of delayed payment under Section 36(1)(va). The fact that this issue was not examined by the AO in the assessment order does suggest a lapse that could render the order erroneous and prejudicial to the interests of the Revenue.
13. Given the complete scrutiny selection and the AO’s duty to examine all relevant aspects, the omission to disallow the delayed payment of employees’ contributions to PF/ESIC under Section 36(1)(va) does constitute an error. This error justifies the invocation of Section 263 by the Pr. CIT to correct the assessment order.
14. On the other hand, with respect to the disallowance under Section 80IA(4), we find that the AO had appropriately disallowed the deduction claimed by the assessee. The Pr. CIT’s observation regarding the erroneous allowance of this deduction is factually incorrect as the AO had already made the disallowance while computing the total income.
15. However, the order passed by the Pr. CIT under Section 263 of the Act is set aside with respect to the issue of disallowance under Section 80IA(4), as the assessment order already addressed this issue.
16. In light of the above findings, we hold that the order passed by the Pr. CIT under Section 263 of the Act is partly sustainable. The invocation of Section 263 for the issue of delayed payment of employees’ contributions to PF/ESIC is upheld, as the AO’s failure to examine this aspect under complete scrutiny renders the assessment order erroneous and prejudicial to the interest of the Revenue.
17. In the result the appeal of the assessee is dismissed.
This Order pronounced in Open Court on 27/08/2024
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