2021 (10) TMI 1045 - AT - Income Tax

Tribunal rules in favor of Assessee on PF contributions timing, deems Pr.CIT's direction erroneous.

The tribunal held that the assessment order allowing the Assessee's PF contributions deposited before the due date of filing the return was in line with ... Revision u/s 263 by CIT - Delayed employees contributions to the Provident Fund (PF) - addition u/sec. 2(24)(x) - Deposits on or before due date of filing of return u/sec. 139(1) - HELD THAT:- An order cannot be termed as erroneous unless it is not in accordance with law. If assessing officer makes assessment in accordance with law, the same cannot be branded as erroneous by the commissioner. The Commissioner is not empowered to substitute his view to the view already taken by the AO in accordance with law or judgements of the higher Courts. In the instant case the AO in view of the decisions of the Hon’ble High Courts, had taken the plausible and favourable view to the Assessee, while considering the expenses qua employees contribution to the provident fund deposited on or before due date of filing of return u/sec. 139(1) of the Act, and hence the assessment order can not be termed as erroneous and prejudicial to the interest of the revenue. Consequently the directions of the ld. Pr.CIT to the AO to make the addition u/sec. 2(24)(x) of the Act to the income already assessed in the assessment order dated 31/08/2017 and to pass the consequential order accordingly, cannot survive. Assessee during the course of argument also raised an issue that Assessee’s return of income was selected for scrutiny under CASS but for limited purposes i.e. other deductions and other expenses claimed in the profit & loss account (as reflected in notice u/sec. 143(2) of the Act, dated 27/07/2016). The Assessee’s contention is that once the case is selected for limited scrutiny and not covering the issue other than involved for the limited purposes as specified in the notice, then the revenue authorities are not entitled to travel beyond the parameters except while following the due procedure prescribed as per law and instructions issued by the CBDT instructions No.20/2015, dated 29/12/2015 and 05/2016, dated 14/07/2016 etc., but not otherwise. The Assessee also relied upon the order passed by the coordinate bench of the tribunal in the case of M/s. Suraj Diamond Dealers Pvt. Ltd. [2019 (12) TMI 26 - ITAT MUMBAI]. As perused the other expenses and deductions debited in the profit & loss account and the expenditure incurred and specified in the profit & loss account for the year under consideration. The contention of the Assessee prima-facie seems to be correct, however as we are inclined to quash the impugned order on merit and therefore not travelling to this issue in detail, as the exercise would become academic only. Issues Involved:1. Legality of the Pr.CIT's direction to add Rs. 1,34,401/- to the Assessee's income under section 2(24)(x) of the Income Tax Act, 1961.2. Whether the Assessee's contributions to the Provident Fund (PF) deposited before the due date of filing the return under section 139(1) can be disallowed.3. The scope of scrutiny under CASS and whether the revenue authorities can go beyond the specified parameters.Issue-wise Detailed Analysis:1. Legality of Pr.CIT's Direction:The Assessee appealed against the order dated 27/03/2021 by the Pr.CIT, Visakhapatnam, which directed the AO to add Rs. 1,34,401/- to the Assessee's income under section 2(24)(x) of the Income Tax Act, 1961. The Pr.CIT noticed that the employees' contributions to the PF were not paid by the due dates prescribed under the Provident Fund Act, 1925. The Pr.CIT issued a show-cause notice and, despite the Assessee's reliance on favorable tribunal judgments, did not accept the Assessee's claim. The Pr.CIT relied on the Gujarat High Court's judgment in CIT Vs. Gujarat State Road Transport Corporation, which held that if the employees' contribution is not deposited before the due date under the PF Act, the Assessee is not entitled to a deduction under section 36(1)(va), even if deposited before the due date of filing the return under section 139.2. Disallowance of PF Contributions:The Assessee argued that if the employees' contribution to the PF is deposited on or before the due date of filing the return under section 139(1), no disallowance is attracted. The tribunal noted that there are divergent views among different High Courts on this issue. The Hon'ble Apex Court in CIT Vs. M/s. Vegetables Products Ltd. laid down the principle that if two reasonable constructions of a taxing provision are possible, the one favoring the Assessee must be adopted. The jurisdictional High Court in State Of Andhra Pradesh vs Commercial Tax Officer also supported this view. The coordinate bench of the tribunal in DCIT Vs. M/s. Eastern Power Distribution Company of AP Ltd. held that if the employees' contribution to PF is deposited on or before the due date of furnishing the return of income under section 139(1), no disallowance can be made. The tribunal observed that the Provident Fund Act does not differentiate between employees' and employer's contributions and that section 43B provides an extension for making the payment till the due date of filing the return. Therefore, the tribunal concluded that the Assessee's contributions deposited before the due date of filing the return should not be disallowed.3. Scope of Scrutiny under CASS:The Assessee contended that the return was selected for limited scrutiny under CASS, focusing on other deductions and expenses claimed in the profit & loss account. The Assessee argued that the revenue authorities are not entitled to travel beyond these parameters unless following the due procedure prescribed by law and CBDT instructions. The tribunal acknowledged this contention but did not delve deeply into it, as the primary issue was resolved on merit.Conclusion:The tribunal held that the assessment order by the AO, which considered the Assessee's PF contributions deposited before the due date of filing the return as allowable, was in accordance with law and judicial precedents. Consequently, the Pr.CIT's direction to add Rs. 1,34,401/- was deemed erroneous and prejudicial to the Assessee's interest. The tribunal quashed the impugned order and allowed the Assessee's appeal.Final Order:The appeal of the Assessee was allowed, and the impugned order was quashed. The judgment was pronounced in open court on 23rd September 2021.