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 ... Disallowance of employees' contribution to Provident Fund when deposited after PF Act due date but before due date of filing return - deduction under section 43B for provident fund contributions paid before due date of filing return - section 2(24)(x) deemed income where employer fails to deposit employees' contribution within PF Act time - preference for construction favourable to the assessee where divergent judicial views exist - exercise of jurisdiction under section 263 - erroneous and prejudicial to the interest of revenueDisallowance of employees' contribution to Provident Fund when deposited after PF Act due date but before due date of filing return - deduction under section 43B for provident fund contributions paid before due date of filing return - section 2(24)(x) deemed income where employer fails to deposit employees' contribution within PF Act time - Validity of the Commissioner's direction under section 263 to treat employees' provident fund contribution as deemed income and direct AO to make addition when the contribution was deposited before the due date of filing the return but after the due date under the Provident Fund Act. - HELD THAT: - The Tribunal accepted the assessee's contention and the view of coordinate benches that, after omission of the second proviso to section 43B by the Finance Act, 2003, there is no distinction between employer's and employee's contribution for the purpose of allowance where the total contribution is paid on or before the due date for filing the return under section 139(1). The Bench noted divergent judicial precedents but applied the principle from the Apex Court in CIT v. M/s. Vegetables Products Ltd. that where two reasonable constructions are possible the construction favourable to the assessee should be adopted, and the jurisdictional High Court's similar approach. The Tribunal observed that the Assessing Officer had taken a plausible view favouring the assessee based on binding and persuasive precedents; an assessment made in accordance with law cannot be branded erroneous by the Commissioner merely by substituting his own view. Applying these principles, the Tribunal held that the assessment could not be treated as erroneous and prejudicial to the revenue and that the Commissioner's direction to make the addition under section 2(24)(x) could not be sustained.The impugned section 263 order directing addition of the employees' PF contribution as deemed income is quashed; the appeal of the assessee is allowed.Final Conclusion: The section 263 direction to treat the employees' provident fund contribution as deemed income and to direct the AO to make the addition is quashed; the Tribunal follows the construction favourable to the assessee that payment of total contribution on or before the due date of filing the return permits allowance under section 43B, and the assessee's appeal is allowed for A.Y. 2015-16. 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.