2025 (7) TMI 1772 - AT - Income Tax

AO's allowance of PF/ESI contributions upheld; assessment valid under Sections 153A and 153C for AY 2017-18

M/s. Alliance Broadcasting Pvt. Ltd. Versus The PCIT (Central), Chennai-2.

The ITAT Chennai held that the AO's allowance of employees' contribution towards PF/ESI was not erroneous or prejudicial to Revenue, as it was consistent ... Revision u/s 263 - as per CIT AO's order is erroneous and prejudicial to the interest of the Revenue as AO erred in allowing the claim of employees’ contribution towards PF/ESI - HELD THAT:- As before the Hon’ble Supreme Court’s order in Checkmate [2022 (10) TMI 617 - SUPREME COURT (LB)] i.e., when the AO framed the assessment on 05.07.2021, there was a decision of jurisdictional High Court on this issue in favor of assessee viz., in the case of M/s.Industrial Security & Intelligence India Pvt. Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] had held that if the assessee had remitted employee’s contribution before filing of ROI u/s. 139(1) of the Act, no disallowance was warranted. In such a scenario, the AO was bound by the decision of the Hon’ble Madras High Court (supra) when he found that the assessee had already remitted the employees' contribution towards PF/ESI before filing of the RoI u/s. 139(1) of the Act, hence, he has not taken any adverse view against the assessee, which view is a plausible view and can’t be termed as erroneous and prejudicial to the interest of the Revenue as held in the case of CIT v. G.M. Mittal Stainless Steel (P) Ltd. [2002 (12) TMI 13 - SUPREME COURT] Period of limitation - As assessee had filed RoI for AY 2017-18 u/s. 139(1) of the Act on 07.11.2017 and the intimation u/s. 143(1) of the Act was issued dated 02.06.2018 and the time-limit to issue notice u/s. 143(2) of the Act got expired on 30.09.2018; and taking note of the crucial facts in this case i.e. the search commenced on 25.10.2018 and consequent notice u/s. 153C of the Act was issued to the assessee on 11.03.2021, it can be safely presumed that assessment for AY 2017-18 was not pending before the AO on the date of search. Therefore, assessment for AY 2017-18 has to be held to be unabated assessment for the purpose of assessment u/s. 153C r.w.s.153A of the Act; and as per the settled position of law in respect of unabated assessment, only on the basis of incriminating materials qua assessee qua for AY 2017-18, any addition can be made. [refer to the decision of the Hon'ble Supreme Court in CIT v. Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT]]. It is undisputed fact that there was no incriminating material for making any disallowance under PF/ESI found during search. Therefore, the AO can’t be blamed for not making any disallowance on this count. Appeal filed by the assessee is allowed. ISSUES: Whether the revisional jurisdiction under section 263 of the Income Tax Act, 1961 can be validly invoked against an assessment order passed under section 153C of the Act.Whether the Assessing Officer's order allowing deduction for employees' contribution towards PF/ESI despite delayed remittance was erroneous and prejudicial to the interest of the Revenue.Whether the Assessing Officer was obliged to disallow the employees' contribution towards PF/ESI based on a subsequent Supreme Court decision rendered after the assessment order.Whether additions can be made under section 153C in the absence of incriminating material found during search proceedings related to the issue in question. RULINGS / HOLDINGS: The revisional jurisdiction under section 263 of the Act can be exercised only if the order of the Assessing Officer is both 'erroneous' and 'prejudicial to the interest of the Revenue' by satisfying the twin conditions laid down by the Supreme Court.The Assessing Officer's order framed under section 153C allowing deduction for employees' contribution towards PF/ESI was not erroneous or prejudicial to the Revenue since it was based on the binding decision of the jurisdictional High Court prevailing at the time of assessment.The subsequent Supreme Court decision in Checkmate Services (P) Ltd. v. CIT dated 12.10.2022 could not be applied retrospectively to invalidate the AO's order passed on 05.07.2021; hence, the AO's view was a 'plausible view' and not unsustainable in law.In the absence of any incriminating material relating to the employees' contribution towards PF/ESI found during the search under section 132, no addition could be made under section 153C, and the AO was justified in not making any disallowance on that ground.The Principal Commissioner of Income Tax erred in invoking section 263 revisional jurisdiction and the order passed under section 263 was quashed. RATIONALE: The Court applied the legal framework established by the Supreme Court in Malabar Industries Ltd. v. CIT, which requires satisfaction of twin conditions-(i) the AO's order must be erroneous, and (ii) the erroneous order must be prejudicial to the Revenue-for valid exercise of section 263 jurisdiction.The Court relied on the principle that an order is erroneous under section 263 only if passed on incorrect facts or law, without application of mind, or in violation of natural justice, and that mere loss of revenue is insufficient unless the AO's view is unsustainable in law.The Court noted that at the time of assessment, the binding precedent was the jurisdictional High Court decision allowing deduction where employees' contribution was remitted before filing the return, which the AO followed, constituting a plausible view.The Court emphasized that subsequent Supreme Court decisions do not automatically render prior assessments erroneous or prejudicial for purposes of section 263.The Court referred to the settled position of law on unabated assessments under section 153C read with section 153A, requiring incriminating material specific to the assessee and assessment year for additions; absence of such material precluded disallowance.The Court distinguished the facts from the Supreme Court decision in Checkmate Services (P) Ltd., holding that the AO's order was not erroneous given the factual and legal context prevailing at the time.