The Ahmedabad Bench of the ITAT allowed the assessee’s Rs. 4,78,966 Provident Fund (PF) contribution claim overturning the Assessing Officer (AO)’s disallowance for exceeding the 27% limit as he failed to include wages in the calculation.
The assessee, Ven Singh filed an appeal against the disallowance of Rs. 4,78,966 related to Provident Fund (PF) contributions for the Assessment Year 2017-18. The AO disallowed the PF contribution on the grounds that it exceeded the statutory limit of 27% of salary as per Rule 87 of the Income Tax Rules, 1962.
In making the disallowance, the AO only considered the salary component for the calculation and did not include wages despite the assessee being a labor contractor who deducted PF contributions on both salary and wages.
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The assessee explained that the statutory limit was not breached when both salary and wages were considered, and the disallowance was factually incorrect.
The assessee also pointed out that during the e-assessment process, detailed submissions, including evidence of PF contributions and their computation, were uploaded on the portal in response to the show cause notice. The AO ignored these submissions and passed the assessment order without verification.
On appeal, the CIT(A) dismissed the case for non-prosecution citing non-responsiveness from the assessee. Before the ITAT, the assessee’s counsel pointed out this issue, explaining the CIT(A) failed to address the merits of the case despite the submissions being on record.
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The tribunal observed that both the AO and CIT(A) failed to discharge their duties of verifying the factual claims made by the assessee, particularly the inclusion of wages in the PF contribution.
The two-member bench comprising Annapurna Gupta (Accountant Member) and T.R. Senthil Kumar (Judicial Member) observed that the AO’s failure to consider the combined salary and wage components while applying the statutory limit which resulted in a flawed calculation and an unjustified disallowance.
The revenue sought an opportunity to revisit the issue for verification but the tribunal declined stating that the department should not be given a second chance to rectify its failure to verify the facts during the assessment and appellate proceedings.
The tribunal deleted the entire disallowance of Rs. 4,78,966. The assessee’s appeal was allowed.
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