The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the Principal Commissioner of Income Tax’s invocation of Section 263 of the Income Tax Act, 1961, concerning the assessing officer’s failure to scrutinize the employer’s delayed payment of PF/ESIC contributions during the comprehensive review.
Parry Engineering & Electronics Ltd. (assessee), filed its income tax return for the assessment year 2018-19 declaring Rs. 2,79,07,196 as total income. The assessing officer completed the assessment by disallowing Rs. 34,48,856 under Section 80IA(4) of the Income Tax Act and made an addition of Rs. 2,00,00,000 as unsecured loans.
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The Principal Commission of Income Tax ( PCIT ) found an error in the assessing officer’s assessment order and invoked Section 263 of the Income Tax Act, 1961. The PCIT issued a notice stating that the AO disallowance of the amount despite the assessee’s non-submission of the necessary evidence in support of the claim during the assessment proceedings and also the AO’s failure to disallow employee contributions to PF/ESIC, which were not credited within the prescribed limit.
Based on the above observation, the PCIT held that the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue. Consequently, initiated proceedings under Section 263 of the Income Tax Act and set aside the order of the assessing officer.
Aggrieved by the PCIT order, the assessee appealed before the Ahmedabad Bench of ITAT. The assessee’s counsel submitted that the case was selected for limited scrutiny, focusing solely on Section 80IA, and therefore, other issues like PF/ESIC contributions were not considered by the AO.
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On the other hand, the revenue counsel argued that the case was selected for complete scrutiny under CASS so the assessing officer was required to examine all aspects of the income tax return. The revenue counsel submitted that the assessing officer failed to disallow delayed employee contributions under Section 36(1)(va) was an error.
The two-member bench comprising Suchitra Kamble (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) observed the assessing officer in the assessment order mentioned that the case was selected for complete scrutiny. Regarding delayed payments to PF/ESIC, the tribunal agreed with the PCIT contention that under complete scrutiny, the AO was required to examine the issue, and the failure to do so rendered the assessment order erroneous and prejudicial to revenue.
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Therefore, the tribunal upheld the PCIT’s invocation of Section 263 regarding the delayed payment of PF/ESIC contributions, as the AO’s omission constituted an error. The appeal of the assessee was dismissed.
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