2018 (10) TMI 1175 - AT - Income Tax

Revision u/s 263 - AO had not examined that the assessee has collected employees share of EPF and ESI, but the payment towards the fund has not been made within the period prescribed for the purpose by Government of India - Held that - As referring to the judgment of CIT vs. Merchem Ltd. 2015 (9) TMI 560 - KERALA HIGH COURT assessee is entitled to get the benefit of deduction u/s. 43B(b) as provided under the proviso thereto only with regard to the portion of the amount paid by the employer to the contributory fund. Held, allowing the appeal, that since the assessee had admittedly not paid the remittance of the employees contribution to the provident fund and ESIC within the dates prescribed under the respective Acts, the assessee was not entitled to deduction under section 43B of the amounts deducted thereunder for an on behalf of the employees. This judgment was delivered on 8th September, 2015. The assessment order was passed on 19/12/2016. At the time of passing of the assessment order, the judgment was available to the Assessing Officer and he should have considered the same and disallowed the employee s contribution towards ESIC and EPF after the prescribed date under the respective Act. The Assessing Officer failed to take note of the judgment of the Jurisdictional High court cited supra. In view of the above judgment, the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. Non consideration of TPA provision applicability - Held that - Regarding referring the matter to the Transfer Pricing Officer u/s. 92CA(1) when the specified transactions with the sister concerns exceeded ₹ 15 crores, as per the provisions of the Act, the Assessing Officer should have examined whether the assessee s case is fit to refer to the TPO or not. However, there was no whisper in the assessment order regarding the applicability of section 92CA(1) of the Act. The failure on the part of the Assessing Officer to make necessary enquiry in this matter, renders the assessment erroneous which also resulted in loss to the revenue, hence, it is prejudicial to the interests of the Revenue. Therefore, the CIT correctly exercised the power conferred under section 263 in setting aside the assessment order and remanded the case back to the file of the Assessing Officer to make necessary enquiry into the applicability of TP provisions and decide thereupon - Assessee appeal dismissed.

Summary

Issues:
1. Reopening of assessment under section 263 of the Income Tax Act based on various grounds raised by the assessee.
2. Disallowance of employees' contribution towards EPF and ESI.
3. Failure to refer specified domestic transactions to the Transfer Pricing Officer (TPO) as required by law.

Analysis:

1. Reopening of Assessment under Section 263:
The appeal was against the order of the CIT, Thrissur, dated 19/02/2018, related to the assessment year 2014-15. The assessee raised multiple grounds challenging the order for reopening the assessment under section 263. The grounds included arguments related to the interpretation of Section 43B, the impact of the Finance Act, 2003 amendments, and the applicability of CBDT instructions. The CIT found the assessment order erroneous and prejudicial to the revenue due to certain omissions by the Assessing Officer. The CIT set aside the assessment and directed the AO to re-examine the issues. The Tribunal confirmed the CIT's order, emphasizing the duty of the Assessing Officer to conduct thorough inquiries and protect the revenue's interests.

2. Disallowance of Employees' Contribution towards EPF and ESI:
The CIT found that the assessee failed to pay the employees' contribution towards EPF and ESI within the prescribed due dates, leading to disallowance under section 36(1)(va) of the Income Tax Act. Citing a judgment of the Kerala High Court, the CIT held that belated deposits of employees' contributions are not deductible while computing taxable income, even if paid before the due date for filing returns. The Tribunal concurred with the CIT's decision, emphasizing the need for timely payments as per labor laws for deductions to be allowed.

3. Failure to Refer Specified Domestic Transactions to TPO:
The Assessing Officer did not refer the case to the TPO for verification of specified domestic transactions exceeding ?15 crores with sister concerns. This failure was deemed prejudicial to the revenue by the CIT. The Tribunal agreed with the CIT's decision to set aside the assessment order and remand the case to the AO for necessary inquiries into the applicability of transfer pricing provisions. The Tribunal upheld the CIT's directive to refer the matter to the TPO, emphasizing compliance with section 263 of the Income Tax Act.

In conclusion, the Tribunal dismissed the assessee's appeal, affirming the CIT's order to set aside the assessment and direct the Assessing Officer to re-examine the issues related to the disallowance of employees' contributions and the referral of specified domestic transactions to the TPO. The judgment highlighted the importance of thorough assessments, compliance with legal provisions, and protection of revenue interests.