M/s.Kerala State Warehousing Corpn, Ernakulam V. The ACIT, Kochi

ITA 389/COCH/2020

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0624 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 03-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Assessment record; TDS
• Section: 263; 28; 43B; 143(3); 208; 153; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri George George K., Judicial Member and Shri Laxmi Prasad Sahu, Accountant Member ITA No. 389/Coch/2020 (Assessment Year: 2015-16) M/s. Kerala State Warehousing Corporation PB No. 1727, Warehousing Corporation Road Ernakulam 682016 PAN – AABCK1583G vs ACIT, Corporate Circle 1(2) IS Press Road Kochi 682018 (Ap p ellan t) (Res pond ent ) As se ssee by: Shri K. Gopi, CA Reven ue by: Shri Shantam Bose, CIT DR Date of hearin g: 29/06/202 2 Dat e of p ron ounc em ent: 04/08/202 2 O R D E R Per: L.P. Sahu, A.M. This is an appeal filed by the assessee against the order of the Principal Commissioner of Income Tax, Kochi-1, passed under Section 263 of the Income Tax Act, 1961 (hereinafter "the Act") dated 17.06.2020 for AY 2015-16. 2. The sole substantive issue raised by the assessee in this appeal is whether the Pr. CIT is justified in exercising the powers under Section 263 of the Income Tax Act, 1961 (the Act) or not. 3. The brief facts of the case are that the assessee filed return of income on 30.09.2015 declaring total loss of Rs.26,70.427/-. The case was selected for scrutiny and statutory notices were issued to the assessee. ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 2 The AO accepted the loss declared by the assessee in his return of income. Later on the learned PCIT called for the records and observed that the order passed by the AO dated 27.10.2017 is erroneous in so far as it is prejudicial to the interest of Revenue and he issued show cause notice. After considering the submissions of the assessee the learned Pr. CIT passed his order stating that the order passed by the AO under Section 143(3) of the Act is erroneous and prejudicial to the interest of Revenue and directed the AO for de novo examination and pass a speaking order in accordance with law. Against the order of the learned Pr. CIT the assessee filed appeal before the Tribunal. 4. The learned A.R. filed written synopsis which is as under: - “The appeal is filed by the appellant against the order the Pr. Commissioner of Income tax (Pr. CIT) issued, vide proceedings u/s 263 of the Income Tax Act (Act). The assessment in this case was completed vide Limited Scrutiny proceedings of the Asst. Commissioner of Income tax, Corp. Circle- 1(2), Ernakulam u/s 143(3) of the Act and the order was issued on 27.10.2017. In the proceedings u/s 263, the Pr. CIT held that the above assessment order issued by the AO is erroneous so far as it is prejudicial to the interest of the revenue and the assessment was set aside with the direction to the Assessing officer to redo the same afresh in respect of the issues stated therein in the lines discussed in the order u/s 263 after affording an opportunity of being heard to the assessee. The appeal filed by the assessee has 6 grounds, of which Ground No 1 is general in nature and Ground No.6 is residual in nature and hence the appeal has 4 effective grounds. 2. Ground no. 2 is that the Pr. Commissioner of Income Tax (CIT) has erred in reopening u/s. 263, the assessment, which was duly completed, after verification of records/documents u/s. 143(3) of the Act, since there is no error which is prejudicial to the interest of revenue which requires revision u/s 263 of the Income Tax Act. It is submitted that the assessments completed legally and in accordance with law cannot be re-opened u/s 263 based on the ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 3 judicial review of a supervisory authority. The appellant submits that there is no error, which is prejudicial to the revenue, in respect of the issues raised by the CIT, for the reasons stated as under: a) The issue raised in the grounds of appeal no.2 relates to the allowance by AO of delayed remittance of employees share of PF, which according to the Pr. CIT the AO has omitted to examine, is an error prejudicial to the interest of revenue. b) It is submitted that the appellant M/s Kerala State Warehousing Corporation is an entity established under Warehousing Corporations Act 1962. The provident fund of the employees of the appellant is governed by the Kerala State Warehousing Corporation - Employee Provident Fund Regulations notified by the appellant corporation in exercise of the powers conferred by Section 42 of the Warehousing Corporation Act 1962, with the previous sanction of the State Government. Copy enclosed Annexure-l c) It is submitted that the provisions of Employees Provident Funds and Miscellaneous Act 1952 are not applicable to the appellant- Kerala State Warehousing Corporation. Accordingly, it is the submission of the appellant that the due date prescribed under the said Act is not applicable to the appellant. d) It is further submitted that the no due date has been prescribed under the above Regulations for the remittance of the employee contributions. This fact has been verified and confirmed by the assessing officer while completing the order u/s 143 (3) consequent to the order u/s 263 of the Act passed by the Pr. CIT. Annexure-2. (Refer Para 8.2 of the said Order) e) On facts, the employee contributions under reference were remitted before the due date of filing the return of income. There is no dispute on this fact. It is submitted that employee contribution to Provident fund which is treated as an income under the provisions of Section 2(24)(x) of the Income Tax Act but remitted before the due date of filing the return has to be allowed under Sect/on 43B of the Income Tax Act 1961. f) It is submitted that the decisions relied upon by the Pr. CIT in the order u/s 263 of the Act which is the basis for initiation of proceedings u/s 263 of the Act, have no application to the facts of the appellant. The said decisions have been rendered in the context of assesses' to whom EPFMP Act 1952, which has prescribed the due dates for remittance of employee contributions. ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 4 g) In view of the legal position explained above and the facts and circumstances of the case there is no error which is prejudicial to the interest of revenue in the order u/s 143 (3) passed by the AO. h) Further, without prejudice to the submissions made above, in any case, the PCIT ought to have noted that the impugned Employees' contribution of PF collected by the appellant aggregating to Rs.1,17,31,298/- were remitted 'much before the due date of filing of return of income and this fact was not disputed. i) The appellant submits that since the remittance of PF was made before the due date of filing of return of income, it should not be treated as income of the assessee u/s.2(24)(x) of the IT Act, relying on the decision of the Jurisdictional High Court of Kerala in the appellant's own case. (Copy of the order enclosed - Annexure 3). In the said order, the H'ble Kerala High Court, relying on the order of the Supreme Court in the case of CIT v. Vinay Cements Ltd (213 CTR 268) allowed such payments as expenses u/s.43 B of the Act. Hence there cannot be said to be an error prejudicial to the interest of revenue in the assessment order. j) Application of later decisions of the H'ble Kerala High Court The latter decisions of the Hon'ble Kerala High Court in the cases of CIT, Cochin Vs South India Corporation Limited (2015) 58 Taxmann.com 208 (Ker) and CIT, Cochin Vs Merchem Ltd (2015) 378 ITR 443) (Ker) that overturned its own decision in the case of the appellant (Kerala State Warehousing Corporation Vs CIT) referred to above needs to be considered against the backdrop of facts as under: The Hon'ble Supreme Court in the case of Asst. Commissioner of Income Tax Vs Victory Aqua Farms Ltd (2015 ) 379 ITR 335 (SC) and the Hon'ble Allahabad High Court in the case of CIT Vs Hari Nath Anand (1987) 168 ITR 440 (All) have laid down the principle of judicial principle that a later decision of a court of law on an issue that is pari materia would not be binding if such later decision is not decided by a larger full bench as against the earlier decision decided by a division bench. In its earlier decision in the case of Siddharam Satlingappa Mhetre Vs State of Maharashtra (2011) 1 SCC 694 (SC), the Hon Supreme court cited various judicial precedents in explaining the concept of 'per incurium' which operates on the principle and premise that when a court bench of lower strength ignores the ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 5 decision of a bench of higher strength then the decision of the bench of lower strength can be discarded being per incurium of the decision of the bench of higher strength. Besides, the Hon Apex court also held in the same decision that not only judgements of larger benches, but even judgements of co-equal benches, were binding on subsequent decisions. To reproduce verbatim, the Hon'ble Court held in its judgement that "The analysis of English and Indian law clearly leads to the irresistible conclusion that not only the judgement of a larger strength is binding on a judgement of smaller strength, but the judgement of a co-equal strength is also binding on a bench of judges of co-equal strength" Applying this decision as also those of the Hon Supreme court and Allahabad High Court respectively in the cases of Asst. Commissioner of Income Tax Vs Victory Aqua Farms Ltd (supra) and of CIT Vs Hari Nath Anand (Supra)], the decision of the Hon Kerala High Court in the case of Kerala State Warehousing Corporation Ltd Vs CIT (Supra) has to be taken as binding. Therefore, in the present case, the legal principle created by the apparently contrary judgements of the Hon Court in the case of CIT, Cochin Vs South India Corporation Ltd (Supra) and CIT, Cochin Vs Merchem Ltd (supra) by division bench would not apply and/or supersede the earlier opinion of the Hon'ble Kerala High Court, also of a division bench, in the case of the appellant (Kerala State Warehousing Corporation Ltd Vs CIT) (Supra), especially as the later precedent decision is fortified through the cited invocation (within) of the decision of the Hon Supreme court in the case of CIT Vs Vinay Cements Ltd (supra). This is further fortified with the decision of Hon Supreme court in the case of CIT v, Rajasthan State Beverages Corporation Ltd (250 Taxmann 16 - SC - 2017) wherein the Hon Apex court has rejected the SLP against the order of High Court of Rajasthan holding that amount claimed on payment of PF and ESI having been deposited on or before due date of filing of returns could not be disallowed u/s 43B or u/s 36 (l)(va) of the Income Tax Act. k) Other decisions in favour of the appellant In the following decisions, the High Courts have held that payments of Employees share of PF collected if made before the date of filing of return is sufficient compliance of section 43B of the Income Tax Act. ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 6  CIT Vs Nipro Poly Fabrics Ltd 350 ITR 327 (Himachal He).  CIT Vs AIMIL Ltd (Del) 3211TR 508  CIT Vs Kichha Sugar Company Ltd (Uttarakhand He).  CIT vs. Jaipur Vidyut Vitran Nigam Ltd (Rajasthan High Court)  CIT vs. Sabari Enterprises - 298 ITR 141 (Kar He)  CIT v. Vijay Shree Ltd - Cal HC l) Ground No 3 is that the Ld. PCIT erred in appreciating the fact that the return filed by the appellant was selected for a Limited Scrutiny and the reason for initiation of proceedings u/s 263 as mentioned in the notice was not a reason for selecting the return for limited scrutiny. The Ld. PC IT ought to have noted that the assessing officer completed the limited scrutiny proceedings after examining all the reasons for selecting the return for limited scrutiny based on the records and submissions made by the appellant. Thus, there is no error in the order of Ld. Assessing officer requiring revision u/s 263 of the Act. m) The return was selected for limited scrutiny for following reasons: - Mismatch in sales turnover reported in audit report and turnover - Mismatch in amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR - High Ratio of refund of TDS - Large other expenses claimed in the Profit and Loss Account. n) The Assessing officer after examining reasons for selecting the return for limited scrutiny based on the records and submissions made by the assessee accepted the return and completed the Limited scrutiny by order dated 27.10.2017 without any adjustment to the loss as returned. o) The reason for initiation of proceedings u/s 263 as mentioned in the notice was not a reason for selecting the return for limited scrutiny and the assessing officer based on the records and submission has not come to the conclusion of any potential escapement of income. p) It is legally well settled that the limited scrutiny cannot be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr. CIT and if the AO after considering ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 7 the submissions of the assessee does not come to the conclusion of potential escapement of income the Ld. Pr. CIT cannot hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. Reliance is placed on the decision of Hon ITAT Mumbai Bench in the case of Mrs. Sonali Hemant Bhavsar Vs Pr CIT (ITA No 742 /M/2019. Copy enclosed. Annexure-4. Reliance is also placed on the decision of ITAT Delhi Bench in the case of Balvinder Kumar (125 Taxmann.com 83 ) wherein the Hon ITAT held that in case of limited scrutiny, Assessing Officer could not go beyond reason for which matter was selected for limited scrutiny thus, it. would not be open to Principal Commissioner to pass revisionary order under section 263 on other aspects and remit matter to Assessing Officer for fresh assessment. Annexure- 5. q) Reliance is also placed on the following decisions:- - ITAT Ahmedabad -ITA No. 377/Ahd/2020 in the case of Chaitanya Bansibhai Nagori order dated 23.05.2022. - ITAT Kolkata -ITA No 353/Ko1/2020 in the case of Spotlight Vanijya Ltd. r) It is settled position of law that while completing the assessment under limited scrutiny, the assessing officer cannot look beyond the issue for which the case was selected for scrutiny. Accordingly, there is no error prejudicial to the interest of the revenue in the order of Asst Commissioner of Income Tax, Corporate Circle 1(2) s) Ground No 4 is that the Ld. PC IT erred in appreciating the facts and legal position that when the assessing officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the assessing officer has taken a view with which the Ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the revenue unless the view taken by the AD is unsustainable in law. It is now a settled position in law, as held by the H'ble Supreme Court in the case of CIT v. Vegetable Products Ltd ([1973] 88 ITR 192), that where two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. In the appellant's case, the AO has after verification of facts & law, adopted the view in favour of the appellant, which cannot be said to prejudicial to the interest of revenue. Hence the reopening of the completed assessment is bad in law. ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 8 It is further submitted that The H'ble Supreme Court in the case of CIT Vs. Max India Ltd [295 ITR 282 (2007)] has held that when the assessing officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the assessing officer has taken a view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. Similar view has been taken by the H'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT [243 ITR 83 (2000)]. Reliance is placed on the above judicial decisions in this regard. It is also submitted that on similar facts, the Hon Cochin Bench in appellant's own case has decided the matter in favour of the appellant -Annexure-6. It is also submitted that on similar facts the Hon Cochin Bench in the case of The Kerala State Civil Supplies Corporation Ltd (ITA No 34/Coch/2017) held that the order passed by the AO is neither erroneous nor prejudicial to the interests of the revenue and set aside the order passed under section 263 by the Pr. CIT. Annexure-7. Based on the above submissions, the appeal may kindly be allowed by setting aside' the order of the Pr. CIT.” In addition to the written synopsis he also submitted that the assessee has its own PF scheme which is an “Employees Provident Fund Regulations” framed by the assessee itself which is placed on paper book page Nos. 11 to 33 and as per the regulations there is no any due date of payment towards employees’ contribution into the Provident Fund scheme set up by the Kerala State Warehousing Corporation. Therefore the Section 36(1)(va) of the Income Tax Act will not apply in this case. He also relied on the following judgement: - i) Kerala State Warehousing Corporation vs. CIT, Ernakulam, ITA No. 1035 of 2009 (Ker) dated 02.12.2009. ii) Mrs. Sonali Hemant Bhavsar vs. Pr. CIT, IT No. 742/Mum/2019 dated 17.05.2019. ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 9 iii) Balvinder Kumr vs. Pr. CIT, New Delhi (2021) 125 taxmann.com 83 (Delhi-Trib). iv) Kerala State Warehousing Corporation vs. ACIT, Kochi, ITA No. 225/Coch/2017 dated 18.06.2018 v) The Kerala State Civil Supplies Corporation Ltd. vs. ACIT, Kochi, ITA No. 34/Coch/2017 dated 14.12.2007 The learned AR submitted that the order passed by the AO is not erroneous and prejudicial to the interest of Revenue. Hence the Pr. CIT is not justified in invoking his power under Section 263 of the Act. 4. The learned A.R. of the assessee also relied on the recent judgment of the Hon’ble Madhya Pradesh High Court in the case of Commissioner of Income Tax vs. M P Electricity Board dated 21.01.2020 reported in (2020) 429 ITR 349 (MP). The relevant part is as under: - “5. On the other hand, learned counsel for the assessee argued in support of the impugned order. It was urged that the claim of deduction on account of payment towards contribution to National HVDC Project, New Delhi was made on the ground that it was paid to an organization approved by the Government of India vide order of releasing of funds to the assessee. It was argued that under such circumstances, the expenditure was revenue in nature and had been rightly allowed by the CIT(A) and the Tribunal. It was further contended that the provident fund subscription was also rightly allowed as the assessee-Department has its own provident fund rules and regulations under which it is deposited with the PF Trust and since there is no specific date of payment but an arrangement is made that payments are made regularly on ad hoc basis and the amount remaining unpaid, if any, is treated9 as invested with the assessee and carries interest as per rules. He invited our attention to Clause 11 of the PF Regulations, which have been taken note of by the learned Tribunal in ITA No.79 to 81/Jab/2013 (Asst. Commissioner of Income Tax 2(1) Jabalpur v. M.P. Electricity Board) while dismissing the appeal of the Revenue by order dated 06.07.2015 in identical facts and circumstances, which reads as under:- “All money contributed to the fund by the Board or by a subscriber or accruing by way of interest or otherwise to such fund shall remain invested with the Board or in such securities as the Trustees ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 10 may from time to time decide. If the amount is left with and merged in the fund of the Board, the Board shall credit the fund with interest on such amount computed on monthly balance once in a year at same rate as they pay to the Govt. or their loans or 4 p.c. whichever is higher.” Learned counsel also placed on record an order dated 06.02.2017 passed by a Division Bench of this Court in ITA No.1/2016 (Principal Commissioner, Income Tax v. M.P.E.B.) decided on 06.02.2017 wherein the appeal of the Revenue against the aforesaid order dated 06.07.2015 was also dismissed. The Division Bench answered similar question raised by the Revenue, against them on the basis of the order dated 30.12.2010 passed by the Assessing Officer accepting the same principle in respect of assessment year 2003-04. 6. ......................... 7. ........................ 8. Before adverting to the second question with regard to allowing the deletion of addition of Rs.24,25,05,585/- of provident fund which was not paid on due date under Section 36(1)(va) of the Act, it would be apposite to refer to the relevant statutory provision which reads, thus:- 36. “Other deductions - (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- ... (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date. Explanation. - For the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;” 9. There is no doubt with regard to the mandate of the aforesaid provision. However, it is seen that the assessee had got exemption from depositing the money with the Provident Fund Commissioner and instead, was allowed to deposit the same with the P.F. Trust and as per Regulation 11 of the PF Regulations which are applicable to the respondent, there is no specific date for deposit of the provident fund by the Board. In M.P.E.B.’s case (supra), which has been relied upon by learned counsel for the assessee, similar question raised by ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 11 the Revenue was answered against them on the basis of order dated 30.12.2010 passed by the Assessing Officer accepting the same principle in respect of assessment year 2003-2004. Thus, there is nothing to take any different view in the present case.” 5. The learned D.R. relied on the order of the Pr.CIT and he submitted that the order passed by the AO is erroneous and prejudicial to the interest of Revenue because he has not examined the issue as per Section 263 of the Act. The AO is firstly an investigating officer thereafter he is an adjudicating officer. If there is any potentiality of the Revenue as per the Income Tax Act then the AO should not ignore the issue upto the depth examination within the purview of the Income Tax Act as expected from the AO but he has not done so. The assessee is covered under the PF Act, therefore Section 36(1)(va) of the Act will apply here. He also submitted that as per Form No. 40C (see Rules 77) of the Income Tax Rules which is an application for recognition of PF, as per Sl. No. 18(a) & (b) the AR of the assessee could not establish that the PF Act, 1952 is applicable on the assessee or not and as per Sl. No. 19 he also could not produce any document that the PF Act is not applicable in the case of the assessee which are the mandatory requirement for obtaining approval from the CIT as a recognised Provident Fund. He is also unable to prove that any exemption for registration as recognised Provident Fund has been granted by the Commissioner as per Rule 77 of the IT Rules. The assessee has maintained own Provident Fund but not depositing the employees contribution within the due date is squarely covered by Section 36(1)(va) r.w.s. 2(24(x) of the Act unless there is any exemption granted by the CIT. He also submitted that the case law relied by the learned A.R. is not applicable in the present case. The ld. D.R. further submitted that the case law relied by the ld. A.R. is not applicable because in this year some new facts have raised with regard to the due dates for ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 12 deposit of employees’ contribution to the own Provident Fund set up by the assessee. 6. Considering the rival submission we observed that the assessee is maintaining own Provident Fund and depositing the contribution as per his own convenience but not as per Section 36(1)(va) of the I T Act. The AO completed the scrutiny assessment under Section 143(3) of the Act on 27.10.2017. The learned Pr. CIT after examination of the records observed that the order passed by the AO is erroneous and prejudicial to the interest of Revenue. For the sake of convenience we are reproducing the same as hereunder: - “4. In response, Shri K. Gopi, FCA, the Authorised Representative appeared and re- iterated the contents of assessee's letter dated 23.03.2020 which inter-alia stated that 'return of income for the above AY was selected for limited scrutiny and assessment completed by AO ... reason for initiating proceedings u/s 263 was not a reason for selecting the case for limited scrutiny ... legally well settled that limited scrutiny cannot be expanded unless AO converted it to complete scrutiny ... AO after considering submission of the assessee does not come to the conclusion of potential escapement of income ... PCIT cannot hold the order to be erroneous on the ground that AO ought to have reached such conclusion ... reliance placed on ITAT, Mumbai Bench order in the case of Sonali H Bhavsar ... there is no error prejudicial to the interests of revenue ... proposal to revise the assessment u/s 263 is not valid in law and requires to be dropped ... submitted that employee contributions to PF during the year were remitted before the due date of filing return and hence allowable u/s 43B in view of decision of Kerala High Court in our own case in AY 2003-04 and AY 2004-05 ... this view upheld in various other judicial decisions ... Supreme Court decision in the case of CIT Vs. Vinay Cements and CIT Vs. Rajasthan Beverages Corporation Limited ...matter attained finality in Rajasthan Beverages Corporation Limited case wherein Supreme Court rejected the SLP filed by the department...submitted that Kerala High Court later decisions in the cases of South India Corporation Ltd., Merchem Ltd. has overturned the decision rendered in their own case ... applying judicial decisions of Victory Aqua Farms Ltd. and Hari Nath Anand ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 13 cases, Kerala High Court's earlier decision in assessee's own case has to be taken as binding ...Kerala High Court's decision in South India Corporation Ltd. and Merchem Ltd. are before the Supreme Court ... CIT (Appeals) has held the issue in assessee's favour for AY 2010-11 and 2005-06 ... AO adopted settled legal position ... it cannot be treated as erroneous order prejudicial to the interest of revenue ... when the AO adopts one of two courses permissible in law etc. and this view CIT does not agree, it cannot be treated as erroneous order prejudicial to revenue unless view taken by AO is unsustainable in law ... reliance placed on decisions of Supreme Court in Max India Ltd. and Malabar Industrial Co. Ltd ... not correct on facts to state that auditor has qualified that remittance towards 'employee's share of PF/ESI amounting to Rs.1,17,31,298/- remitted after the due dates prescribed ... auditor has merely reported details of remittance of said dues ... submit that AO's order is correct and there is nothing on record to treat same as erroneous in so far as it is prejudicial to the interest of revenue ... ' 5. The submissions made by the Assessee have been carefully considered. At this Juncture, it will be apt to refer to provisions of Section 263 which are reproduced hereunder: Section 263: (1) The Principal Commissioner... may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may. .. pass such order thereon as the circumstances of the case justify, including an order or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1: .... Explanation 2: For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, directions or instruction issued by the Board under Section 119; or ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 14 (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 5.1 Thus it is evident that revisionary power under Section 263 is not merely confined to assessment but also to any proceedings under the Act as long as it is erroneous and prejudicial to the interests of the Revenue. Such prejudice to the interests of the Revenue need not be always measured in quantitative terms, so much so, even non-enquiry by itself may justify prejudice to Revenue. Prejudice to the Revenue can be inferred not only where an income which should have been brought to tax has not been so brought, but also where there has been no enquiry in matters which warrant enquiry. Failure to make enquiries, where such enquiry is prima facie warranted would constitute prejudice to the Revenue, whether any understatement of income is otherwise inferable or not. Reference may also be made to the judgment of the Apex Court in the case of M/s The Malabar Industrial Co. in 243 ITR 83 (SC) and the decision rendered by the jurisdictional High Court in the case of M/s Raja & Co. in 335 ITR 381 (Kerala HC) in this regard. In a catena of such cases the Hon'ble Courts have observed that 'an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. Similarly orders passed without applying the principles of natural justice or without application of mind or without making any enquiry can be subject to revision u/s. 263.’ 6. From a perusal of the records. it is noticed that the following aspect has not been considered while framing the Assessment Order: 6.1 It is a fact that the assessee has caused a delay in the payment of 'employee's share/ contribution' of PF/ ESI dues amounting to Rs.l,17,31,298/- beyond the due date as specified in the respective statute. As per section 2(24)(x), 'any sum received by the assessee from his employees as contributions to any provident fund or ... any fund set up under the provisions of the ESI Act 1948 is treated as income of the assessee.' Again as per provisions of section 36(1)(va), the deductions to be allowed in computing the income referred to in section 28 will be 'any sum received by the assessee from any of his employees to which section 2(24)(x) applies provided such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to section 36(1)(va) speaks that 'due date' means ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 15 date by which assessee is required as an employer to credit employee's contribution to the employee's account in the relevant fund under any Act, Rule ... etc. Since the assessee has not remitted the employee's contribution of ESI/PF within the stipulated due date as per PF Act/ ESI Act, 1948, the concerned sum of money will be deemed to be the income of the assessee as per Section 2(24)(x) r.w.s. 36(1)(va). 6.2 It is relevant to note from the Hon'ble Supreme Court order in PCIT Vs. Rajasthan State Beverages Corporation that only the SLP filed against the Hon'ble High Court's order was dismissed. There are a plethora of judgments given by the jurisdictional High Court on the issue of 36(1)(va) r.w.s. 2(24)(x) wherein it was held by the Hon'ble Court that payment of employees contribution towards PF/ ESI beyond the due date as prescribed under the relevant statute is not an allowable deduction under the act. Some of the Hon'ble Courts judgments are in the following cases of M/s Popular Vehicles and Service Pvt. Ltd. vs. CIT, CIT vs. Merchem Ltd., CIT vs. Harrisons Malayalam Ltd., CIT vs. Kalyan Silks, Thrissur. 6.3 The Assessing Officer in the impugned assessment order has incorrectly assumed the facts of the case and has incorrectly applied the law as applicable to the issue at hand. The assessee has delayed in remittance of PF/ESI dues in respect of contribution received from its employees. As per the decision rendered by the jurisdictional High Court in the case of CIT vs Merchem Ltd. and in the case of CIT vs South India Corporation Ltd. (232 Taxman 241) and also in a number of other cases, it has been held that deduction for employees contribution is governed by section 36(i)(va) and not by section 43B. Consequently the contribution received from employees is assessable as income of the assessee u/s 2(24)(x) and deduction is allowable under section 36(i)(va) only if such employees contribution is deposited in the PF/ ESI account within the stipulated statutory due dates as mentioned in the respective statutes. If there is a delay in such remittance, the assessee is not entitled for deduction. The AO has failed to note this important aspect of the case and in my view has committed an error in the assessment which is also prejudicial to the interests of the revenue. In my view, he has passed an erroneous order which is prejudicial to the interests of the revenue. 7. The above omission by the Assessing Officer in the Assessment Order is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, the Assessment Order on the above issues is set aside to the Assessing Officer for de-novo examination and to pass ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 16 a speaking order in accordance with law as per time limit specified under Section 153 of the Income Tax Act, after affording due opportunity to the Assessee.” 7. Considering the above order of the ld. Pr.CIT the assessee has challenged that the Pr.CIT cannot exercise his revisionary power in case of limited scrutiny. This argument is not acceptable because while passing the assessment order the AO has not considered the decision of Hon’ble Jurisdictional High Court in case of Commissioner of Income Tax, Cochin vs. Merchem Ltd. [2015] 61 taxmann.com 119 (Kerala) which deals with the issue of disallowance on account of delayed deposit of employees’ contribution as per Section 36(1)(va) of the Act, which is a binding decision upon the jurisdictional Assessing Officer. Firstly the AO is an investigating officer, thereafter he is adjudicating officer. The AO has failed to note that there is a delayed deposit of the employees’ contribution as per law and not following the judgment of the Hon’ble jurisdictional High Court is erroneous and prejudicial to the interest of Revenue. In view of this the ld. Pr. CIT has rightly invoked his revisionary power as per Section 263 of the Act. From section 263 of the Act it is clear that after examination by the ld. Pr. CIT of the assessment records of any proceedings under the Income Tax Act, and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of Revenue he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon. Considering the section the case selected for limited scrutiny can also be taken up for revisionary power as per Section 263 of the Act. Therefore, this issue raised by the assessee is dismissed. 8. Further we found substance in the submissions of the ld. D.R. During the course of hearing the learned A.R. submitted that the assessee has maintained his own Provident Fund for his employees and he has ITA No. 389/Coch/2020 M/s. Kerala State Warehousing Corporation 17 framed separate rules and regulations for the Provident Fund. He strongly relied on the recent judgement of the Madhya Pradesh High Court (supra). In this case the Hon'ble Madhya Pradesh Electricity Board has also maintained its separate Provident Funds for their employees. In the light of the judgment relied by the ld. A.R. of the Hon’ble Madhya Pradesh High Court cited supra and submissions of the ld. D.R. (supra) we deem it fit to restore the matter to the AO for de-novo examination. Needless to say that three effective opportunity of hearing is to be given to the assessee and the assessee is also directed not to seek unnecessary adjournments for early disposal of the case. The assessee is also given liberty to produce additional documents for substantiating his case. 6. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 4 th August, 2022. Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member Cochin, Dated: 4 th August, 2022 Copy to: 1. The Appellant 2. The Respondent 3. The PCIT - 1, Kochi 4. The DR, ITAT, Cochin 5. Guard File By Order //True Copy// Assistant Registrar ITAT, Cochin n.p.