TMI Blog2023 (5) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... e contractors, the same, as afore-noted, may attract EPF ESI Acts, besides such payment being subject to tax deduction at source u/ss. 194C/194J, and which has a bearing on the deductibility of the expenditure through sec. 40(a)(ia). We are conscious and, accordingly, clarify that the ground of non-payment of EPF (or even ESI) on wages is relevant only insofar as, and to the extent, it is indicative of the said expenditure being not genuine, or incurred wholly and exclusively for business purposes. This is as it could well be that the assessee having incurred the said expenditure, has though violated the provisions of the ESI and/or EPF Act on either the whole or a part of the labour expenditure, in which either case, no part of the said expenditure, claimed u/s. 37(1), where genuine, could be disallowed. Nonverification apart, the assessee s reply, ostensibly based on facts , that no part of the expenditure attracts EPF as it has engaged only casual labour on daily wage basis, reinforces the doubts about the genuineness of the expenditure, providing further relevance, as it were, thereto. This is also apart from the relevance of the said ground being, as afore-noted, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur expenses, claimed at Rs. 1010.37 lacs in assessment u/s. 143(3) dated 18/3/2013 in pursuance to notice u/s. 143(2) dated 06/9/2011 issued for complete scrutiny. Notice u/s. 148 of the Act was issued on 28/3/2017 for bringing the following incomes , inferred as having escaped assessment, to tax: a) Finance charges, claimed at Rs. 45.77 lacs, to the extent paid to finance companies without deduction of tax at source u/s. 194A, i.e., Rs. 15,84,011; b) Wage expenses, claimed at Rs. 518.27 lacs, for non-deduction of provident fund, a mandatory condition on wages to the employees where their number exceeds 10, which was the case. The assessee purportedly complied with the said notice on 18/4/2017 by relying on it s original return filed on 31/7/2010 (vide receipt no.143180410310710). It, though did not respond to the notices u/s. 142(1) dated 11/4/2017 29/5/2017, finally represented through his counsel, Shri Ghai, the ld. counsel for the assessee before us, toward the fag-end of the proceedings. The gist of the submissions made and the Assessing Officer (AO) s finding in the matter are as under: 3. On perusal of the submission of the assessee vis- -vis the assessment r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the decision by the Apex Court in RPFC v. T.S. Hariharan, AIR 1971 SC 1519. The ld. Pr. CIT was, however, not impressed, and set aside the impugned assessment for a de novo consideration inasmuch as the AO had failed to make proper enquiries and, accordingly, did not apply his mind in the matter, placing reliance on Explanation 2(a) to s. 263, inserted on the statute by Finance Act, 2015 w.e.f. 01/6/2015, whereby an order passed without making enquiries or verification which should have been made is deemed erroneous insofar as it is prejudicial to the interest of the Revenue, liable for revision u/s. 263. 4. We have heard the parties, and perused the material on record. 4.1 Our first observation is that non-compliance of notice u/s. 148 is admitted, and which also explains the framing of the impugned assessment u/s. 144; the return dated 31/7/2010, referred to by the assessee vide it s reply dated 18/4/2017, being of another assessee (refer para 2). Our second observation in the matter is that the notice u/s. 263 having been issued on 26/02/2020, the revision under reference would be governed by law as amended by Finance Act, 2015. 4.2 We next consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind, represents, as explained by it in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), one of the four infirmities that make an order vulnerable to be deemed as erroneous and prejudicial to the interests of the Revenue; the other three being: wrong assumption of facts; incorrect application of law; and omission to observe the principles of natural justice. As explained in Gee Vee Enterprises vs. Asst. CIT [1975] 99 ITR 375 (Del) also relied upon by the ld. Pr. CIT, rendered with reference to judicial precedents, including three by the Apex Court itself, it is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent, that the word erroneous in section 263 includes a failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made, and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. It is only where on facts it is found by the appellate authority that the AO had indeed made proper inquiries during assessment, arriving at a fair and reasonable basis for assessment by issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands amended (PB pgs.80-83). The assessee before him taking a plea to the effect that the word payable in s. 40(a)(ia) is only with reference to the amount not paid by the end of the year, is a different aspect all together. The same was not brought to our notice during hearing by either side, and which is unfortunate. The argument in any case stands rejected by the Apex Court in Palam Gas Service v. CIT [2017] 394 ITR 300 (SC). How can, under the circumstances, one wonders, the revision order be faulted with? The impugned assessment is clearly without due application of mind. We, accordingly, uphold the revision qua this aspect. We are conscious that there may be decisions holding the amendment by Finance Act, 2012, to the retrospective. None, however, stand cited before the revisionary authority, or even before us. It being an open set aside, the assessee shall have an opportunity to clarify this aspect of the matter in the set aside proceedings. We may add that the Jabalpur Bench of the Tribunal per it s recent decision in Sagar Tobacco Industries Pvt. Ltd. v. Asst. CIT (I.T.A. No. 48/JAB/2017, dated 13/9/2022) has held the said amendment to be retrospective. It is however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act; ESI Act; and other beneficial legislations. Reference in this regard may be made, inter alia, to it s decision in Royal Western India Turf Club Ltd. v. ESI Corp. (in CA 49 of 2016, dated 29/01/2016). Like-wise for EPF, where the EPFO itself has issued a Circular on 19/3/2016, following decisions in J.P. Tobacco Products Ors. v. UoI [1996] ILLJ 822 (SC); Builders Association of India v. UOI Ors. (in WP(C) No. 7905/2011, dated 11/3/2016) by the Hon ble Kerala HC, and Builders Association of India v. UOI Ors. (in WA (MD) No. 478/2008, dated 31/3/2016) by the Hon ble Madras HC (Madurai Bench), quoting as under from the last decision, while confirming the applicability of EPF on casual labour: Since the Hon ble Supreme Court has already dealt with the amended paragraph 26(2) of the Employees Provident Scheme, 1952, the same cannot be challenged in the present writ petition and, further, as per section 2(f) of the EPF MP Act, 1952, the same is applicable to casual workers. The matter, as it appears, is no longer res integra, and the assessee s argument, in law, inapplicable. The assessee has before the revisionary authority claimed to have engaged workers on daily w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projects being time consuming, with construction periods extending to several months and even over few years, is required to be scheduled for weeks, if not months, in advance, work on the basis of such fluid workforce and uncertain state of affairs? In fact, it is not uncommon to see construction companies set-up temporary residential camps/quarters for workers at the project sites, or arranging for their transportation to such sites. Working as a casual worker makes little sense from the stand-point of the labour as well, who would rather seek regular work and, consequently, regular income. It is in fact only in such a case that he would have stability and, further, be able to perform his work with regularity, developing his skills and income. One can understand a case where a part the extent of which may also depend on, among others, the level of skill-set required therefor, of the workforce is constituted by such casual labour, i.e., for menial and unskilled jobs. It is this labour, who being paid minimum wages, or perhaps not even that, which is easily tempted to relocate or seek better work avenues/opportunities. Even here, the casual labour, stated in revisionary proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, has though violated the provisions of the ESI and/or EPF Act on either the whole or a part of the labour expenditure, in which either case, no part of the said expenditure, claimed u/s. 37(1), where genuine, could be disallowed. Nonverification apart, the assessee s reply, ostensibly based on facts , that no part of the expenditure attracts EPF as it has engaged only casual labour on daily wage basis, reinforces the doubts about the genuineness of the expenditure, providing further relevance, as it were, thereto. This is also apart from the relevance of the said ground being, as afore-noted, not in dispute inasmuch as the same formed the basis of reassessment, which proceedings have since attained finality. The absence of any verification and, concomitant finding, i.e., qua genuineness of the (entire) expenditure, incurred in cash, by the assessing authority lends further relevance to the said ground, and which is also the reason for our having discussed the matter in some detail. Reference be drawn to the decision in Gee Vee Enterprises (supra). We may therefore not be construed as having issued any finding/s, much less determined the matter, but only that, on the face of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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