M/S. KUSHANG SECURITY AND HOUSE KEEPING SERVICE PVT LTD,MUMBAI vs. ITO WARD 41(1)(1), MUMBAI

Briefly stated, the assessee’s return of income dated 30-09-2019 was processed by the CPC and issued intimation u/s 143(1) on 13-05-2025. The assessee had declared total income of Rs. 33,40,890/- in its return of income, however the assessed income as per intimation u/s 143(1) was determine at Rs. 2,28,38,892/-. Further assessee opted to apply for rectification u/s 154 of the Act, which was proceeded by the CPC and passed an order u/s 154 on 20.10.2020 with the same income as was assessed under intimation u/s 143(1).

Being aggrieved assessee preferred and appeal before the first appellate authority wherein the assessee remain non compliant towards the notice issued u/s 250 of the Act, dated 22.11.2022, 15.12.2022, 29.12.2022 and 02.03.2023. Accordingly, Ld. CIT(A) dismissed the appeal of the assessee on ex-parte basis after considering the matter on merits by following the decision of Hon’ble Apex Court in the case of M/s. Checkmate Service Pvt Limited vs CIT dated 12.10.2022 in civil appeal No. 2833/2016.

Being dissatisfied with the impugned order, the assessee preferred an appeal before the ITAT, which is under consideration before us in the present matter.

At the outset Ld.AR on behalf of the assessee submitted that the order passed by the Ld. CIT(A) was not passed with correct appreciation of the facts, as the assessee was unbale to furnish necessary information before him. Ld.AR further submitted that the disallowances vide intimation u/s 143(1) consist of delayed payment of Employee Contribution to Provident Fund and PF damages M/s. Kushang Security and House Keeping Service P LTd. (which were already disallowed by the assessee in computation) but added again in the business income of the assessee in the intimation u/s 143(1). To assail on the controversy, Ld. AR raised multiple contentions i.e. (i) the Employee Contribution which were paid before the date of filing of return is an allowable expenditure in terms of provision u/s 43(B) of the Act. (ii) the Employee’s Contribution to PF which is paid before the due date of payment, as stipulated in the respective Acts, as per the provision of u/s 36(1)(va) of the Act, (iii) That the amount of PF damages which were already suo moto disallowed by the assessee in computation cannot be added back to the assessee’s income otherwise that would constitute double disallowance and (iv) That the issue qua delay in deposit of Employee’s Contribution to Provident Fund, if the same is paid before the due date of filing of return would be an allowable expenditure, at the time of passing of 143(1) i.e. 13.05.2020 was decided by the Jurisdictional High Court in the favour of the assessee. In order to substantiate the aforesaid contention, Ld. AR placed his reliance on the following decision of DCIT vs. Raghuvir Synthetics Ltd. [2017] 81 taxmann.com 203(SC), CIT vs. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67 (SC), Vaibhav Maruti Dombale vs. Assistant Registrar of Income Tax Appellate Tribunal in Writ Petition No. 1489 of 2025 by Hon’ble Bombay High Court and CBDT’s instruction No 1814 dated 04- 04-1989.

Referring to the aforesaid decision on DCIT vs. Raghuvir Synthetics Ltd. (Supra) Ld.AR submitted that since the issue was in favour of the assessee as per the order of Hon’ble Jurisdictional High Court of Bombay that the Employee Contribution to Provident Fund is paid after the due date of payment under the specific statute but before filing of the return of income the same would be an allowable expenditure, therefore, the CPC was wrong in disallowing such expenditure. Ld.AR further referred to decision of Hon’ble Apex Court in the case of CIT vs. G.M. Mittal Stainless Steel (P.) Ltd. (Supra) and submitted that in the said case of Hon’ble Supreme Court has held that the revenue authorities within the statute would not refuse to follow the Jurisdictional High Court’s decision on the ground that the decision of some other High Court was pending for disposal before the Hon’ble Supreme Court, it would lead to an anarchy situation within this state. Ld.AR further referred to instruction of CBDT No.1814 dated 04.04.1989 and stated that there was categorical instruction by the CBDT that three types of adjustment are permitted under clause (i) to (iii) of proviso to the substituted section 143(1)(a) of the Act, the adjustment relating any rectification to arithmetical error in return, accounts or documents accompanying the return is self-evident and does not require any elaboration. He further referred to para 9 of the instruction that in the context of legal possession as outlined above it follows that it would not be permissible to assessing officer to disallowed a claim under deduction, M/s. Kushang Security and House Keeping Service P LTd. allowance or relief in case where claim is made on the basis of decision of any High Court, Appellate Tribunal or other Appellate authority even though contrary view in the matter may have been expressed by another High Court or another bench of Tribunal for any other Appellate authority. The fact that claimed based on decision which has not been accepted by the board will also not make any difference to the position. Ld.AR further referred to judgment of Hon’ble Bombay High Court in the case of Vaibhav Maruti Dombale vs. AR of ITAT (supra) and stated that on the date when the order was passed the law existing would have application and any subsequent decision cannot be applied to such order. In view of aforesaid submissions, it was prayed by Ld.AR that the matter since was not attended by the assessee during the proceeding before the Ld. CIT(A) may restore back for a fresh adjudication but in principle addition or disallowances made vide intimation 143(1) in the present case are not tenable in the eyes of law as on the date while intimation was issued the law was in favour of the assessee.

Per contra Ld. CIT DR vehemently supported the order of Ld. CIT(A) and had submitted that the Ld. CIT(A) had rightly decide the issue by following mandate accorded by Hon’ble Supreme Court in the case of Checkmate Service P. Ltd. (Supra).

We have considered the rival contentions, perused the material on record and case laws pressed before us to substantiate the grievance raised by assessee. Admittedly, the assessee has been saddled with the disallowances on account of delayed payment of employee’s contribution to Provident Fund for the year under consideration by way of processing of return u/s 143(1) of the Act for Rs. 1,90,12,166/- and for disallowance of PF damages for a sum of Rs. 4,85,833/-. To get it remedied though rectification of mistake apparent on records, assessee twice approached to revenue through the recourse available u/s 154, but remain unsuccessful both the time. Later, an appeal was filed before the First Appellate Authority, but had not represented due to reasons explained in condonation application (supra), thus the appeal is dismissed by Ld. CIT(A) on ex-parte basis, accepting the workings of CPC that there was delay in deposit of employee’s Contribution to PF beyond the prescribed dates under the respective Act, thus squarely covered by the Judgment of Hon’ble Apex Court in the case of M/s Checkmate Services Pvt. Ltd. Vs. CIT-1 (supra). Before us it is argued by the Ld. AR that the disallowance is uncalled for as the issue of disallowance at the time when Intimation U/s 143(1) was issued was in favour of the assessee as per decisions of Jurisdictional High Court of Mumbai. Ld AR relied on the judgment of Hon’ble Supreme Court in the case of CIT Vs. GM Mittal Stainless Steel (P.) Ltd. stating that a pending decision before Hon’ble Apex Court cannot lead the revenue authorities to not M/s. Kushang Security and House Keeping Service P LTd. follow the decision of Hon’ble Jurisdictional High Court. Such contention of the Ld. AR cannot be accepted in present case, as the issue remains no more res-integra, after it is categorically analyzed and laid down by Hon’ble Apex Court in the case of M/s Checkmate Services Pvt. Ltd. Vs. CIT-1 (supra), and categorically held as under: “52. When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.

The distinction between an employer's contribution which is its primary liability under law - in terms of section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) - unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B.

In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.

Provision of section 36(1)(va) 36(1)(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

According to aforesaid ratio of law, based on existence of provisions of section 36(1)(va) of the Act since 1988, the provisions of sections which are under interpretation by Hon’ble Courts were effective since these were introduced in the statute. Further at the time we are dealing with these provisions, the judgment of Hon’ble Apex Court is available to guide us in the matter therefore the plea of Ld. AR that the issue was pending at the time of issuance of intimation u/s 143(1) is irrelevant and devoid of substance. Accordingly, the case laws and CBDT instruction relied upon by the assessee are of no help. Our view is further fortified by the decision of Hon’ble Bombay High Court, relied by Ld. AR, in the case of Vaibhav Maruti Dombale Vs. The AR, ITAT, Mumbai which was granted qua the provisions of section 254(2) of the Act and would not be of any assistance to help the case of assessee, further at para 24 of the order it has been held by the Hon’ble Court that on the date (in present case 05-09-2022) when the ITAT has passed the original order, the ruling of Hon’ble Supreme Court in the case of Checkmate Services (supra) was not available, whereas in present case, while we are dealing with the issue (on 22-09-2025), the binding principle of law analyzed and interpreted in the decision Checkmate Services (supra)

In terms of aforesaid discussion and observations, we are of the considered view that, the ratio of law laid by Hon’ble Apex Court in the case of Checkmate Services (supra) have to be followed in present case.

On merits as claimed by the assessee, the deposits of employee’s contribution made within the due date prescribed under respective Act shall be entitled for deduction u/s 36(1)(va) of the Act and also the suo moto disallowance offered by the assessee qua the PF damages cannot be disallowed again. Such fact needs verification from the records and evidence, for which we set aside the matter to the file of ld. AO for verification and adjudication of the issue following the law in accordance with decision in the case of Checkmate Services (supra).

The assessee is directed to assist in the set aside assessment proceedings and provide necessary evidence of deposits towards employee’s contribution to PF to substantiate its legitimate claim.