TRANSSYS SOLUTIONS PRIVATE LIMITED,CHENNAI vs. THE INCOME TAX OFFICER, CORPORATE WARD - 6(1), CHENNAI

At the outset, it is observed that the present appeal has been filed with a delay of 1165 days. The assessee has moved a petition seeking condonation of the delay, duly supported by an affidavit explaining the reasons for the belated filing of the appeal as detailed below:

Upon perusal of the condonation petition and the affidavit filed in support thereof, and having regard to the facts and circumstances of the case, we are satisfied that the assessee was prevented by sufficient cause from presenting the appeal within the prescribed period of limitation. Accordingly, the delay of 1,165 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits. However, we cannot overlook the casual and nonchalant approach exhibited by the assessee in pursuing the appellate remedy. Therefore, while condoning the delay in the interest of substantial justice, we deem it appropriate to impose cost of Rs.15,000/- upon the assessee. As per the direction of the bench, the assessee has paid the said cost to the State Legal

The brief facts of the case emanating from the records are that the assessee M/s.TransSys Solutions Private Limited is engaged in the business of software development, support and related services and had filed its return of income for the AY 2020- 21 on 28.01.2021. The said return was processed by the Centralised Processing Centre (CPC), Bengaluru, and an Intimation order u/s.143(1) of the Act dated 18.12.2021 was issued, wherein late remittance of Employees' contribution towards PF/ESI amounting to Rs.68,12,142/- was disallowed, and a demand of Rs. 22,09,500/- was raised.

Aggrieved by the above demand as per the intimation, the assessee filed an appeal before the ld.CIT(A) on 17.01.2022. During the course of appeal proceedings, the assessee submitted the detailed written submissions electronically. Thereafter, the Ld. CIT(A) vide Order dated 28.10.2022 passed and dismissed the appeal by upholding the disallowance of employees’ contribution to PF/ESI, on the ground that the said contributions were deposited beyond the due dates prescribed under the respective Acts and, accordingly, were not allowable u/s.36(1)(va) of the Act, as disclosed in the Tax Audit report, rejecting the assessee’s contentions that the due date u/s.36(1)(va) of the Act ought to be read in conjunction with section 43B(b) of the Act and that the payments, having been made prior to the due date for filing the return of income, were allowable u/s.43B of the Act. The ld.CIT(A) had also relied upon the decision of the Supreme Court in the case of M/s.Checkmate Services P. Ltd Vs CIT in Civil Appeal No. 2833 of 2016 dated 12.10.2022 in dismissing the appeal. 6. Aggrieved by the aforesaid order passed by the Ld. CIT(A), the assessee is in appeal before us.

The ld.AR for the assessee submitted that the department made a disallowance of Rs.68,12,142/- is made u/s.36(1)(va) of the Act relating to belated remittance of Employees' Contribution towards PF/ESI by the assessee. The CPC, based on the disclosure by the Tax Auditor in Form 3CD, made adjustment u/s.143(1)(a)(iv) of the Act while processing the return of income by disallowing the said sum of Rs. 68,12,142/-. Further the department contended that employees' contribution is different from employer's contribution and that the benefit of section 43B is not available in respect of delayed remittance of employees' contribution towards PF/ESI. Relying upon the amendments brought in by the Finance Act, 2021 and the judgment of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT, the Ld.CIT(A) had upheld the disallowance made by CPC u/s.143(1)(a) of the Act.

The ld.AR submitted that, the Ld.CIT(A) had erred in confirming the disallowance of Rs.68,12,142/- made u/s.36(1)(va) of the Act towards late remittance of employees' Contribution to PF/ESI. In the present case, though there was delay in remittance of Employees' Contribution towards PF/ESI under the respective enactments, the entire amount had admittedly been remitted before the due date of filing of return of income u/s.139(1) of the Act. It is further submitted that at the time of passing the impugned Intimation Order u/s.143(1) of the Act dated 18.12.2021, the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs CIT [2022] 143 taxmann.com 178 (SC) dated 12.10.2022 that was relied upon by the ld.CIT(A) in confirming the said disallowance was not available. On the contrary, at that relevant point of time, the issue was squarely covered in favour of the assessee by the binding decision of the Hon'ble Jurisdictional Madras High Court in the case of CIT vs. Industrial Security & Intelligence India Pvt. Ltd. in TCA Nos.585 & 586 of 2015 dated 24.07.2015, wherein it was held that Employees' Contribution to PF/ESI

Therefore, as on the date of processing of the return and consequently while passing the Intimation Order u/s.143(1) of the Act on 18.12.2021, the prevailing jurisdictional High Court decision was favourable to the assessee and binding upon the Departmental Authorities as such. In such circumstances, it is submitted that where the issue was thus clearly debatable at that relevant point in time, prima-facie, no adjustment u/s.143(1)(a) of the Act could have been made since the scope of section 143(1) of the Act is confined only to prima facie adjustments apparent from record and not to issues involving debatable questions of law.

In this regard, the ld.AR placed a reliance on the judgement of Hon’ble High Court of Chhattisgarh in the case of Raj Kumar Bothra vs DCIT [2025] 174 taxamnn.com 1199 (Chattisgarh) 476 ITR 249 wherein it was held that where the claim of deduction of delayed deposit of employees’ share of contribution towards ESI and PF, deposited beyond the due date prescribed under relevant Acts, but before the due date of filing return, was disallowed u/s.143(1)(a) of the Act, since subject issue was highly debatable and pending consideration before Supreme Court, prima facie disallowance made by AO u/s.143(1)(a) of the Act was to be set aside by holding as under:

The ld.AR stated that the ratio laid down in the aforesaid judgment squarely applies to the facts of the present case, wherein the Tax Audit Report, the dates of remittance had been disclosed while no disallowance was made in that regard is the Returns of Income fled for the subject AY 2020-21, the adjustment was made u/s.143(1)(a) of the Act by an Intimation order passed on 18.12.2021, prior to the Hon’ble Supreme Court decision dated 12.10.2022 in the case of Checkmate Services Pvt. Ltd vs CIT(A), the jurisdictional Hon’ble

Hence, the ld.AR stated that the CPC/AO had committed a grave legal error in making the said adjustment u/s.143(1)(a) of the Act. The issue, if at all, could only have been examined in scrutiny proceedings u/s.143(3) of the Act and not by way of summary processing u/s.143(1)(a) of the Act as held by the Hon’ble Chhattisgarh High Court.

Further, ld.AR argued that the amendment brought in by the Finance Act, 2021 inserting Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B was specifically made effective from 01.04.2021 and therefore applies only from AY 2021-22 onwards. Accordingly, the said amendment cannot be applied retrospectively to the subject AY 2020-21.

Accordingly, the disallowance made by CPC u/s.143(1)(a) of the Act and sustained by the Ld.CIT(A) is wholly unsustainable in law and is liable to be deleted.

Per contra the ld.DR filed a detailed written submission by defending the order of the authorities and prayed for confirming the order of the ld.CIT(A).

We have heard the rival submissions perused the material available on record and gone through the orders of the authorities along with the case laws relied upon. The issue that arises for consideration in the present appeal is whether the adjustment made by the CPC u/s.143(1)(a) of the Act, by disallowing the employees' contribution towards Provident Fund and ESI amounting to Rs.68,12,142/- on account of delayed remittance under the

It is an undisputed factual position that the assessee had deposited the employees' contribution towards PF/ESI beyond the due dates prescribed under the respective statutes governing such contributions. However, it is equally undisputed that the entire amount of employees' contribution had been remitted before the due date prescribed for filing the return of income u/s.139(1) of the Act for the relevant assessment year. The adjustment in question was made by the CPC while processing the return of income u/s.143(1)(a) of the Act vide intimation dated 18.12.2021 based on the particulars disclosed by the tax auditor in Form No.3CD.

The primary contention of the assessee before us is not on the ultimate allowability of the deduction in light of the subsequent decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT [2022] 143 taxmann.com 178 (SC), but rather on the limited issue as to whether such disallowance could at all have been made by way of a prima facie adjustment u/s.143(1)(a) of the Act at the relevant point of time.

In this regard, it is necessary to examine the legal position prevailing as on the date of issuance of the intimation u/s.143(1), namely, 18.12.2021. It is well settled that the scope of adjustment u/s.143(1)(a) is extremely limited and is confined only to those adjustments which are apparent, patent and indisputable from the record. The provision does not permit adjudication of debatable questions of law or issues requiring detailed examination and interpretation. The Hon'ble Supreme Court in the cases of Assistant CIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. (291 ITR 500) and Kvaerner John Brown Engg. (India) Pvt. Ltd. vs. ACIT (305 ITR 103) has consistently held that the

On examining the legal landscape prevailing on 18.12.2021, we find considerable merit in the contention of the assessee that the issue relating to allowability of employees’ contribution to PF/ESI paid after the due date prescribed under the respective enactments but before the due date of filing of return u/s.139(1) of the Act was highly contentious and debatable. Various High Courts across the country had taken divergent views on the issue. More importantly, insofar as the present assessee is concerned, the issue stood covered in favour of the assessee by the binding judgment of the jurisdictional Hon’ble Madras High Court in the case of CIT vs. Industrial Security & Intelligence India Pvt. Ltd. in TCA Nos.585 and 586 of 2015 dated 24.07.2015, wherein it was held that employees' contribution to PF/ESI remitted before the due date of filing of return u/s.139(1) of the Act was allowable as deduction. The said decision continued to hold the field till the controversy was ultimately settled by the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. on 12.10.2022, which was nearly ten months after the impugned intimation u/s.143(1) of the Act had been issued.

We further note that the Hon'ble High Court of Chhattisgarh in the recent judgment in Raj Kumar Bothra vs. DCIT [2025] 174 taxmann.com 1199 (Chhattisgarh) [476 ITR 249], while dealing with an identical controversy arising out of an adjustment made u/s.143(1)(a) of the Act prior to the decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd., has categorically held that the issue regarding delayed deposit of employees' contribution to PF/ESI was highly debatable at the relevant point of time and, therefore, could not have been the subject matter of adjustment u/s.143(1)(a) of the Act. The Hon'ble High Court observed that where divergent judicial views existed and the matter itself

The ratio laid down by the Hon'ble Chhattisgarh High Court, in our considered view, squarely applies to the facts of the present case. Here also, the tax auditor had merely disclosed the particulars of delayed remittance in the audit report; no suo motu disallowance had been made by the assessee in the return of income; the intimation u/s.143(1)(a) was issued on 18.12.2021, i.e., much prior to the decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd.;and the jurisdictional High Court decision prevailing at that point of time was admittedly in favour of the assessee. Therefore, it cannot be said that the disallowance represented an adjustment arising from an error apparent from the record. On the contrary, the issue undoubtedly involved a debatable question of law, which was beyond the permissible scope of section 143(1)(a) of the Act. We also find force in the contention of the assessee that the amendments introduced by the Finance Act, 2021 by insertion of Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B were specifically made effective from 01.04.2021 and, therefore, apply prospectively from assessment year 2021-22 onwards. Thus, the said amendments could not have been relied upon for sustaining an adjustment u/s.143(1)(a) for assessment year 2020-21.

Having regard to the totality of the facts and circumstances of the case and respectfully following the ratio laid down by the Hon'ble High Court of Chhattisgarh in Raj Kumar Bothra vs. DCIT (supra), coupled with the legal position prevailing under the jurisdictional High Court at the relevant point of time, we are of the considered view that the CPC was not justified in making the impugned disallowance by way of an adjustment u/s.143(1)(a) of the Act. The

In the result, the appeal filed by the assessee stands allowed.