INDIUM SOFTWARE (INDIA) PVT. LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

Brief facts of the case are as follows: The assessee is a company. For the assessment year 2017-18, return of income was filed on 30.11.2017 declaring total income of Rs.6,20,99,864/-. The return was processed and intimation was issued by the CPC, Bangalore u/s.143(1) of the Act on 13.02.2019. In the said intimation, disallowance of Rs.21,38,692/- was made in terms of section 36(1)(va) of the Act in respect of employees’ contribution to EPF & ESI, as the said payments were remitted into the Government account beyond the period prescribed under the respective statutes. Thereafter, the assessee filed rectification application and final rectification order was passed on 29.04.2024. In the said rectification order, the assessee was not given relief. Aggrieved by the intimation passed u/s.143(1) of the Act, assessee filed appeal before the FAA. The FAA vide his order dated 10.03.2025 had dismissed the appeal by not condoning the delay. Thereafter, the assessee challenged the FAA’s order before the Tribunal and the Tribunal vide its order dated 18.06.2025 restored the appeal

Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has filed a paper- book enclosing therein the return of income filed, audit report in Form 3CA-3CD, financials of the assessee, intimation issued u/s.143(1) of the Act, written submissions filed before the FAA and the case laws relied on. The Ld. AR submitted that though the employees' contribution to PF and ESI was deposited beyond the due dates prescribed under the respective statutes, the entire amount was remitted before the due date for filing the return of income u/s.139(1) of the Act. It was contended that, on the date of issuance

The Ld.DR strongly supported the order of the FAA.

It is an undisputed fact that the employees' contribution to PF and ESI was remitted beyond the due dates prescribed under the respective welfare enactments, but before the due date for filing the return of income. At the relevant point of time, the legal position in the jurisdiction of the Hon'ble Madras High Court was governed by the decision in CIT v. Industrial Security & Intelligence India (P.) Ltd., wherein, following the judgment of the Hon'ble Supreme Court in CIT v. Alom Extrusions Ltd. (319 ITR 306), it was held that such payments were allowable as deduction if made before the due date prescribed u/s.139(1) of the Act. Therefore, as on the date of issuance of the intimation u/s.143(1), the issue stood covered in favour of the assessee by the jurisdictional High Court.

We find considerable force in the reliance placed by the assessee on the recent judgment of the Hon'ble Chhattisgarh High Court in Sanjay Kumar Sharma v. ITO (174 taxmann.com 592). The Hon'ble High Court, after an elaborate consideration of the statutory provisions and the judgments of the Hon'ble Supreme Court, categorically held that where the allowability of employees' contribution to PF and ESI was a debatable issue on the date of processing of the return, the Assessing Officer was not justified in making an adjustment u/s.143(1)(a) of the Act. It was further held that if the Revenue intended to examine the claim, the appropriate course was to initiate scrutiny proceedings u/s.143(2) and complete the assessment u/s.143(3), and not to resort to the summary procedure contemplated u/s.143(1). The Hon'ble High Court also

In deciding the above substantial question of law, the finding / conclusion of the Hon’ble High Court read as follows:- 7. Admittedly, return of the income filed by the appellant/assessee was processed by the Assessing Officer and an intimation order dated 30.11.2021 was issued exercising power under Section 143(1)(a) Act of 1961, wherein, claims for deduction of delayed deposit of employees' share of contribution towards Employees State Insurance and Provident Fund of Rs.44,46,494/- under Section 36 (1) (va) of the Act of 1961 were disallowed, inasmuch as, on the said date, the issue with regard to delayed deposit of contribution with respect to interpretation under Section 36(1)(va) of the Act of 1961 and whether the assessee is entitled to deduction of amount deposited by them, which was contribution in terms of the EPF Act, 1952 and the ESI Act, 1948 on or before the due date was pending consideration before the Supreme Court in the matter of Checkmate Services (P.) Ltd. (supra). In the said judgment, their Lordships of the Supreme Court noticed a division of opinion on the issue of interpretation under Section 36(1)(va) of the Act of 1961, with the High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favouring the interpretation beneficial to the assessees on the one hand, and the High Courts of Kerala and Gujarat preferring the interpretation in favour of the Revenue on the other hand. Ultimately, their Lordships resolved the issue

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

As such, their Lordships of the Supreme Court, in the above judgment rendered on 12.10.2022, settled the issues authoritatively and also clarified the legal position. In the instant case, at the time of passing of the intimation order under Section 143(1)(a) of the Act of 1961 on 30.11.2021, the decision of Supreme Court in Checkmate Service Pvt. Ltd (supra) was not available in view of the divergent view amongst the various High Courts, as it was rendered on 12.10.2022.

At this stage, it would be appropriate and beneficial to notice the nature of powers under sub-section (1) of Section 143 as against sub-sections (2) and (3) of the Act of 1961. The power under sub-section (1) of Section 143 of the Act of 1961 is summary in nature designed to cause adjustment which is apparent from the return while that under sub-sections (2) and (3) is to scrutinize the return and cause deeper probe to arrive at correct determination of the liability (See: Vodafone Idea Ltd. v. Asstt. CIT [2020] 116 taxmann.com 393/273 Taxman 91/424 ITR 664 (SC)/(2020) 19 SCC 12, Para 17).

Further, in Section 143(1)(a) of the Act of 1961, the procedure to process the return in a given case is provided. Section 143 (1)(a) is produced hereunder reference:-

(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:

In the matter of Kvaverner John Brown Engg. (India) Pvt. Ltd. (supra), their Lordships of the Supreme Court observed that when there are conflicting judgments on interpretation of Section 80-O of the Act of 1961 prima focie adjustments contemplated under Section 143 (1) (a) is not applicable and observed as under :-

Similarly, in the matter of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra), their Lordships of the Supreme Court have held explicitly that the Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues under Section 143(1)(a) of the Act of 1961 and held as under:-

Coming back to the facts of the present case, while following the principles of law laid down in above stated judgments of the Supreme Court for exercise of power and jurisdiction under Section 143 (1) (a) of the Act of 1961, it is quite vivid that on the date of issuance of intimation order by the Assessing Officer i.e. on 30.11.2021 under Section 143(1)(a) of the Act of 1961, the issue as to whether the delayed deposit of employees' share of contribution towards Employees State Insurance and Employees Provident Fund, though deposited by the assessee beyond the due date prescribed under the relevant Acts, but before the due date of filing of the return of income under Section 139 (1) of the Act of 1961, could be held as the income of the appellant/assessee under Section 36(1)(va) read with Section 2(24)(x) of the Act of 1961 or not or whether it is subject to the provisions contained in Section 43-B of the of the

Furthermore, the orders passed in Satpal Singh Sandhu (supra) and Parv Buildcon (supra) by the ITAT holding that Section 143 (1) (a) of the Act of 1961 cannot be resorted to in case of highly debatable issue were challenged by the Revenue before this Court by filing two appeals and ultimately, both the appeals vide Tax No.149/2024 (DCIT v. Parv Buildon) and TAX No.15/2024(DCITV. Satpal Singh Sandhu), were withdrawn by the Revenue by orders dated 10.02.2025 and 21.05.2025, respectively, and thereby, the Revenue has allowed the plea of the assessees therein to stand that in a highly debatable issue, the Assessing Officer ought not to have resorted to Section 143 (1)(a) of the A461961. Therefore, the Revenue cannot be allowed to take a different stand before different forums as it may lead to uncertainty and chaos.

In the instant case, the ITAT has committed a grave legal error by relying upon the decision rendered by this Court in BPS Infrastructure (supra), wherein, this Court has dismissed the appeal prefer Revenue as barred by limitation summarily without formulating any substantial question of law and as such the substantial question of law formulated and herein in this appeal was neither involved, form answered in BPS Infrastructure (supra).

Furthermore, the submission of the Revenue that the judgment passed in Checkmate Services Pvt Ltd (supra) would have retrospective effect, as held in Ramesh Prasad Verma (supra), P.V. George case (supra) and in R.R. Kishore's case (supra), is no longer a dispute and well settled as the law declared by a Court will have a retrospective effect if not otherwise stated to be so specifically. However, the retrospective effect of the decision rendered by the Supreme Court in Checkmate Services (P.) Ltd. (supra) is not an issued involved in present case, as the question involved herein was quite different as to whether Section 143 (1) (a) of the Act 1961 can be resorted to when there is

Concludingly, we are of the considered opinion that the Assessing Officer should not have resorted to the provisions contained under Section 143(1)(a) of the Act of 1961 and instead could have resorted to the provisions under Section 143(3) of the Act of 1961, as on the date of issuance of intimation order dated 30.11.2021 by the Assessing Officer, exercising power under Section 143(1)(a) of the Act of 1961, the subject issue was highly debatable and ultimately, that issue was resolved by their Lordships in the matter of Checkmate Services Pvt Ltd (supra) on a later date”

The above view has been reiterated by the Hon'ble Chhattisgarh High Court in Raj Kumar Bothra v. DCIT (476 ITR 249), and the Delhi Bench of the Tribunal in A2Z Infra Services Ltd. v. DCIT (176 taxmann.com 639), wherein it has consistently been held that debatable issues cannot be adjudicated while processing the return u/s.143(1) of the Act.

Respectfully following the binding judgment of the Hon'ble Jurisdictional High Court prevailing on the date of issuance of the intimation and the ratio laid down in the above judicial pronouncements, we hold that the adjustment made by the CPC u/s.143(1) by disallowing the employees' contribution to PF and ESI was beyond the scope of prima facie adjustments contemplated under the Act. Accordingly, the disallowance made u/s.36(1)(va)

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