TRIMBAK KONHER PATIL,HUBBALLI vs. INCOME TAX OFFICER, WARD-1, HUBLI

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ITA 2536/BANG/2025Status: DisposedITAT Bangalore25 June 2026AY 2019-2011 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that adjustments made by the CPC disallowing employee contributions paid beyond the due dates under respective Acts could not be made under section 143(1) prior to Assessment Year 2021-22. Therefore, the disallowances were directed to be deleted.

What were the facts?

The assessee's return was processed under section 143(1) of the Income Tax Act, where delayed payments of employee contributions to Provident Fund and ESI were disallowed. The assessee's rectification application and subsequent appeal to the CIT(A) were dismissed, upholding the disallowance.

What were the issues?

Whether disallowance of delayed employee contributions to PF/ESI made under section 143(1) is permissible for AYs prior to 2021-22, especially when the Supreme Court decision in Checkmate Services Pvt. Ltd. was delivered later.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 154,Section 36(1)(va),Section 43B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: CA Vinay Kulkarni, A.R
Hearing: 01.04.2026Pronounced: 25.06.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

These appeals at the instance of the assessee are directed against the separate orders of the ld. Addl./JCIT(A), Udaipur both dated 14.10.2025 vide DIN & Order No. ITBA/APL/S/250/2025- 26/1081739995(1) for the assessment year 2019-20 & vide DIN & Order No. ITBA/APL/S/250/2025-26/1081741475(1) for the assessment year 202-21 passed u/s. 250 of the Income Tax Act, 1961 (in short “The Act”). Since the issue involved in both these appeals is common in nature, these are clubbed together, heard together and disposed of by this common order for the sake of convenience and brevity.

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 2 of 11 2. First, we take the appeal in ITA No.2536/Bang/2025 for the AY 2019-20 for adjudication as a lead case, the result of which will apply mutatis mutandis to the appeal in ITA No. 2537/Bang/ 2025 for the AY 2020-21. In this appeal, the assessee has raised the following grounds of appeal:-

1.

“The ld. CIT(A) has erred in upholding addition made by CPC u/s 143(1)(a) by disallowing delayed payment of Employees portion to Provident Fund and Employees State Insurance by treating the same as disallowable expenditure. 2. The ld. CIT(A) has erred in not appreciating the fact that in the facts and circumstances of the case, Hon’ble Supreme Court’s decision in Checkmate Services Pvt. Ltd. is not applicable.

Total tax effect: Rs.14,82,800/-”

3.

The brief facts of the case are that the assessee is a proprietor of “Trinetra Essential Services” and engaged in the business of manpower supply/Labour contracts by entering into the agreements with various parties. The assessee filed his return of income for the AY 2019-20 under section 139(1) of the Act on 31.10.2019 by declaring total income of Rs.13,78,530/-. The said return was processed and accordingly intimation u/s. 143(1) of the Act was passed and the total income was computed at Rs.69,11,530/- by disallowing the payment of employee contribution to provident fund of Rs.47,68,666/- and employee contribution to ESI of Rs.7,64,327/- total amounting to Rs.55,32,993/- for delayed payment of contribution as reported by the Auditor in the Form 3CD of the Audit Report.

3.1 The assessee thereafter filed the rectification application u/s. 154 of the Act on 05/04/2021 and accordingly the CPC passed the order u/s. 154 of the Act by retaining the addition as made u/s. 143(1) of the Act. Thus, the rectification order u/s. 154 of the Act was passed by the CPC on 29/04/2021 wherein

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 3 of 11 the total income was computed at Rs.69,11,530/- as computed u/s 143(1) of the Act by disallowing the payment of employee contribution to provident fund and employee contribution to ESI total amounting to Rs.55,32,993/- for the delayed payment as per the respective Acts.

4.

Aggrieved by the rectification order passed u/s. 154 of the Act dated 29/04/2021, the assessee preferred an appeal before the ld. CIT(A)/Addl./JCIT(A).

5.

The ld. Addl/JCIT(A), Udaipur dismissed the appeal of the assessee by following the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518, wherein it is categorically held that the employee contributions not deposited within the due dates under the EPF/ESI Acts are not allowable as deduction even if paid before the due date of filing the return. Accordingly, the ld. Addl/JCIT(A) find that the disallowance of Rs.55,32,993/- u/s. 36(1)(va) of the Act had been rightly made and upheld in accordance with law. Further, the ld. Addl/JCIT(A) held that the procedural and substantive contentions of the assessee failed to provide any valid reasons to interfere with the rectification order passed by the CPC u/s 154 of the Act.

6.

Again aggrieved by the order of ld. Addl/JCIT(A), Udaipur, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a paper book comprising 182 pages containing therein various documents/ records/ written submissions along with the case laws as relied upon by the assessee.

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 4 of 11 7. Before us, the ld. A.R. of the assessee vehemently submitted that the addition of Rs.55,32,993/- made by the CPC being the delayed payment of employee’s contribution of provident Fund and employee contribution to ESI is not justified for the AY 2019-20 especially when the decision of Hon’ble High Court of Karnataka was in favour of the assessee at the time of passing the intimation u/s. 143(1) of the Act as well as passing of the rectification order u/s 154 of the Act. Further, the ld. A.R. of the assessee submitted that the amendment to provisions of section 36(1)(va) of the Act r.w.s 43B of the Act by the Finance Act 2021 by inserting explanation (2) is prospective in nature and would be apply only from 1st April 2021 and hence not applicable for the AY 2019-20 under consideration. Lastly, the ld. A.R. of the assessee submitted that the adjustments made u/s. 143(1) of the Act is illegal and bad in law as it exceeds the limited scope to carryout prima facie adjustments and arithmetical corrections stipulated u/s. 143(1) of the Act and consequently, the adjustments made on a debatable issue is illegal and bad in law and accordingly prayed that the intimation passed u/s. 143(1) of the Act as well as the rectification order passed u/s 154 of the Act may be quashed.

8.

The ld. D.R. on the other hand, relied upon the order of the ld. Addl/JCIT(A), Udaipur and submitted that in view of the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT(cited supra), the ld. Addl/JCIT(A) has good enough reasons for making disallowances. Further, the ld. D.R. submitted that when the Hon’ble Supreme Court renders the decision, it applies from the date of enactment of a particular provision. Therefore, the CPC had rightly made an adjustment with respect to the disallowance of the provident fund and employees state insurance contribution pertaining to the

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 5 of 11 employees, which are not paid by the assessee within the prescribed time under the respective Acts.

9.

We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the Hon’ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022)448 ITR 518(SC) has held that such deduction is not allowable to the assessee if the employee’s contribution is not paid within the due date prescribed under the respective Acts. However, the said judgement was delivered by the Hon’ble Supreme Court only on 12/10/2022. Undisputedly, both the intimation u/s. 143(1) of the Act as well as rectification order u/s. 154 of the Act were passed way before the date of judgement by the Hon’ble Supreme Court. It is worthwhile here to note that prior to the said judgement, there were divergent opinions of the various High Courts on this issue. As rightly contended by the ld. A.R. of the assessee, the Hon’ble Karnataka High Court has decided the issue at that particular time in favour of the assessee and therefore, the assessee was entitled at that time for the deductions of the employee’s contributions paid belatedly according to the provisions of the respective Acts but paid before the due date of furnishing the return of Income. It is brought to our notice that the Hon’ble Karnataka High Court in the case of Essae Teraoka (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle -11(3) reported in [2014] 366 ITR 408 has held that the deduction shall be allowable even if the employee’s contribution is not paid within the due date prescribed under the respective Acts but paid on or before the due date of filing the Return of Income u/s 139(1) of the Act. In the present case, it is apparent that the intimation as well as rectification order were passed for the AY 2019-20 prior to the judgement of the Hon’ble Supreme Court. In the similar facts and circumstances of the case, the coordinate bench of this

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 6 of 11 Tribunal, in the case of Chandrakant Shamppa Kontha Vs. DCIT in ITA Nos. 2396 & 2397/Bang/2024 vide order dated 09/12/2025 has passed a detailed order, the relevant paragraph of which are reproduced below for ease of reference and convenience-

“24. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The issue involved in this appeal is the adjustment made by the central processing Centre for assessment year 2019 – 20 and the 2020 – 21 to the total income of the assessee being amount of employee's contribution of the P F and ESIC contribution which are deposited beyond the specified due dates prescribed in the respective acts. . For assessment year 2019 – 20, the intimation was passed under section 143 (1) of the income tax act on 14 July 2020 wherein in annexure of computation of the intimation of business income there is an adjustment/addition to the total income of the assessee at serial No. 14 'that the amounts debited to the profit and loss account to the extent of disallowable under section 36' of ₹ 10,048,794/– was added to the total income. This sum is stated to be in respect of employees' contribution paid towards provident fund and employee state insurance scheme admittedly paid beyond the due date specified under the respective act. Similarly for assessment year 2020 – 21 the intimation under section 143 (1) was passed on 16 December 2021 wherein a sum of ₹ 12,922,206/– was adjusted in similar manner.

25.

Undoubtedly the decision of the honourable Supreme Court in case of checkmate services ltd [ supra ]has held that such deduction is not allowable to the assessee if the employee's contribution is not paid within the due date prescribed under the respective acts. However, said judgement was rendered by the honourable Supreme Court on 12 October 2022 reported in (2022) for 48 ITR 518 (SC) (2023) 6 SCC 451. However, prior to that decision there were divergent opinions of the various high courts. Honourable Karnataka High Court has decided this issue at that particular time in favour of the assessee and therefore the assessee was entitled at that time for the deduction of the employee's contribution paid belatedly according to the provisions of the respective act but before the due date of filing of the return of income. Therefore, prior to 12 October 2022 the decision was in favour of the assessee. It is apparent that the intimation for both these years are passed prior to the decision of the honourable Supreme Court. 26. It is the provision of the law that that employee's contribution of this respective acts collected by the employer's income of the assessee in terms of provisions of section 2 (24) (x) of the act. Thereafter at the time of deposit of those sums, within the due dates prescribed in the respective act, deduction is allowable under the provisions of section 36 (1) (va) of the act. To this section an explanation – 1 was inserted with effect from 1 April 2021 by The Finance Act 2021 providing that the'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employees account in the relevant fund under any act, rule, order or notification issued there under or under any standing

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 7 of 11 order, award, contract of services or otherwise. Further explanation 5 was also added to the provisions of section 43B of the act by The Finance Act, 2021 with effect from 1 April 2021 providing that "for the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause 24 of section 2 applies.

27.

The memorandum explaining the provision in the Finance Bill, 2021 has referred to the amendment as under:-

Rationalization of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provides that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed whilecomputing the income under the head ̳ Profits and gains of business or profession ‘.

Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 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 to the said clause provides that, for the purposes of this clause, "due date‖ to mean 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 there-under or under any standing order, award, contract of service or otherwise.

Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B, and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act.

Though section 43B of the Act covers only employer ‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employers

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 8 of 11 contribution and employee ‘s contribution towards welfare fund. It may be noted that employee ‘s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer ‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee ‘s contribution towards welfare funds. Employee's contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measure of penalizing employers who mis-utilize employee ‘s contributions. Accordingly, in order to provide certainty, it is proposed to –(i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date‖ under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

[Clauses 8 and 9]

28.

Further necessary amendment were also made under section 143 (1) of the act which are also explained as under: Rationalisation of the provision relating to processing of returned income and issuance of notice under sub-section (2) of section 143 of the Act The existing provisions of clause (a) of sub-section (1) of section 143 of the Act provides that at the time of processing of return of income made under section 139, or in response toa notice under sub-section (1) of section 142, the total income or loss shall be computed after making the adjustments specified in clauses (i) to (vi) therein.

It is proposed to amend the following provisions of sub-section (1) of section 143 of the Act, -

(i)Amend sub-clause (iv) of clause (a) of sub-section (1) of the section 143 of the Act, to allow for the adjustment on account of increase in income indicated in the audit report but not taken into account in computing the total income.(ii)Amend sub-clause (v) of clause (a) of sub-section (1) of the section 143 of the Act so as to give consequential effect to amendment carried out in section 80 AC vide Finance Act 2018.(iii)Amend the provisions of section 143 to reduce the time limit for sending intimation under sub-section (1) of section 143 of the Act from one year to

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 9 of 11 nine months from the end of the financial year in which the return was furnished. Consequently, it is also proposed to reduce the time limit for issue of notice under sub-section (2)of section 143 of the Act from six months to three months from the end of thefinancial year in which the return is furnished. These amendments will take effect from 1st April 2021[Clause 34] 29. Thus, if one reads the memorandum explaining the provision in the Finance Bill 2021, it is apparent that Parliament would also like to introduce such an amendment with effect from the assessment year 2021 – 22 and subsequent assessment years. The assessment years before us are 2019 – 20 and 2020 – 21. Therefore, it is apparent that for the impugned assessment year which are in appeal before us the adjustment made by the learned central processing Centre of disallowing the contribution of employees deposited beyond the due date prescribed under the respective act is not correct.

30.

The decision of the honourable Chhattisgarh High Court in case of Sanjay Kumar Sharma versus income tax officer (2025) 174 taxmann.com 592 (Chhattisgarh) is also covers the issue in favour of the assessee. The honourable Delhi High Court in principal Commissioner of income tax versus TV today network Ltd (2022) 141 taxmann.com 275 (Delhi) though with respect to the assessment year 2012 – 13 has categorically held that that the said amendment will take effect from 1 April 2021 and further the amendment itself is proposed to be made with effect from assessment year 2021 – 22, the decision of the honourable Delhi High Court also support the case of the assessee.

31.

When there are contradictory judgements of non jurisdictional high court the view in favour of the assessee is required to be taken.

32.

In view of the above facts we hold that the adjustment made by the learned central processing Centre with respect to the deposit of employees' contribution to the credit of provident fund account beyond the due date specified under the respective act could not have been adjusted under section 143 (1) (a) of the act prior to assessment year 2021 – 22 and therefore the AO is directed to delete the adjustment to that extent.

33.

As we have directed the ld AO to delete the additions, other issues are merely academic and are dismissed.

34.

In the result both the appeals are allowed for statistical purposes.”

9.1 Respectfully, following the decision of this coordinate bench of the Tribunal, we held that the adjustment made by the CPC with respect to the deposit of employee’s contribution to the credit of provident fund account and ESI account beyond the due date specified under the respective Act could not have been made u/s 143(1)/154 of the Act prior to assessment year 2021-22 and

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 10 of 11 therefore, the AO is directed to delete the adjustment to that extent.

10.

In the result, the appeal of the assessee is allowed.

11.

In ITA No.2537/Bang/2025 for the AY 2020-21, the assessee has raised the following grounds of appeal:-

1.

“The ld. CIT(A) has erred in upholding addition made by CPC u/s 143(1)(a) by disallowing delayed payment of Employees portion to Provident Fund and Employees State Insurance by treating the same as disallowable expenditure. 2. The ld. CIT(A) has erred in not appreciating the fact that in the facts and circumstances of the case, Hon’ble Supreme Court’s decision in Checkmate Services Pvt. Ltd. is not applicable. Total tax effect : Rs.12,09,193/-”

11.1 We are of the considered opinion that the findings and result of appeal in ITA No.2536/Bang/2025 will mutatis- mutandis apply to this appeal also as the facts and issues involved in the present appeal are similar.

12.

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

13.

In the combined result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 25th June, 2026

Sd/- Sd/- (Waseem Ahmed) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 25th June, 2026. VG/SPS

ITA Nos.2536 & 2537/Bang/2025 Trimbak Konher Patil, Hubballi Page 11 of 11

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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