M/S. R.K. SWAMY LTD.,CHENNAI vs. DCIT, NCC-10(1), CHENNAI

ITA 2822/CHNY/2025Status: DisposedITAT Chennai14 October 2026AY 2020-2115 pages
AI SummaryAllowed

What were the facts?

The assessee, RK Swamy Limited, filed appeals against orders of the CIT(A) for Assessment Years (AY) 2018-19 and 2020-21. For AY 2018-19, the CPC processed the return under Section 143(1) and made a disallowance of Rs. 1,77,85,122/- on account of delayed payment of employees' contribution to provident fund (PF) and Employees' State Insurance (ESI) under Section 36(1)(va). The CIT(A) upheld this disallowance, relying on the Supreme Court's decision in M/s. Checkmate Services. For AY 2020-21, an adjustment of Rs. 51,43,339/- for similar delayed contributions was made under Section 154, which was also upheld by the CIT(A). The assessee contended that these adjustments were made on debatable issues and beyond the powers of the CPC under Section 143(1) and Section 154, respectively, especially when a notice under Section 143(2) was issued prior to the Section 143(1) intimation in the first case, and no notice was issued for the Section 154 adjustment in the second case.

What did the Tribunal hold?

The Tribunal consolidated both appeals for a common order. For AY 2018-19, the Tribunal held that the disallowance made by the CPC under Section 143(1) was not justified. The Tribunal, respectfully following the decision of the Hon'ble High Court of Chhattisgarh in Sanjay Kumar Sharma, held that when a notice under Section 143(2) was issued prior to the intimation under Section 143(1), the CPC could not make such an adjustment. The Tribunal rejected the revenue's reliance on Circular No. 3/2017 in light of the Supreme Court's decision in Gujarat Electricity Board, which held that once regular assessment proceedings commence under Section 143(2), there is no need for summary proceedings under Section 143(1)(a). The disallowance was directed to be deleted, and the CIT(A)'s order was set aside. For AY 2020-21, the Tribunal noted that the issue was similar. It held that no disallowance could be made under Section 154 without seeking an explanation from the assessee, as it was a debatable issue. Following the decision in Sanjay Kumar Sharma, the disallowance confirmed by the CIT(A) was deleted due to legal infirmity, and the CIT(A)'s order was set aside. In both cases, the grounds raised by the assessee were allowed.

What were the issues?

1. Whether the disallowance made by the CPC under Section 143(1) for AY 2018-19, on account of belated payment of employees' contribution to PF and ESI, is justified, considering that a notice under Section 143(2) was issued prior to the Section 143(1) intimation? Assessee's contention: The disallowance under Section 143(1) is not permissible as the issue was debatable at that time, and the CPC lacks the power to make such adjustments. The issuance of a Section 143(2) notice prior to the Section 143(1) intimation renders the latter illegal, citing Commissioner of Income Tax v. Gujarat Electricity Board and Sanjay Kumar Sharma v. Income-tax Officer. The assessee also argued that the Supreme Court's decision in Checkmate Services was in the context of an assessment under Section 143(3), not Section 143(1). Revenue's contention: The revenue relied on paragraph 56.2 of Circular No. 3/2017. 2. Whether the adjustment made under Section 154 for AY 2020-21, on account of belated payment of employees' contribution to PF and ESI, is justified, especially when no notice was issued to the assessee? Assessee's contention: Similar to the first issue, the assessee argued that the adjustment under Section 154 was on a debatable issue and could not be made without issuing a notice to the assessee. The assessee adopted the same arguments as in the first appeal. Revenue's contention: The revenue relied on paragraph 6.2.1 of the impugned order of the CIT(A).

Which sections of the Income-tax Act were involved?

Section 143(1),Section 36(1)(va),Section 143(2),Section 143(3),Section 154

AI-generated summary — verify with the full judgment below

Before: Shri Inturi Rama Rao & Shri S.S. Viswanethra Ravi

Hearing: 20.07.2026Pronounced: 14.10.2026

PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:

Both the appeals filed by the assessee are directed against orders dated 09.12.2025 and 14.08.2025 passed by the ld. Commissioner of Income Tax (Appeals), ADDL/JCIT (A)-1, Bengaluru for the assessment years 2018-19 & 2020-21, respectively.

2.

Since the issues raised in both these appeals are similar and based on the same identical facts, with the consent of both the parties, we

The order continues below.

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