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Facts
The assessee filed appeals for AY 2019-20 and 2020-21 against orders of the CIT(A) that upheld disallowances made by the Central Processing Centre (CPC) under Section 36(1)(va) for belated employee contributions to PF/ESIC and under Section 43B for unpaid GST. A delay of 102 days in filing these appeals was sought to be condoned, with the assessee citing misadvice from their Chartered Accountant regarding a remand order by the CIT(A).
Held
The tribunal condoned the delay in filing the appeals, accepting the assessee's claim of sufficient cause due to being ill-advised. On the merits, it was held that amendments to Sections 36(1)(va) (Explanation 2) and 43B (Explanation 5) by the Finance Act 2021 are prospective, applicable from AY 2021-22 onwards. Therefore, for the impugned assessment years, the disallowance of belated employee contributions under Section 143(1)(a) was not valid, and the Assessing Officer was directed to delete this adjustment.
Key Issues
1. Whether the 102-day delay in filing appeals should be condoned for sufficient cause. 2. Whether disallowances for belated employee contributions to provident fund/ESIC and unpaid GST could be made under Section 143(1)(a) for AY 2019-20 and 2020-21, considering the prospective nature of the Finance Act 2021 amendments.
Sections Cited
143(1), 36(1)(va), 43B, 2(24)(x), 139(1), 5 (Limitation Act)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, Bangalore
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER PRASHANT MAHARISHI, VICE PRESIDENT: 1.
and 2397/Bangalore/2024 are filed by the assessee against the appellate orders passed by The Additional Commissioner Of Income Tax – (A) – 4, Chennai (the learned CIT – A) dated 28 June 2024 for both these assessment years wherein the appeals filed against the assessment order passed under section 143 (1) of The Income Tax Act, 1961 (The Act) dated 14/7/2020 and 16/12/2021 respectively passed by the central processing Centre, Bangalore for the assessment year 2019 – 20 and 2020 – 21 , are partly allowed.
The assessee is aggrieved with the same and is in appeal before us. The registry has put to our notice that the appeals barred by 102 days for assessment year 2019 – 20 and 2020 – 21.
In this case appellate orders were passed on 28 June 2024 which was stated to be received as per form No. 36 on 28 June 2024 however the appeals were filed on 11 December 2024. Thereby there is a delay of 102 days in filing of the appeal.
The assessee has filed an application for condonation of delay under section 5 of the limitation act, 1963 stating that that the mentioning of the date of receipt of the order on 28th of June 2024 is out of the abundant caution and the assessee is uncertain about the date of receipt of such order. It was submitted that the appellant after receipt of the order of the CIT – A approaches chartered accountant who has not advised the assessee to file an appeal against the order of the learned CIT –( A) to tribunal since he was of the view that the learned Commissioner of income tax (appeals) has remanded the matter to the learned assessing Officer by considering the decision of this Tribunal in case of MTR versus income tax officer (2023) 152 taxmann.com 189 and directed the learned assessing officer to verify the facts of the case and decide the quantum of disallowance under section 36 (1) (va) of the act. Accordingly in view of the same the assessee did not prefer any appeal. However later on the assessee filed the details before the learned assessing officer in order to give effect to the order of the learned CIT – A and the learned assessing officer held that the addition made is in order as per order dated 30 September 2024. The assessee is residing at the Hubli and therefore the chartered accountant of the assessee informed the appellant to consult the counsel at Bangalore to take advise for further proceedings with respect to both the appellate orders. The assessee approached the present counsel to examine the order passed by the learned CIT – A who advised the assessee to file an appeal immediately against both the orders of the CIT appeal with condonation of delay. The assessee took steps and filed the appeal immediately and therefore it was submitted that the delay caused in filing of the appeal deserves to be condoned and it was for a sufficient cause. The condonation petition further relied on the decision of the honourable Supreme Court in 167 ITR 471 and 118 ITR 507. Several other judicial precedents were relied upon and submitted that the delay is bona fides, unintentional, may be condoned taking a lenient and compassionate view.
The learned authorized representative reiterated the same arguments and submitted that there is a sufficient cause and therefore the delay must be condoned.
The learned departmental representative vehemently submitted that delay is not for sufficient cause and therefore it should not be condoned.
We have carefully considered the rival contention and perused the condonation petition filed before us which is requesting for condoning the delay of 102 days in respect of both the appeals. We find that earlier when the order of the learned CIT – A was passed, it was with a direction to verify whether the assessee could still suffer a disallowance when the date of payment of the wages is considered for the purpose of determining the due date. When the assessing officer confirmed the same disallowance, he was advised to file an appeal before the coordinate bench. Thus, the appeal filed by the assessee is delayed by 102 days, but it is for sufficient cause as assessee was ill-advised because of the interpretation of the chartered accountant of the assessee holding that the learned CIT – A has restored the matter back to the file of the learned assessing officer. However, when the learned assessing officer took view that the complete disallowance is required to be repeated, he was advised to file an appeal before the coordinate bench which has been made by the assessee and therefore the delay was for a sufficient cause. We do not find that there is any mala filed or laxity on the part of the assessee in not filing appeal in time. Therefore, the delay of 102 days in both the appeals are condoned and the appeal of the assesses are admitted.
The solitary issue in this appeal is that assessee is an individual assessee filed its return of income for assessment year 2019 – 20 on 6 February 2020 at a total income of ₹ 24,483,310/– showing income from house property, income from business and income from other sources. This return of income was processed under section 143 (1) of the act on 14 July 2020 determining the assessee's total income at ₹ 34,604,020/–. The CPC made the following adjustment (1) disallowance under section 36 (1) (va) being employees' contribution to provident fund and employees State insurance scheme remitted beyond the due date for payment in the respective statutes of ₹ 10,048,794/– and (2) disallowance under section 43B being certain deduction is allowable on actual payment of ₹ 71,910/–. The tax deduction at source to the extent of ₹ 311,714/– was also not allowed due to the mismatch as per form No. 26AS and return of income.
The assessee preferred the appeal before the learned CIT – A the learned CIT – A held that the amount of disallowance of contribution received from employees towards provident fund in employee State insurance scheme amounting to ₹ 10,048,794/- is based on the information available in form No. 3CD where the actual date of payments made are mentioned and all the payment of employees contribution towards provident fund and employees State insurance scheme fund is not in accordance with the law. He further held that that issue is also covered by the decision of the honourable Supreme Court in case of checkmate services private limited (2022) 448 ITR 518 wherein the court has not indicated that the decision is prospective in nature and therefore that decision is applicable on the case on hand. On the issue of the amendment to section 36 (1) and section 43B by way of inserting and explanation that what has been held that such amendments are retrospective in nature therefore he held that the AO is within his powers to make the adjustment to the total income on the issue of belated remittances of employees due to statutory authorities. He followed the decision of the coordinate bench in 152 taxmann.com 189 wherein it has been held that such disallowance was possible under section 143 (1). However, he noted that in the decision of the coordinate bench the tribunal has allowed the appeal that the due date for remittance of the employee's contribution had to be reckoned from the month of payment of salaries and not from the month in which they became due. Accordingly, the AO was directed to verify the facts of the case and decide the quantum of disallowance under section 36 (1) (va) accordingly.
With respect to the disallowance under section 43B of the act he found that the auditor has reported that ₹ 71,910 being the goods and service tax payable was not paid within the due date of filing of the return of income under section 139 (1) of the act but the same was not added back in the return and therefore the same was disallowed by processing the return under section 143 (1). Before the learned CIT – A there was no response and therefore he upheld the above adjustment under section 143 (1) of the act.
Therefore, against this appellate order, the assessee is in appeal before us.
The learned authorized representative submitted that that the learned central processing Centre has not given the assessee an intimation of the adjustment proposed to be made as per the first proviso to section 143 (1) (a) of the act. The proposed intimation was not issued to the appellant as can be seen by the screenshot of the details of the email ID that the adjustment was sent to income tax e-filing portal. It was further submitted that that the failure to provide the proposed adjustment to the appellant is in violation of the provisions of the first proviso to section 143 (1) (a) of the act and consequently the intimation issued under section 143 (1) of the act is bad in law. It was further stated that the intimation issued is also issued without providing an opportunity of personal hearing in violation of the principles of natural justice. He relied upon the decision of the coordinate bench in the case of Deputy Commissioner of income tax versus micro land Ltd in dated 15 January 2025 wherein it was held that with regard to the cross objection filed by the assessee contending that the intimation passed under section 143 (1) of the act is in violation of the provisions and such an intimation is illegal and bad in law. Assessee further placed reliance on the decision of the coordinate bench in dated 16/05/ 2024 and the decision of the Allahabad bench in 140 taxmann.com 204.
The learned authorized representative further submitted that prior to the judgement of the decision of the honourable Supreme Court in case of 143 taxmann.com 178 dated 12/10/2022 in case of checkmate services private limited deduction in respect of the delay deposit of employee's contribution on provident fund et cetera could not be summarily disallowed by invoking provisions of section 143 (1) (a) of the act. It was submitted that the intimation was issued on 16/12/2022 before the order of the honourable Supreme Court. It was further stated that prior to the decision of the honourable Supreme Court the honourable Karnataka High Court had decided the issue in favour of the assessee and no such disallowance could have been made.
He further submitted that the provisions of section 143 (1) (a) (iv) of the act was amended with effect from 1 April 2021 by inserting the word "or increasing the income". Therefore, such adjustment could have been made only from the assessment year 2021 – 22 and not for the assessment year 2020 – 21. He further held that as per the provisions of section 2 (24) (x) of the act the above sum was also considered as income. Since the sum received by the assessee from his employees deemed to be income, no adjustment could be made in regard to the increasing the income as per clause (iv) of section 143 (1) (a) of the act before 1 April 2021. Therefore, the assessee submitted that according to the provisions of section 143 (1) (a) which relates to an incorrect claim only if it is apparent from the return can only be disallowed. There is no instance of an incorrect claim in the return of income filed by the assessee and consequently the assumption of jurisdiction under section 143 (1) (a) of the act to make the disallowance under section 36 (1) (va) of the act is untenable.
He further submitted that the explanation 2 to section 36 (1) (va) and explanation 5 to section 43B of the act inserted by the finance act 2021 is prospective in nature and the same is applicable from the assessment year 2021 – 22 onwards and is not applicable to the impugned assessment year that is assessment year 2020 – 21 and 2019 – 20. He submitted that both the above amendment imposes a burden on the assessee in so far as the employees contribution to relevant fund should have been deposited by the employer before the due dates prescribed under the relevant statutes and the provisions of section 43B of the act shall not apply and shall be deemed never to have been applied for the purpose of determining the due date under that clause. Consequently, there exist the presumption towards such an amendment being applicable only prospectively. Reliance was placed on the decision of the honourable Supreme Court in case of CIT versus Vatika township private limited (367 ITR 466).
The authorized representative further put to our kind attention the notes on clauses and the memorandum explaining the provisions in the Finance Bill 2021 stating that in respect of the insertion of explanation 2 to section 36 (1) (va) and explanation 5 to section 43B of the act will take effect from 1 April 2021 and will accordingly apply in relation to the assessment year 2021 – 22 and subsequent assessment years.
The assessee further placed reliance on the decision of the honourable Supreme Court in case of MM Aqua technologies Ltd versus CIT 2020 436 ITR 582 stating that retrospective provisions in taxing statute which is " for the removal of doubts" cannot be presumed to be retrospective if it alters or change as the law as it earlier stood.
He further submitted that the decision of the honourable Supreme Court in case of checkmate services (2022) 143 taxmann.com 178 (SC) does not deal with the above issue of amendment applicable retrospectively or prospectively and consequently no disallowance can be made for the impugned assessment year 2019 – 20 and 2020 – 21.
The learned authorized representative further relied upon the decision of honourable Chhattisgarh high court in 174 taxmann.com 592 in case of Sanjay Kumar Sharma versus income tax officer where the identical issue was decided. He further referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax versus TV today network Ltd 141 taxmann.com 275 (Delhi) wherein it has been held that that the amendment to provisions of section 36 (1) (va) read with section 43B of the finance act, 2021 by inserting explanation 2 is prospective in nature and would be applicable only from 1 April 2021 and hence not applicable from assessment year 2012 – 13 under consideration.
The learned departmental representative vehemently supported the order of the learned lower authorities and submitted that the decision of the honourable Supreme Court and the learned CIT A has given enough reasons for making the disallowance. It was further stated that when the Supreme Court renders the decision, it applies from the date of the enactment of a particular provision. Therefore, the learned assessing officer has correctly made an adjustment with respect to the disallowance of the provident fund and employee state insurance scheme contribution pertaining to employees which are not paid by the assessee in time and based on the inconsistency in form No. 3CD filed by the assessee, the above disallowance was made.
In the rejoinder the learned authorized representative reiterated the submissions already made and submitted that it is not the issue of the decision of the honourable Supreme Court but it is the issue whether adjustment under section 143 (1) (a) of the act can be made with respect to the employees' contribution of provident fund and employees State insurance scheme, if those are paid beyond the due date specified in this respective act. He submitted that at the time when the adjustment was made, the decision of the honourable Karnataka High Court was in favour of the assessee and therefore no adjustment could have been made.
After hearing the matter, it has come to our notice that the honourable Delhi High Court in case of Woodland Aero club private limited dated 8 September 2025 in TS – 1187 – HC – 2025 (Del) has decided the identical issue and therefore the case was picked up for clarification.
In the clarification the learned authorized representative once again referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax versus TV today network Ltd (supra) wherein it has been held in paragraph No. 41 – 45 to state that the amendment has been made with effect from 1 April 2021 and further referred to the memorandum explaining the provisions of the Finance Bill 2021 wherein it is mentioned that the above amendment will take effect from 1 April 2021 and will accordingly apply to the assessment year 2021 – 22 and subsequent assessment years.
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.
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.
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 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.
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 while computing 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 40contribution 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]
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 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 the financial year in which the return is furnished. These amendments will take effect from 1st April 2021[Clause 34]
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.
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.
When there are contradictory judgements of non- jurisdictional high court the view in favour of the assessee is required to be taken.
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.
As we have directed the ld AO to delete the additions, other issues are merely academic and are dismissed.
In the result both the appeals are allowed for statistical purposes.
Order pronounced in the open court on 09.12.2025.