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Facts
The assessee company filed its return of income, which was processed under section 143(1). An addition was made for delayed payment of employees' ESI & PF contributions beyond the due dates specified in the respective Acts, but before the due date for filing the return. The assessee filed a rectification petition u/s 154 which was rejected, and the subsequent appeal to the CIT(A) was also dismissed.
Held
The Tribunal held that the issue of delayed deposit of employees' contribution to PF/ESI, even if deposited before the due date of filing the return, is not allowable as a deduction based on the Supreme Court's decision in Checkmate Services Pvt. Ltd. The Tribunal further held that such an adjustment could be made under section 143(1)(a) as it is a clear and quantifiable item of disallowance, and the argument of the issue being debatable at the time of processing is not tenable.
Key Issues
Whether delayed payment of employees' contribution to PF/ESI beyond the due dates under respective Acts, but before the due date of filing the return, is an allowable deduction. Whether such an adjustment could be made under Section 143(1)(a) when the issue was debatable.
Sections Cited
143(1), 154, 36(1)(va), 2(24)(x), 43-B, 139(1), 143(3)
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
1. The captioned appeal filed by the assessee is directed against order of the Ld. Commissioner of Income Tax (Appeals), ADDL/JCIT (A)-2, Visakhapatnam [‘CIT(A)’ in short] dated 23.06.2025 for Assessment Year 2017-18.
Brief facts of the case are that "the assessee is a Private Limited Company. For the assessment year 2017-2018, the assessee filled the return of income on 29/10/2017 electronically vide acknowledgement no:
1. 267982461291017 declaring a total income of Rs.10,16,47,272/-. The return was processed u/s. 143(1) by the Deputy Commissioner of Income Tax, CPC. Bangalore and the total income have been arrived at Rs.10,33,76,217/- by making an addition of Rs.17,28,945/- as detailed below to the income returned by the assessee. For the said Intimation, the asseessee has filed a rectification petition u/s 154 of the Income Tax Act on 19/04/2019 to re-process the return by deleting the additions made on the ground that the amount recovered from the employees were remitted well before the due date of filing the Income tax returns. The officer at CPC has proceeded to pass the order u/s 154 in CPC communication reference no: CPC/1718/06/1902152037 dt 14/05/2019 rejecting the claim and served the same on the assesssee on 28/05/2019.
The assessee against the intimation/order passed by the Assessing Officer (hereinafter referred to as "the AO") i.e., AO, CPC, u/s. 154 of the Income Tax Act, 1961 dated 14.05.2019 for the Assessment Year (AY) 2017-18 relevant to the Previous Year (PY) 2016-17.
3. Aggrieved, the assessee preferred an appeal before the CIT(A), who, relying on the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT [(2022) 143 taxmann.com 178 (SC)] dated 12.10.2022, confirmed the disallowance as under:
5.1. The main contention of the appellant is with regard to addition made of Rs. 17,28,945/- on account of delay in payment of the ESI & PF on or before the due date as per the respective Acts but before
:: 3 :: filing of the return of income and therefore has to be allowed. Further, argument of the appellant is that the adjustment in the intimation issued under section 143(1)(a) was beyond the scope of section 143(1)(a) inasmuch as it did not come within the ambit of prima facie adjustment contemplated under section 143(1)(a).
5.4 In view of the above, based on the evidence placed on record and keeping in view the relevant provisions of the statute i.e., Sec. 36(1)(va) of the Act and case law (supra) discussed in the preceding paragraphs, I am of the considered view that, the appellant is not entitled to claim deduction towards employees contribution to PF & ESI to the extent of Rs.17,28,945/-, since the same was paid beyond the due dates specified as per the PF Act. Hence, in my view, there is no illegality in making disallowance.
4. The assessee has now come in appeal before this Tribunal by raising the following grounds:
1. The Order of the Addl. Commissioner of Income Tax (Appeals) NFAC dismissing the appeal is contrary to law, erroneous and unsustainable on the facts of the case.
2. The Addl. CIT(A) NFAC erred in confirming the disallowance of Rs.17,28,945/- made by the CPC applying u/s.36(1)(va) of the Act.
3. The Addl. CIT(A) NFAC failed to appreciate that the disallowance of PF & ESI cannot be made in the Intimation u/s.143(1) passed on 29.3.2019 since the enabling amendment came into effect from 01.4.2021 and hence ought to have accepted and allowed the petition u/s.154 filed by assessee.
4. The Addl CIT(A) NFAC further failed to appreciate that the disallowance u/s.143(1) could not be made by the CPC at that point of time, in view of the jurisdictional High Court and the ITAT Benches had been holding that payment of PF & ESI within the due date of filing of return was sufficient to make a valid claim of deduction u/s.36(1) (va) of the Act.
5. The Addl CIT(A) NFAC further failed to appreciate that the Supreme Court decision in Checkmate Services Private Ltd. though had held that the payment of PF & ESI ought to be paid within the due dates of respective enactments, it cannot be subject-matter of prima facie adjustment and hence the disallowance needs to be deleted.
6. The Addl. CIT(A) NFAC, in any view of the matter, ought to have seen that the PF & ESI payments were not amenable to adjustment u/s.143(1) and hence the appeal filed against the order u/s.154 passed by the CPC ought to be allowed.
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The ld. Counsel for the assessee relied upon the judgment of the Hon’ble Chhattisgarh High Court in the case of Raj Kumar Bothra v. DCIT reported in [2025] 476 ITR 249 which 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 16.12.2021 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 Act of 1961, was highly debatable, which was pending consideration before the Supreme Court in Checkmate Services Pvt Ltd (supra) and subsequently, it was resolved by the Supreme Court by the judgment dated 12.10.2022. Furthermore, the assessee in its audit report had only furnished the details of delayed deposit in Column 20 (b) of the Form No.3CB and had not shown the same as disallowance. Therefore, the Assessing Officer has committed a grave legal error in processing the return of the assessee under Section 143(1)(a) of the Act of 1961, in light of principles of law laid down by their Lordships of Supreme Court in the matters of Kvaverner John Brown Engg. (India) Pvt. Ltd (supra) and Rajesh Jhaveri Stock Brokers Pvt (supra).
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 Vs. Parv Buildon) and TAX No.15/2024 (DCIT Vs. 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 Act of 1961. 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 M/s. BPS Infrastructure (supra), wherein, this Court has dismissed the appeal preferred by the assessee as barred by limitation summarily without formulating any substantial question of law and as such the substantial question of law formulated herein in this appeal was neither involved, formulated and answered in M/s. 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 (supra) and in R.R. Kishore's case (supra), is no longer a dispute and well settled as the law declared by a Court
:: 5 :: 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 Pvt Ltd. (supra) is not an issue involved in present case, as the question involved herein was quite different as to whether Section 143 (1) (a) of the Act of 1961 can be resorted to when there is highly debatable issue. Therefore, the case laws relied upon by the Revenue are not applicable to the facts of the present case.
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 16.12.2021 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.
As a fallout and consequence of above-stated discussion, the prima facie disallowance of impugned contribution towards ESI and EPF under Section 36(1)(va) read with Section 2(24)(x) of the Act of 1961 made by the Assessing Officer under Section 143(1)(a) by order dated 16.12.2021 is hereby set- aside. Consequently, the order dated 15.07.2024 passed by the CIT (Appeals) and the subsequent order dated 26.09.2024 passed by the ITAT are also set- aside. However, liberty is reserved in favour of the respondent/Revenue to proceed in accordance with law.
The substantial question of law is answered in favour of the appellant/assessee and against the respondent/Revenue.
In the result, the appeal is allowed to the extent indicated above leaving the parties to bear their own cost(s).
The assessee also filed form No.3CA and referred Sl.No.20b.
Per contra, the Ld.DR for the revenue filed the following notes:
Whether the judgment of the Honorable Supreme Court in the case of Checkmate Services applies prospectively or from the date of amendment of the Act, and thus retrospectively. Based upon various decisions discussed in the said Orders, the Chennai ITAT held that the decision applies from the date of amendment in the relevant provisions.
2 Whether an adjustment u/s 143(1) is possible: The Hon'ble ITAT examined the provisions of both clause(ii) and Clause (iv), and held that even before the amendment of clause (iv), the adjustment can be done both under clause (ii) and clause (iv) of Section 143(1).
Whether the Explanation 2 inserted to Section 36(1)(va) has any impact on this: It is submitted that the judgment in Checkmate Services was rendered before the explanation in 36(1)(va) was inserted, i.e., in respect of Assessment Year 2009-10. Even before the insertion of the said explanation, the legal position was settled by the Hon'ble Supreme Court.
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Thus, after examining all the issues, the Tribunal has come to a conclusion that the judgment is to be applied retrospectively from the date of amendment in the Act, date of the relevant amendment in the Act, and that processing u/s 143(1) is permissible by taking into account the information in the Audit Report. The relevant judgments or Orders of the Chennai ITAT are attached.
The ld. DR filed order of the co-ordinate Bench of this Tribunal in the case of DCIT, Circle-1, Tirupur v. M/s. Amazing Export Corporation & Others in MA No.202 & 203/Chny/2022 for AYs 2017-18 & 2018-19 order dated 01.08.2023 which held as under:
By way of captioned Miscellaneous Applications, the Revenue seeks our indulgence in Tribunal order passed in captioned appeals on 11.04.2022. The revenue has filed similar applications in bunch of appeals seeking restoration / rectification of order on identical grounds. All these applications were heard together and opportunity was given to learned authorized representatives of all the assessees to meet out the applications filed by the revenue. The captioned applications were also heard along with that bunch. It was admitted position that the adjudication in lead applications would apply to all the other similar applications filed by the revenue. The lead order has now been passed by the bench in MA Nos. 97/Chny/2022 & 11/Chny/2023 от 31.07.2023 wherein the applications of revenue has been allowed and the issue, on merits, has been decided against the assessee considering the decision of Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. Vs CIT (143 Taxmann.com 178; dated 12.10.2022). After considering the rival submissions, the Bench held that there was mistake apparent from record in terms of section 254(2) and therefore, the Revenue's applications were to be allowed. The Issue, on merits was decided against the assessee. It was also held that such an adjustment could very well be made while processing return of income u/s 143(1) as per decision in Electrical India (ITA No. 789/Chny/2022).
2. Accordingly, accepting the present applications of the revenue, the captioned order stand modified and the impugned issue is decided against the assessee. The Ld. AO is directed to re-compute the income of captioned assessees by disallowing late payment of Employees' Contribution to PF/ESI which have been deposited beyond due date as specified in respective welfare ESI/PF acts. The order of Tribunal stand modified accordingly. A copy of this common order may be placed in respective files.
3. All the applications stands allowed.
Further, the Ld.DR relied upon the decision of the co-ordinate Bench of this Tribunal in the case of TalentPro India HR Pvt. Ltd. v. DCIT in & 2722/Chny/2024 for AYs 2018-19 & 2019-20 order dated 25.03.2025.
We have heard the rival submissions and perused the record and gone through the respective judgments/orders of the Hon’ble Courts and Tribunal. The sole issue before us is whether the assessee is entitled to deduction of employees’ contribution to PF/ESI deposited beyond the due dates under the respective Acts but before the due date of filing the return of income under section 139(1). The Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT [(2022) 143 taxmann.com 178 (SC)] has categorically held that:
“Employees’ contribution to PF/ESI is governed by section 36(1)(va) read with section 2(24)(x) of the Act. Such contribution shall be treated as income of the employer if not deposited within the due date prescribed under the relevant Acts. Section 43B applies only to employer’s contribution, and not to employees’ contribution.”
Thus, the law as settled by the Supreme Court is that delayed remittance of employees’ contribution, even if deposited before filing of return under section 139(1), is not allowable as deduction.
In the present case, the assessee has admittedly deposited the employees’ contribution to PF/ESI after the due dates prescribed under the respective enactments. Therefore, in light of the binding decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra), the disallowance of Rs.17,28,945/– made by CPC and confirmed by the CIT(A) is justified.
The argument that the issue was debatable at the time of processing and, therefore, could not be adjusted under section 143(1)(a), is also not tenable in view of the decisions of the co-ordinate Benches of this Tribunal. In TalentPro India HR Pvt. Ltd. v. DCIT (supra) and DCIT v.
Amazing Export Corporation & Others (supra), it was held that adjustment for late payment of employees’ contribution to PF/ESI can be made under section 143(1)(a), based on information available in the tax audit report (Form 3CD), since it is a clear and quantifiable item of disallowance.
We have carefully considered the judgment relied upon by the assessee. In Raj Kumar Bothra (supra), the Hon’ble Chhattisgarh High Court held that at the time when the return was processed (i.e., prior to the judgment in Checkmate Services Pvt. Ltd.), the issue regarding delayed deposit of employees’ contributions was debatable and hence could not form part of prima facie adjustment under section 143(1)(a).
However, the said decision was rendered in the context of an intimation dated 16.12.2021, i.e., prior to the pronouncement of Checkmate Services Pvt. Ltd. (supra) on 12.10.2022. The Hon’ble High Court’s observations were based on the legal uncertainty prevailing at that time.
In the present case, the appellate proceedings are taking place after the Supreme Court’s decision, which has conclusively settled the law. Once the Hon’ble Apex Court has interpreted section 36(1)(va) authoritatively, such interpretation operates retrospectively, as it declares the correct position of law as it always stood. This principle has been reaffirmed by the Hon’ble Supreme Court in M.A. Murthy v. State of Karnataka [(2003)
185 CTR 97 (SC)] which opined as under:
It is for this Court to indicate as to whether the decision in question will operate prospectively. In other words, there shall be no prospective over-ruling, unless it is so indicated in the particular decision. It is not open to be held that the decision in a particular case will be prospective in its application by application of the doctrine of prospective over-ruling.
Therefore, the ratio of Raj Kumar Bothra (supra) is distinguishable on facts and law, and cannot be applied to override the binding authority of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra).
In result, in view of the above discussion, we find no infirmity in the order of the CIT(A) confirming the disallowance made by CPC under section 154 in respect of delayed payment of employees’ contribution to PF/ESI. Accordingly, the appeal filed by the assessee is dismissed.
Order pronounced on the 17th day of November, 2025, in Chennai.