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M/S BEEAAR AUTOWHEELS INDIA PVT. LTD.,LUCKNOW vs. ITO WARD 1(3), LUCKNOW-NEW

ITA 282/LKW/2024Status: DisposedITAT Lucknow19 August 2025AY 2020-21Bench: SHRI KUL BHARAT, VICE PRESIDENT AND SHRI, NIKHIL CHOUDHARY (Accountant Member)5 pages

AI SummaryDismissed

Facts

The assessee claimed deductions for employee contributions to ESIC and EPF paid after the due date but before the income tax return filing. The Assessing Officer (CPC) disallowed this amount under Section 143(1) of the Income Tax Act. The CIT(A) upheld this disallowance, relying on the Supreme Court's decision in Checkmate Services Pvt Ltd.

Held

The Tribunal held that the disallowance made by the AO was justified. Following the Supreme Court's decision in Checkmate Services Pvt Ltd, it was established that for deduction under Section 36(1)(va), the employee's contribution to PF/ESIC must be deposited before the specified due dates. Since the assessee failed to do so, the disallowance was upheld.

Key Issues

Whether disallowance of employee's contribution to ESIC/EPF paid after due date but before filing of return is permissible under Section 143(1) in light of Supreme Court's decision in Checkmate Services Pvt Ltd.

Sections Cited

143(1), 143(1)(a), 143(3), 36(1)(va), 43B, 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW

Before: SHRI KUL BHARAT & SHRI, NIKHIL CHOUDHARY

For Appellant: Shri Rakesh Garg, Adv

For Respondent: Shri Deepak Yadav, DR

PER NIKHIL CHOUDHARY, ACCOUNTANT MEMBER.:

1.

This is an appeal filed by the assessee against the order of the learned Commissioner Income Tax (Appeals) u/s 250 of the Income Tax Act, 1961 (“Act”, for short) for the A.Y. 2020-21, dated 28.03.2024, dismissing the appeal of the assessee against the order of the Ld. Assessing Officer (CPC) passed u/s 143(1) of the Act on 30.11.2021. The grounds of appeal

are as under: -

1. Because the CIT(A) has erred on facts and in law in upholding the disallowance of Rs.7,11,230/- being employees contribution to ESIC and EPF under section 43B read with 36(1)(va), paid after the due date but before the filing of the income tax return, which disallowance is contrary to facts, bad in law be deleted.

2. Because the return having being processed u/s 143(1) no adjustment can be made other than as laid in the section, the Tax Audit Report (TAR) merely gives the details but does lay down that the amount claimed is not allowable, the disallowance made by the CPC and upheld by CIT(A) be deleted.

3. Because the CIT(A) has failed to appreciate that the contribution towards ESIC & EPF are all expenditure incurred for the purposes of Page 2 of 10 business and are to be allowed, irrespective of the time frame, provided deposited before the filing of the tax return, the disallowance be deleted.

4. Because on a proper consideration of the facts and reading of the provisions of section 36(1)(va) as interpreted by the Apex Court, time and again, it would be found that the contribution to EPF & ESIC are allowable whenever paid but before the filing of the income tax return, the order passed by the CIT(A) is contrary of the decision of the Apex Court, be quashed and the disallowance/addition made by deleted.”

2.

The facts of the case are, that the assessee filed its Income Tax Return for the A.Y. 2020-21, declaring a total income of Rs.1,13,57,890/-. The return was processed u/s 143(1)(a) of the Act determining total income of Rs.1,20,69,120/-. A sum of Rs.7,11,230/- was added back, being the disallowance of the amount of EPF/ESIC paid beyond the due dates, but before the filing of the Income Tax Return. Aggrieved with the said orders, the assessee filed an appeal before the Ld. CIT(A) which was subsequently transferred to Addl/JCIT-2 Ludhiana. It was submitted that the details of the amount payable along with the due dates were all mentioned in the audit report in Form 3CD. The Hon’ble Supreme Court in the case of Alom Extrusions Ltd. 319 ITR 306 (SC) and PCIT Jaipur vs. Rajasthan State Beverages Corporation Ltd. [2017] 84 taxman.com 185 (SC) and Allahabad High Court in the case of Sagun Foundry Pvt Ltd vs CIT in of 2006 (Alld) have all held that the payment of ESI/PF were to be allowed if paid before the filing of the Income Tax Return. Since in the case of the assessee, all the payments that had been disallowed had been paid after the due dates but before the filing of the Income Tax Return, as was evident from the audit report, the disallowance made was bad in law as it was contrary to the judgment of the various courts. The Ld. CIT(A) considered the provisions of Section 143(1)(a) of the Act, as they stood and pointed out that as per section 143(1)(a) (iv) of the Act, disallowance of expenditure indicated in the audit report but not Page 3 of 10 taken into account in computing the total income in the return was allowed on account of an information gathered from the audit report. The Ld. CIT(A) held that the indication of disallowance u/s 36(1)(va) of the Act was embodied in the details given in the tax audit report in clause 20(B) in Form no. 3CA. The due dates as prescribed u/s 36(1)(va) of the Act and the actual dates of payment were reported, thus clearly indicating the expenditure which attracted such disallowance, on the basis of books of account and other evidences furnished by the assessee before the audit. Since the delay in payment of employee’s contribution to PF/ESIC beyond the due dates, as prescribed u/s 36(1)(va) of the Act clearly fell within the ambit of prima facie adjustment to be carried out u/s 143(1)(a)(iv) of the Act, the Ld. CIT(A) held that the disallowance u/s 143(1) of the Act made by the CPC on this issue, was an order that did not merit any interference. The Ld. CIT(A) also referred to the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT-1 in Civil Appeal No.2833 of 2016, wherein the Hon’ble Supreme Court had held that the deduction could only be allowed in respect of those sum which fulfilled the conditions laid down in Section 36(1)(va) of the Act and in the event of failure to make the deposit before the due dates, as specified under the respective welfare Acts, the deduction could not be allowed by equating them with employee’s contribution. The Ld. CIT(A) held, that the once the decision had been laid down by the Hon’ble Supreme Court, then decisions announced by any other lower court did not hold any ground and did not lay down the correct law. He also referred to the amendment made by the Finance Act, 2021 in Section 36(1)(v)(a) and Section 43B of the Act, which he pointed out, were clarificatory in nature and

3.

The assessee is aggrieved by this dismissal of his appeal and has accordingly come in appeal before us. Shri Rakesh Garg, Adv (hereinafter referred as to “AR”) pointed out that the following judgment of the Hon’ble Supreme Court in Checkmate Services Pvt Ltd, he was not pressing ground no. 1, 3 and 4 of the appeal as that stood covered against him. However, with regard to ground no. 2, the Ld. AR submitted that the return was processed u/s 143(1)(a) of the Act and no adjustment could be made other than what was laid down in that Section. It was submitted that tax audit report merely gave the details but it did not state that the amount claimed is not allowable. Thus, it did not fulfill conditions as laid down in Section 143(1)(a) of the Act and on this ground, the disallowance was not justified. The Ld. AR also invited our attention to the recent judgment of the Hon’ble Chhattisgarh Hight Court in the matter of Raj Kumar Bothra vs DCIT, Circle-2(1) in Tax Case No. 56 of 2025 wherein their Lordships had held, after relying on the judgment of the Hon’ble Supreme Court in the case of Kvaverner John Brown Engg. (India) Pvt Ltd vs ACIT in CA No. 2073 of 2008 and ACIT vs Rajesh Jhaveri Stock Brokers Pvt Ltd (2008) 14 SCC 208, that the issue in the present case was whether a debatable issue could be addressed u/s 143(1)(a) of the Act and the Hon’ble High Court held that the prior to the Hon’ble Supreme Court having settled the matter vide order dated 12.10.2022, the matter was highly debatable and therefore could not fall within the ambit of Section 143(1)(a) of the Act. It held that the present issue was not Page 5 of 10 one of retrospectivity of the Hon’ble Supreme Court order and therefore, it set aside the order passed by the Assessing Officer in that case. The Ld. AR submitted that in this case also, the Jurisdictional High Court had rendered a decision in favour of the assessee, in the case of Sagun Foundary vs CIT in of 2006 (Alld) and therefore, as the issue was debatable, the disallowance could not be made u/s 143(1)(a) of the Act.

7. With regard to ground no. 2 raised by the Ld. AR regarding the inapplicability of section 143(1)(a) of the Act for the purposes of making such disallowances prior to the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd (supra), we observe that their Lordships of the Chhattisgarh High Court have rendered their judgment by relying on the judgment of the Hon’ble Supreme Court in the case of Kvaverner John Brown Engg. (India) Pvt Ltd vs ACIT (supra), and Rajesh Jhaveri Stock Broker Pvt Ltd (supra). However, in the case of Kvaverner John Brown Engg. (India) Pvt Ltd vs ACIT (supra), the only issue before the Hon’ble Court was whether u/s 143(1)(a) of the Act could be resorted to for making the disallowance when there were conflicting judgment on the interpretation of Section 80O of the Act. In that case, the Hon’ble Supreme Court had not settled the issue, as has been done in respect of EPF/ESI by the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd (supra). It is also observed that the judgment in the case of Page 7 of 10 Rajesh Jhaveri Stock Broker Pvt Ltd was delivered in the year 2008 and was rendered in the context of provisions of Section 143(1)(a) of the Act as it stood then. The the provisions of Section 143(1)(a) of the Act have undergone a change due to amendment made by the Finance Act, 2016. Therefore, the said judgment in the case of Rajesh Jhaveri Stock Broker Pvt Ltd (supra), having considered the provisions of Section 143(1)(a) of the Act as they stood earlier, would not hold good for adjustments made to the income of the assessee u/s 143(1)(a) of the Act after 01.04.2016. It is further, observed, that contrary to the decision of the Hon’ble Chhattisgarh High Court in the aforesaid case, the Hon’ble Bombay High Court in the matter of Rohan Korgaonkar vs DCIT 2024) 159 taxmann.com 321 (Bom) has held that after the decision of the Hon’ble Supreme Court in Checkmate Services Pvt Ltd (supra), it is of no relevance as to whether the disallowance has been made u/s 143(3) of the Act or u/s 143(1) of the Act.

8. It is also pertinent to note that the Allahabad Bench of ITAT in the case of SBW Udyog Ltd vs DCIT, Circle-1, in which one of us was the author, has considered this issue of disallowance for late payment of Employee’s Contribution to Welfare Fund and decided the issue as under: - “ 11.With regard to the reliance placed on the orders of the ITAT Raipur Bench by the ld. AR, we are inclined to agree with the ld. Sr. DR that an order of the Hon’ble Supreme Court clarifies the law as it has always stood. We observe that section 36(1)(va) was always on the statute, its language was clear and unambiguous and any debate on the issue was only due to the fact that certain Courts and Tribunals had held that the non-obstante clause under section 43B would also apply employees contribution to Provident Fund. The Hon’ble Supreme Court, vide its order in Checkmate Services (P.) Ltd. vs. CIT (supra), has in fact clarified the law as it always stood and removed that controversy. Therefore we are unable to appreciate the view of the Raipur Bench that before the decision of the Supreme Court, since the matter was debatable , it could not be taken up under section 143(1). In our view, once the Supreme Court has clarified the Page 8 of 10 law as it always stood, any previous debate on the matter therein before, can only be held to be on an incorrect appreciation of the law and that cannot oust the jurisdiction of the assessing officer under section 143(1).The issue has been well summed up by the Ranchi Bench of the Tribunal in the case of Nepal Chandra Dey Vs ACIT (2023) 152 Taxmann.com 221(Ranchi-Trib) wherein our “ld brothers have held, “It has been held time and again that law declared by a court will have retrospective effect, if not otherwise stated to be so specifically. It is also a well settled proposition that whenever, a previous decision is overruled by a larger bench of the Supreme Court , the previous decision is completely wiped out and article 141 will have no application to the decision which has already been overruled and the court would have to decide the cases according to the law laid down by the latest decision of the Hon’ble supreme Court and not by the decision which has been expressly overruled. The above reasoning stems from the principle that when a court decides a matter, it is not as if it is making any new law but it is as it is only restating what the law has always been. The Reliance in this respect can be placed on the decision of the Hon Supreme Court in the case of Ramdas Bhikaji Chaudhari vs Sadanand (1980)1 SCC 550 and on the recent decision of the Hon’ble Supreme Court in the case of Manoj Parihar v State of Jammu and Kashmir, (SLP(c ) no 11039 of 2022 dated 27-06-202;P.V.George vs State of Kerala (2007)3 SCC 557; Asst CIT vs Saurashtra Kutch stock exchange Ltd( 2008) 173 Taxman 322/305 ITR 227(SC)/14 SCC 171, wherein the Hon Supreme Court has held that the judges do not make law , they only discover and find the correct law . Even where an earlier decision of the court operates for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood. In view of the above stated legal position, the law declared by the Supreme Court will be retrospectively applicable and it will be treated that the earlier decisions of different High Courts favouring the assessee would be of no benefit to the assessee at this stage as the said decisions of the High Court are treated to be never existed or to say are wiped out by the aforesaid decision of the Hon’ble Supreme Court”.

12. For this reason, we hold that the reliance placed by the Ld AR on the earlier decision of the Hon Allahabad High Court in the case of Shagun Foundry (supra), will not help his case. We further notice that the decision of the Hon Raipur Bench in Satpal Singh Sandhu, was based on two cases rendered earlier by the Mumbai Bench of the Tribunal in the case of Kalpesh Synthetics (P) ltd vs DCIT( 2022)137 taxmann.com 475 and in the case of PR.Packaging services Ltd vs ACIT(2023)148 taxmann.com153 . We observe that the decision in the case of Kalpesh Synthetics (supra) was predicated on the fact that when there was a decision of the jurisdictional High Court that was in favour of the assessee , then the provisions of 143(1) which stated that adjustments could be made if disallowances were indicated in the audit report, could not prevail over the law laid down by the court and therefore the Bench had read down the provisions of section 143(1) accordingly and granted relief to the assessee . However , now that the cited decision of the Hon High Court has been overruled by the Hon’ble Supreme Court in Checkmate Services (p) Ltd (supra) ,the said judgment would not help the assessee because the indicated disallowance in the audit report is in alignment with the law as laid down by the Apex Court. With regard to the decision rendered by the Mumbai Tribunal in PR Packaging (supra), we note Page 9 of 10 that the Hon Ranchi Bench in the case of Nepal Chandra Dey(supra), has pointed out that there is a prescribed form for submitting the audit report and the auditor is supposed to furnish the information as per the prescribed columns of form 3CD. They have noted that under clause 20B of the prescribed form, the auditor is supposed to furnish information regarding nature of fund, sum receipts from employee, due date of payment and actual date of payment to the authorities. This information itself indicates the allowability or dis-allowability of an item while processing a return. The Auditor is not required to specifically mention what disallowance or what amount of disallowance is to be made under 36(1)(va) in the prescribed form and therefore, “ indicated in the audit report” means that when some information in the audit report is suggestive of a disallowance , which has not been taken into account by the assessee in computing his total income in the return, then there is no bar to the adjustment on this account while processing the return of income and since notice has to be given before adjustment , the principles of natural justice are also adhered to. Hence in that case, the Ranchi Bench has upheld the adjustment under section 143(1).A similar view of the matter has been taken by the Indore Bench of the Tribunal in the case of Prashanti Engineering Works (P) Ltd vs ADIT (2023)149 taxmann.com 488 Indore. Finally, we observe that while deciding the case of Rohan Korgaonkar(2024) 159 taxmann.co,321(Bombay) , the Bombay High Court, after considering the case of PR Packaging(supra),effectively overruled the same, holding that after the decision of the Hon Supreme Court in Checkmate Services(P) Ltd, it is of no relevance whether the disallowance has been made under section 143(3) or under section 143(1). Therefore, in view of the aforesaid, we hold that once the legal position had been made clear in the case of Checkmate Services (P)Ltd (supra) and the disallowance had been indicated by the information in the audit report, the Assessing Officer was well within his rights to make the disallowance, while processing the return under section 143(1)(a).”

M/S BEEAAR AUTOWHEELS INDIA PVT. LTD.,LUCKNOW vs ITO WARD 1(3), LUCKNOW-NEW | BharatTax