Loading judgment…
Facts
The appellant filed its return for the concerned year, which was processed under section 143(1) of the Income Tax Act. An adjustment was made regarding the late deposit of employees' share of PF and ESI, leading to a disallowance of Rs. 5,51,903/-. The assessee appealed this adjustment, arguing it was beyond the scope of section 143(1) and made without a speaking order.
Held
The Tribunal held that the adjustment made by the CPC, Bengaluru under section 143(1) of the Act for the late deposit of PF and ESI was not legally sustainable. The Tribunal referenced previous judgments and the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT-I, concluding that the issue was debatable at the time of intimation and should not have been processed under section 143(1).
Key Issues
Whether the adjustment made by the CPC under section 143(1) for delayed deposit of PF/ESI was legally sustainable and within the scope of the AO's powers.
Sections Cited
36(1)(va), 143(1), 143(3), 2(24)(x), 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is directed against the order dated 31.03.25 of passed by Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), ACIT/JCIT(A), Ranchi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] wherein the adjustment made vide
The facts in brief as culled out from the order of the authorities below are that the appellant/assessee filed its return for the concerned year which was processed u/s 143(1) of the Act and after making adjustment of a sum of Rs. 5,51,903/- u/s 36(1)(va) of the Act regarding late deposit of PF and ESI of employees’ share, necessary intimation was issued.
Aggrieved by the said adjustment, the assessee filed appeal before the Ld. CIT(A) stating that the intimation u/s 143(1) of the Act was received from the AO containing disallowance of Rs. 5,51,903/- u/s 36(1)(va) of the Act without passing a speaking order. It is alleged that the said adjustment was beyond the scope of Section 143(1) of the Act and was without jurisdiction and void ab initio. Ld. CIT(A) while relying the judgment of Hon’ble Supreme Court in Checkmate Services P. Ltd. vs. CIT-I (2022) 448 ITR 518 (SC) held that the Assessing Officer (CPC) was correct in disallowing employees and Contribution towards PF/ESI amounting to Rs. 5,51,903/- u/s 36(1)(va) of the Act because the payment has been made with delays from the due date mentioned in O.K. Auto Components Pvt. Ltd. the respective Acts, although, before the due date of filing of the return of income u/s 139(1) of the Act.
Aggrieved by the impugned order, the assessee is in appeal before us and raised following grounds of appeal:
1. That on the facts and in the circumstances of the case and in law, Ld. CIT(A)-A erred in sustaining the order passed by Ld. AO in spite of the fact that assessee denies its liability to be assessed to tax at taxable income of Rs. 50,23,520/- against the returned income of Rs. 44,71,620/- because against the enacted provisions & judicial pronouncements and accordingly denies its liability to pay tax and interest thereon.
2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO as Ld AO (acting through CPC) has erred in law and on facts in making the impugned adjustments u/s 143 (1) of the Act as these adjustments were beyond the scope of the provisions of 5.431(1), being debatable & without jurisdiction and void ab initio, THUS subject order is liable to be quashed 3-That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO (acting through CPC) in making disallowance of Rs. 5,51,903/- u/s 36(1)(va) of Income tax Act on account of alleged variance as per Tax Audit Report r/w schedule Ol of the Income Tax Return (point 6k) and that too mechanically without passing any speaking order. 4-That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO as it was passed mechanically without following the principle of natural justice, without giving any meaningful opportunity of being heard, without application of mind. 5- That the Appellant prays for the grant of permission to add, alter, delete, modify, any or all of the grounds of appeal at any time on or before or during the time of hearing before the Hon'ble ITAT.”
O.K. Auto Components Pvt. Ltd. 5. We have considered the rival submissions and examined the record. The only question to be determined by us is whether the CPC, Bengaluru/ AO was competent to make adjustment of the delayed payment of PF/ESI of Rs. 5,51,903/- u/s 36(1)(va) of the Act vide intimation issued u/s 143A of the Act ?
The Ld. AR on behalf of the assessee has argued that the said disallowance was beyond the power of the AO u/s 143(1) of the Act. It was further argued that the Ld. CIT(A) has wrongly relied the Checkmate Services P. Ltd. (supra) case because when the intimation was issued, the said case was not pronounced by Hon’ble Apex Court and that time such disallowance of delayed deposit of PF/ESI amount was a debatable issue due to various decision by different Hon’ble High Courts in favour of the assessee or in favour of the Revenue. He has also relied the case of Hon’ble Chattisgarh High Court in Raj Kumar Bothra vs. DCIT Taxc 56/2025 dated 08.05.2025 Raipur Chhattisgarh.
The Ld. AR has further relied the case of the Co-ordinate Bench of Raipur vide order dated 11.01.2024, Parv Buildcon vs. DCIT, Bangaluru and also vide order dated 11.05.2023, Satpal Singh Sandhu vs. DCIT. The identical O.K. Auto Components Pvt. Ltd. issues were decided in favour of the assessee and the intimation issued u/s 143(1) of the act as well as the first appellate authority order were quashed.
The Ld. Sr. DR on the other hand supported the judgment of the Ld. CIT(A) and prayed for dismissal of the appeal because the assessee’s auditor has categorically qualified his audit report and furnished details of the delayed deposit of the employees share of contribution towards PF/ESI as referred u/s 36(1)(va) of the Act . There was no infirmity of the order of the Ld. AO while processing the returning of income u/s 143(1) of the Act.
We have considered the rival submissions and examined the record. The issue before us is regarding the legality of disallowance made u/s 143(1) of the Act with regard to the late deposit of PF and ESI amount u/s 36(1)(va) of the Act. This issue is no more res integra as it has been specifically settled by various Tribunals and also by the Hon’ble Chattishgarh High Court. For both the cases referred, the Ld. Co- ordinate Bench in Parv Buildcon vs. DCIT (supra) and Satpal Singh Sandhu vs. DCIT (supra) has decided the identical issue in favour of the assessee and para No. 14-15 are relevant and extracted as under:
Also, I find that a similar view had been taken by the ITAT, Mumbai in the case of P.R Packaging Service Vs. ACIT (supra). In the aforesaid case, the Tribunal after drawing support from its earlier order in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), had, further observed, that as in the subsequent judgment of the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT (supra) assessment was framed u/s.143(3) of the Act and not u/s. 143(1)(a) of the Act, therefore, the same would not assist the case of the department before them, wherein the assessee had assailed the validity of the addition of the delayed deposit of the employee’s share of contributions towards labour welfare funds, i.e. ESI & EPF that were made by the A.O u/s. 143(1)(a) of the Act. Further, I find that similar view had been taken by the ITAT, Jaipur in the case of Paris Elysees India Private Limited Vs. DCIT, dated 20.02.2023; and ITAT, Delhi in the case of M/s. 360 Realtors LLP Vs. ADIT, CPC in and Garg Heart Centre & Nursing Home Private Limited, ITA No.1700/Del/2022.
On the basis of my aforesaid observations, I am of the considered view that as the issue involved in the present appeal is squarely covered by the order of the ITAT Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), therefore, I respectfully follow the same and vacate the addition of Rs.19,91,318/- that was summarily made by the A.O, CPC u/s.143(1)(a) of the Act. Accordingly, I set-aside the order of the CIT(Appeals) and vacate the addition of Rs.19,91,318/- made by the A.O u/s.143(1)(a) of the Act.”
Shri Satpal Singh Sandhu (supra) has been relied by the Co-ordinate Bench in Parv Buildcon (supra), and the matter was decided in favour of the assessee. The Hon’ble Chhattisgarh High Court, in Raj Kumar Bothra vs. DCIT (supra), was pleased to hold in para Nos. 16 to 20 extracted as under:
“16. 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) O.K. Auto Components Pvt. Ltd. and in R.R. Kishore's case (supra), is no longer a dispute and well settled as the law declared by a Court 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).”
On perusal of the judicial precedents referred above, we are of the considered opinion that the facts and circumstances of the present case are squarely covered by the judicial pronouncements and therefore, the O.K. Auto Components Pvt. Ltd. disallowance made by the CPC, Bangaluru / AO, u/s 36(1)(va) of the Act by issuing intimation u/s 143(1) of the Act is not legally sustainable and is accordingly set aside. The impugned order dated 31.03.2025, challenged before us, is also set aside. Accordingly, the appeal of the assessee is allowed and the question framed by us is answered in the negative.
In the result, the appeal of the assessee is accordingly allowed in above terms.
Order pronounced in open Court on 29th January, 2026.