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Facts
The assessee's appeal was against the order of the CIT(A) which sustained the disallowance of late deposit of ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961, made by the CPC under Section 143(1).
Held
The Tribunal held that the Supreme Court's decision in Checkmate Services is applicable to assessments made under Section 143(1) as well as 143(3). The Tribunal, however, directed the Assessing Officer to verify the due date of ESIC and PF deposit as per the respective Acts.
Key Issues
Whether disallowance for delayed deposit of employee's contribution to PF/ESI under Section 36(1)(va) is permissible under Section 143(1) of the Act, and whether the Supreme Court's decision in Checkmate Services is applicable to Section 143(1) proceedings.
Sections Cited
143(1), 36(1)(va), 139(1), 37, 234A, 234B, 234C, 143(3), 10AA, VI-A, 43B
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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI YOGESH KUMAR US, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. CIT(A) dated 20.03.2025 for A.Y 2020-21.
The grounds raised by the assessee read as under:
“1. That the intimation order dated 29.11.2021 passed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred [A.Y. 2020-21] Shri Pawan Kumar Sharma Vs. The A.D.I.T to as 'the Act') for Assessment Year ('AY') 2020-21 by the Assistant Director of Income Tax, CPC Bengaluru (hereinafter referred to as 'CPC') and the disallowance made are illegal, bad in law and without jurisdiction. The Ld. CIT(Appeals) vide order dated 20.03.2025 has also grossly erred in sustaining the said disallowance.
2. That in view of the facts and circumstances of the case, the CPC has erred on facts and in law, in making the disallowance on account of late deposit of ESI and PF under Section 36(1) (va) of the Act amounting to Rs. 34,35,960/- during the relevant Assessment Year. The Ld. CIT(Appeals) vide its order dated 20.03.2025 too has grossly erred in sustaining the same to the tune of Rs. 29,71,816/- 3. That in view of the facts and circumstances of the case, the CPC has erred on facts and in law, in not considering that the addition has been made under Section 143(1) of the Act and the same is beyond the scope of the said provision and as such the CPC had no power/authority/jurisdiction to make the said addition u/s 143(1) of the Act. The NFAC vide its order dated 20.03.2025 too has grossly erred in sustaining the same.
4. That in view of the facts and circumstances of the case, the CPC has erred on facts and in law, in not appreciating that no disallowance is called for where employee's share of contribution is paid before the due date of filing the return under Section 139(1) of the Act. Therefore, the disallowance amounting to Rs. 34,35,960/- made on this account is illegal, bad in law and liable to be deleted. The Ld. CIT(A) vide its order dated 20.03.2025 too [A.Y. 2020-21] Shri Pawan Kumar Sharma Vs. The A.D.I.T has grossly erred in sustaining the same to the tune of Rs. 29,71,816/- 5. That in view of the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law, in not considering that the month in which the salary is actually disbursed to the employee should be considered as the relevant month of deduction for the purpose of calculating the due date of deposit of Employee Provident fund and Employees' State Insurance as held in various judgments.
6. That in view of the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law, in interpreting the judgments quoted in its order dated 20.03.2025 passed against the assessee.
7. That in view of the facts and circumstances of the case, the CPC as well as Ld. CIT(A) have erred on facts and in law, as they have failed to provide any opportunity to the Assessee and the same is in violation of principle of natural justice and hence, the impugned orders are liable to be set aside on this ground alone.
8. Without prejudice, in view of the facts and circumstances of the case, the CPC as well as Ld. CIT(A) have erred on facts and in law, in not considering that the expenditure incurred, being a business expenditure, ought to have been allowed under Section 37 of the Act.
That in view of the facts and circumstances of the case and in law, the CPC as well as Ld. CIT(A) have erred in charging interest under Section 234A, 234B and 234C of the Act. The charging of interest is illegal and excessive and has been wrongly worked out. It cannot be justified by any material on record.
[A.Y. 2020-21] Shri Pawan Kumar Sharma Vs. The A.D.I.T 10. That in view of the facts and circumstances of the case and in law, the CPC as well as Ld. CIT(A) have erred in not considering the material placed and available on record and have failed to judicially interpret the same as the same do not justify the addition/disallowance made.”
Brief facts of the instant case is that the CPC has made disallowance u/s 143(1) on account of late deposit of ESI and PF under Section 36(1)(va) of the Act amounting to Rs. 34,35,960/- during the relevant Assessment Year. The issue of disallowance u/s 36(1)(va) of employees contribution of PF and ESIC which are not paid by the assessee before or by the due date as prescribed in the relevant Act, is no more res integra as the quarrel is now settled by the decision of the Hon'ble Supreme Court in favour of the Revenue and against the assessee by the decision in the case of Checkmate Services [Pvt] Ltd 448 ITR 518.
The assessee has raised another ground that the CPC is not empowered to disallow the same u/s 143(1) of the Act. This issue is also decided against the assessee in the case of Savleen Kaur vs. Income- tax officer [2023] 147 taxmann.com 402 (Delhi - Trib.)/[2023] 199 ITD 437 (Delhi - Trib.) [09-01-2023] where the coordinate bench of Delhi ITAT has held that disallowance u/s 143(1) of delayed payment of PF/ESIC is valid, as under:
[A.Y. 2020-21] Shri Pawan Kumar Sharma Vs. The A.D.I.T 10. In our understanding, the aforementioned binding observations of the Hon'ble Supreme Court cannot be brushed aside simply because the decision was rendered in the context where the assessment was framed u/s 143(3) and not u/s 143(1)(a) of the Act. In our considered opinion, the decision of the Hon'ble Supreme Court is in the context of allowability of deposit of PF/ESI after due date specified in the relevant Act.
The Hon'ble Supreme Court has categorically held that the employees' contribution deposited after respective due date cannot be allowed as deduction, and, therefore, it would be incorrect to say that the decision of the Hon'ble Supreme Court is applicable only in the case of an assessment farmed u/s 143(3) of the Act. In our considered view, the ratio decidendi is equally applicable for the intimation framed u/s 143(1) of the Act.
Now coming to the challenge that the impugned adjustment is beyond the powers of the CPC Bengaluru u/s 143(1) of the Act is also not correct. In light of the aforementioned decision of the Hon'ble Supreme Court [supra], as mentioned elsewhere, it cannot be stated that the impugned adjustment u/s 143(1) of the Act is beyond the powers of the CPC, Bengaluru.
The provisions of section 143(1)(a) read as under: "143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of Section 143, such return shall be processed in the following manner, namely:- (a) The total income or loss shall be computed after making the following adjustments, namely:- (i) Any arithmetical error in the return; (ii) An incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) Disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) Disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain income", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;" 13.1 A perusal of the afore-stated provisions show that at every stage in sub-section (1) of the Act, the return submitted by the assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses are found, appropriate adjustments are to be made. It is an open secret that hardly 3 to 5% of the returns are selected for scrutiny assessment, out of which, more than 50% are because of AIR Information under CASS and the Assessing Officer cannot go beyond the reasons for scrutiny selection and such cases are called Limited Scrutiny cases and only the remaining returns are taken up for complete scrutiny u/s 143(3) of the Act. 13.2 Meaning thereby, that exercise of power under sub-section (2) of section 143 of the Act leading to the passing of an order under sub-section (3) thereof, is to be undertaken where it is considered necessary or expedient to ensure that the assessee has [A.Y. 2020-21] Shri Pawan Kumar Sharma Vs. The A.D.I.T not understated income or has not computed excessive loss, or has not under paid the tax in any manner.
If any narrow interpretation is given to the decisions of the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. (supra), it would not only defeat the very purpose of the enactment of the provisions of section 143(1) of the Act but also defeat the very purpose of the Legislators and the decision of the Hon'ble Supreme Court would be made redundant because there would be discrimination and chaos, in as much as, those returns which are processed by the CPC would go free even if the employees' contribution is deposited after the due date and in some cases the employer may not even deposit the employees' contribution and those whose returns have been scrutinized and assessed u/s 143(3) of the Act would have to face the disallowance.
This can neither be the intention of the Legislators nor the decision of the Hon'ble Supreme Court has to be interpreted in such a way so as to create such discrimination amongst the tax payers. Such interpretation amounts to creation of class [tax payer] within the class [tax payer] meaning thereby that those tax payers who are assessed u/s 143(3) of the Act would have to face disallowance because of the delay in deposit of contribution and those tax payers who have been processed and intimated u/s 143(1) of the Act would go scot- free even if there is delay in deposit of contribution and even if they do not deposit the contribution.
We are of the considered view that the ratio decidendi of the Hon'ble Supreme Court is equally applicable to the intimation u/s 143(1) of the Act and, therefore, the decision of the co-ordinate bench relied upon by the assessee is distinguishable. Therefore, respectfully following the binding decision of the Hon'ble Supreme Court [supra], all the three appeals of the assessee are dismissed and that of the revenue is allowed.
In the result, all the three captioned appeals of the assessee in 2250/DEL/202 and 2197/DEL/2022 are dismissed whereas the appeal of the Revenue in is allowed.
The aforesaid decision distinguished the case of P.R. Packaging 5. Service v. Asstt. CIT [2023] 148 taxmann.com 153 (Mum.-Trib.) where the Mumbai Tribunal deleted the disallowance u/s. 36(1)(va) of the Act made in the intimation u/s. 143(1) of the Act on a finding that such disallowance is beyond the scope of section 143(1)(a) of the Act, albeit the Tribunal noted that it is conscious of the fact that the issue on merits is decided against the assessee in Checkmate Services(supra). It was further held that the decision of Supreme Court was rendered in the context of section 143(3) of the Act and not section143(1) of the Act. however, distinguished the above judgment on a finding that Mumbai Tribunal has simply relied on another coordinate bench decision which was decided in the absence of the binding decision of Supreme Court in Checkmate Services (supra) i.e., the coordinate bench decision is prior to the decision of Supreme Court. It was further held that if any narrow interpretation is given to the decision of Supreme Court stating that it was rendered in context of only 143(3), such interpretation will defeat the very purpose of the intention of legislature and the Supreme Court decision. It was therefore held that the ratio lead down in the SC decision is equally applicable to intimation u/s. 143(1) and assessment order u/s. 143(3) of the Act.
Similarly, the ld ITAT Pune Bench in the case of Surendra Devid Thokal Vs ITO (ITAT Pune) has confirmed the CPC adjustment of Employee contributions for PF/ESI delayed payments as not deductible following the Supreme Court in Checkmate Services. The Ahmedabad Tax Tribunal in the case of M/s. Checkmate Services Pvt. Ltd. (I.T.A.
No. 69/Ahd/2023) have held that the decision of the Hon’ble Supreme Court in the case of Checkmate Services Private Limited is declaration of law which is applicable to all proceedings whether it is scrutiny assessment under Section 143(3) of the IT Act or the proceeding of
The Hon’ble Supreme Court in the case of Checkmates Services Pvt. Ltd., vs. CIT [2022] 448 ITR 518 vide order dated 12.10.2022, held as under :
“54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for
In view of the same, we decline to interfere with the order of the CIT(A). We are however, of the considered opinion that the due date as
per the respective Acts of ESIC and PF needs to be verified for making the impugned disallowance. Accordingly, we direct the Assessing Officer to verify the due date specified in the PF/ESIC Act from the date of disbursal of salary and decide the issue accordingly, after affording reasonable and adequate opportunity of being heard to the assessee.
The grounds 1 to 4 and 6 to 10 are dismissed. Ground 5 is allowed for statistical purposes. partly allowed.
The order is pronounced in the open court on 10.10.2025.