Addition u/s 36(1)(va) for delayed payment of EPF upheld holding that Supreme Court judgment imparts meaning to statute from the inception date.
In a recent judgment, ITAT Patna upheld the addition under section 36(1)(va) for delayed payment of EPF holding that any interpretation of a statute by the Supreme Court imparts a meaning to it from the date on which a particular provision was brought on the statute book.
ABCAUS Case Law Citation:
4627 (2025) (07) abcaus.in ITAT
In the instant case the Assessing Officer (AO), CPC initially accepted the return of income (ROI) of the assessee vide intimation/s 143(1) of the Income Tax Act, 1961 (the Act). Thereafter, the AO took up proceeding u/s 154 of the Act to make an disallowance u/s 36(1)(va) r.w.s. 2(24)(x) of the Act towards delayed payment of employees’ contribution towards Provident Fund (PF).
Aggrieved, with this action of the Assessing Officer, the assessee approached the CIT(A), who upheld the addition made by the AO CPC by following the judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. The CIT(A) held that the Supreme Court laid to rest any doubt or controversy regarding the impugned issue and thus the action of Assessing Officer was upheld.
Further aggrieved with this order action of CIT(A), the assessee has approached the ITAT.
It was contended by the assessee that at the time of passing of the order u/s 143(1) of the Act and even at the time of order u/s 154 of the Act, the judgment of the Hon’ble Patna High Court held the field since it was the order of Hon’ble jurisdictional High Court. Through this case deduction was to be allowed in case the payments had been made in the Government account before the due date of filing of ROI.
It was also submitted that the adjustments made to the order u/s.143(1) through rectification u/s 154 of the Act, is beyond the scope of section 143(1), since only prima facie adjustments are permitted thereon, and certainly not adjustments which pertain to debatable issues. To support his contention, the assessee relied on the case of Supreme Court, Calcutta High Court and Delhi High Court.
It was also argued that the rectification done by CPC u/s 154 of the Act was beyond the scope of such section. The main thrust of the argument was that the rectification was carried out vide order which was passed more than three months before the judgment of the Apex Court in Checkmate Services P. Ltd. Thus, at the time of the said rectification order the issue in question was still debatable at best and the judgment of the jurisdictional High court was in favour of the assessee.
It was also argued that the amendments in the provisions of section 36(1)(va) as well as section 43B of the Act were introduced by Finance Act, 2021 w.e.f. AY 2021-22 and not the assessment year under consideration (i.e. AY 2020-21). The assessee relied upon the Memorandum explaining the said amendments to emphasize the point that the said amendments were applicable from AY 2021-22 only. To canvass the point that the said amendments were prospective and not retrospective, the assessee placed reliance on plethora of cases
The Tribunal observed that before the judgment of the Hon’ble Supreme Court, there was considerable judicial debate on whether delayed employee contributions to PF and ESI could be allowed as deductions under Section 43B, provided they were paid before the due date of filing the return of income (ROI). In Checkmate Services case the Supreme Court provided much needed clarity on the interpretation of Sections 43B and 36(1)(va) of the Act. The Hon’ble Apex Court held that employee contributions to PF and ESI are governed exclusively by Section 36(1)(va) of the Act, and not by Section 43B of the Act. The court emphasized that employee contributions must be deposited within the due dates specified under the relevant statutes. Failure to do so would result in disallowance of the deduction, even if the payment was made before the due date for filing the ROI.
The Tribunal further observed that the judgment of the Hon’ble Supreme Court reinforced the distinction between employer and employee contributions. While an employer’s contributions could be governed by section 43B of the Act, employees’ contributions are strictly under Section 36(1)(va) of the Act. This ruling overturned many High Court decisions that allowed deductions for delayed employee contributions under Section 43B of the Act, setting a precedent for stricter compliance.
The Tribunal noted that the Hon’ble Supreme Court focused on the basic principle that whenever a special law exists for any particular situation it would be covered under the special law and not the general law. The Latin phrase of the same being “lex specialis derogat legi generali”. Thus, as special provisions were existing in the Act by virtue of 36(1)(va) for the employee contributions, thereby they would prevail over general provisions of Section 43B of the Act. Most importantly, the Supreme Court’s decision in Checkmate Services raised concerns regarding its retrospective application. But it is a settled position that the Supreme Court case laws have a retrospective effect on the interpretation of statutes, meaning that they apply to past events as well as future ones, unless the judgment itself explicitly states it should only apply prospectively. It is a settled position that the Hon’ble Supreme Court’s role is to interpret existing laws, and its decisions are seen as clarifying the true meaning of those laws, not creating new ones. Therefore, the Court’s interpretation has to be considered to be the correct interpretation of law as it existed from the outset, making it applicable retrospectively.
The Tribunal also delat with the proposition advanced by the assessee that on the date of the order by AO there was no judgement of the Hon’ble Apex Court and hence the issue was debatable at best. The Tribunal pointed out that it is well settled that any interpretation of a statute by the Hon’ble Supreme Court imparts a meaning to it from the date on which a particular provision was brought on the statute book.
There was another argument that the amendments to sections 36(1)(va) and 43B of the Act were introduced with effect from AY 2021-22 only, whereas this case pertains to AY 2020-21. On this point the Tribunal it observed that the Hon’ble Apex Court was aware of these amendments as we can see from para 5 of the order. Therefore, the said judgement considers the impact of such amendments and it is not for us to take any view other than the ratio decidendi of the Checkmate judgement. The Tribunal also pointed out that all of the cases relied upon by the assessee were the judgments delivered before the Checkmate case.
Regarding the scope of section 154, the Tribunal noted that the Hon’ble Gujarat High Court has dealt with the issue as to whether the judgment of jurisdictional Court would constitute a mistake apparent from the record or not. The High Court repelling the contention of the revenue that the judicial pronouncements were subsequent to the date of the assessment order, laid down that the law had always been and must always be understood to have been. The fact that the said decisions were not before the Assessing Officer when he made the assessment order had not material bearing on the question whether the said order discloses any mistake apparent from the record and was liable to be rectified under section 35 of the Wealth-tax Act, 1957. The High Court held that when the point is covered by a decision of the Supreme Court or concerned High Court, either rendered prior to or subsequent to the order proposed to be rectified, then the point ceases to be a debatable point and it also ceases to be a point requiring elaborate arguments or detailed investigation/inquiry. The subsequent decisions of the jurisdictional High Court do not enact the law but declare the law as it always was.
The Tribunal further observed that Hon’ble Allahabad High Court has also held that Non-consideration of a judgment of the jurisdictional High Court would always constitute a mistake apparent from the record, regardless of the judgment being rendered prior to or subsequent to the order proposed to be rectified.
Accordingly, the Tribunal upheld the impugned order and as a result, the assessee’s appeal was dismissed.
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