No addition for late deposit of PF/ ESI prior to decision of Supreme Court

ITAT deleted addition for late deposit of PF and ESI contributions as CPC intimations u/s 143(1) were issued prior to the decision of the Hon’ble Supreme Court

In an interesting judgment, ITAT Delhi deleted addition for late deposit of PF and ESI contributions holding that CPC intimations under section 143(1) denying the allowances were issued prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services.

ABCAUS Case Law Citation:
4706 (2025) (08) abcaus.in ITAT

In the instant case, appeals were filed by the assessee against three different orders of CIT(Appeals)-NFAC for the assessment years 2017-18, 2018-19 and 2019-20 in sustaining the disallowance of employees contribution to PF & ESI u/s 36(1)(va) r.w.s. 43B of the Income Tax Act.

Before the Tribunal the assessee contended that in all these assessment years while processing the intimation u/s 143(1) of the Act disallowance was made in respect of employee’s contribution to PF & ESI and such disallowance was highly debatable issue prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd.

It was submitted that since the intimations u/s 143(1) were passed by CPC prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services, the issue was highly debatable and therefore outside the purview of scope of section 143(1) of the Act. 

The assessee placed reliance on the decisions of Hon’ble Chhattisgarh High Court, decision of the coordinate bench of Delhi ITAT in support of the above contention.

The Tribunal observed that on identical facts and circumstances the coordinate bench of the Tribunal following the decision of the Hon’ble Chhattisgarh High Court held that prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services, the Assessing Officer should not have resorted to the provisions of section 143(1) for the purpose of disallowance of employee’s contribution to PF & ESI since as on the date of issuance of intimations by the AO the subject matter was highly debatable.

It was noted that the Co-ordinate Bench had dealt with the question as to whether the disallowance u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961 (the Act) in respect of employees contribution to PF and ESI is permissible while processing the return u/s 143(1) of the Act prior to the decision of the Hon’ble Supreme Court. The Co-ordinate Bench observed that the Delhi High Court had held that employee’s contribution to PF & ESI deposited prior to due date for filing return of income but beyond the due dates specified in the PF & ESI Act, would be deductible as when the intimations u/s 143(1) were passed there was a binding decision of the Jurisdictional High Court in favour of the assessee. Similarly, the Chattisgarh High Court vide its detailed judgment had set aside the intimation passed u/s 143(1)(a) wherein disallowance was made u/s 36(1)(va) read with 2(24)(x) of the Act which intimation was passed prior to the decision of the Hon’ble Supreme Court.

The Tribunal held that since the issue was highly debatable till the date of the decision of the Hon’ble Supreme Court and admittedly in all these three assessment years the CPC passed intimations prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services, therefore the AO was directed to delete the disallowance made towards employee’s contribution to PF & ESI in the intimation passed u/s 143(1) of the Act.

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