Delayed Employees’ PF, ESI Contributions Can Be Disallowed at CPC Stage Under Section 143(1): ITAT
Pranav B Prem
The Delhi Bench of the Income Tax Appellate Tribunal has dismissed appeals for Assessment Years 2018–19 and 2019–20, holding that belated payment of employees’ contribution to Provident Fund (PF) and Employees’ State Insurance (ESI) is not allowable as a deduction, even if such payments are made before the due date of filing the income-tax return. The Tribunal further upheld the power of the Centralised Processing Centre (CPC) to make such disallowances while processing returns under Section 143(1) of the Income-tax Act, 1961.
The Bench comprising Shrimahavir Singh (Vice President) and Shrisanjay Awasthi (Accountant Member) was dealing with appeals filed by Rational Business Corporation Pvt. Ltd., challenging adjustments made by CPC while issuing intimations under Section 143(1). In both assessment years, the CPC had disallowed employees’ PF and ESI contributions that were deposited beyond the statutory due dates prescribed under the respective welfare laws. For AY 2018–19 alone, the disallowance aggregated to over ₹51 lakh.
The appeals were filed with delays of 289 days and 166 days respectively. The assessee sought condonation of delay on the ground of incorrect legal advice initially received from its tax consultant, subsequent legal opinion obtained at a later stage, and personal hardships, including health issues of a senior director and a family wedding. After examining affidavits filed by the assessee as well as its tax consultant, the Tribunal was satisfied that sufficient cause had been shown and accordingly condoned the delay, admitting the appeals for adjudication.
On merits, the central issue before the Tribunal was whether CPC was justified in disallowing employees’ contributions to PF and ESI under Section 143(1)(a) when such contributions were deposited after the due dates under the PF and ESI Acts, though before the due date for filing the return under Section 139(1). The assessee argued that at the time when the returns were processed, the issue was debatable, as several High Courts had taken a view favourable to the assessee prior to the Supreme Court’s decision in Checkmate Services Pvt. Ltd. v. CIT. It was contended that such a debatable issue was outside the scope of summary adjustments permissible under Section 143(1).
Rejecting these submissions, the Tribunal relied extensively on the Supreme Court’s ruling in Checkmate Services Pvt. Ltd., which authoritatively settled the law by holding that employees’ contributions are governed exclusively by Section 36(1)(va) and must be deposited within the due dates prescribed under the respective welfare statutes. The Tribunal noted that Section 43B applies only to employer’s contributions and has no application to employees’ share. It emphasized that payment of employees’ contribution after the statutory due date results in permanent disallowance, even if the payment is made before filing the return of income.
The Tribunal further observed that the Supreme Court decision in Checkmate Services is clarificatory in nature and, therefore, applies retrospectively. It explained that judicial interpretation by the Supreme Court declares the law as it has always stood, and does not create a new law from the date of the judgment. Consequently, the issue could not be treated as debatable merely because the Supreme Court decision was rendered after the processing of returns in the present case.
Addressing the contention that CPC lacked jurisdiction to make such disallowances at the processing stage, the Tribunal relied on decisions of the Bombay and Gujarat High Courts to hold that the distinction between assessments under Sections 143(1) and 143(3) becomes irrelevant once the legal position is settled by the Supreme Court. It held that adjustments under Section 143(1)(a)(iv) are permissible where a claim is contrary to the express provisions of the statute. Once the Supreme Court clarifies the law, any contrary claim automatically becomes an incorrect claim apparent from the record.
The Tribunal categorically rejected the argument that subsequent judicial decisions cannot be used to sustain earlier adjustments. It reiterated that a Supreme Court judgment has retrospective effect and removes any scope for debate on the issue, irrespective of when the processing or assessment took place.
In view of the settled legal position and after an extensive review of statutory provisions, judicial precedents, and legislative intent, the Tribunal concluded that the disallowance of delayed employees’ PF and ESI contributions was correct in law. It held that CPC was fully justified in making the adjustments under Section 143(1) and that the appellate authorities were right in relying on the Supreme Court’s ruling. Accordingly, both appeals filed by the assessee were dismissed.
Cause Title: Rational Business Corporation Private Limited Versus DCIT
Case No.: I.T.A Nos.4402 & 4403/Del/2025
Coram: Shrimahavir Singh (Vice President) and Shrisanjay Awasthi (Accountant Member)
