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Judgment
PER SATBEER SINGH GODARA, JM
This assessee's appeal for assessment year 2018-19, arises against the Commissioner of Income Tax (Appeals)/Addl/JCIT(A)-7 [in short, the "CIT(A)"], Mumbai's DIN and order No. ITBA/APL/S/250/2025-26/1078197999(1) dated 04.07.2025 involving proceedings under section 154 of the Income-tax Act, 1961; hereinafter referred to as 'the Act'.
Heard both the parties. Case file perused.
Learned counsel states at the outset that the assessee/appellant herein is aggrieved against both the learned lower authorities’ respective section 143(1) r.w.s 154 rectification findings dated 30.01.2023 invoking section 36(1)(va) ESI/PF disallowance amounting to Rs. 24,51,906/- as upheld in the lower appellate discussion. That being the case, the assessee’s first and foremost contention is that such a disallowance could not have been made in section 143(1) processing which is found to be already adjudicated in the department’s favour in Woodland (Aero Club) Pvt. Ltd. vs Assistant Commissioner of Income Tax [2025] 178 taxmann.com 207 (Delhi).
Learned counsel’s further submission is that hon’ble apex court in the very case in SLP (C) No. 1532/2026 admitted on 08.09.2026 has treated the instant issue of ESI/PF disallowance as involving conflicting views from various high courts; reading as under:
1.The High Court recorded the following findings as regards as the issue in question.
i.Employer’s contributions under Section 36(1)(iv) and employees’ contributions covered under Section 36(1)(va) read with Section 2(24)(x) are fundamentally different in nature and must be treated separately.
ii.Employees’ contribution deducted from their salaries are deemed to be income under Section 2(24)(x) and are held in trust by the employer. The employers can claim deduction only if they deposit these amounts on or before the statutory due date under Section 36(1)(va).
iii.The non-obstante clause in Section 43B cannot be applied to employees' contributions governed by Section 36(1)(va).
iv.Alom Extrusions (supra) has been distinguished as the same has not considered Sections 2(24)(x) and 36(1)(va).
v.Explanation 5 to Section 43B was not considered at all while arriving at the decision that employees' contribution must be deposited on or before the due dates under relevant statutes."
2.As per Section 2(24)(x), any amount recovered by the employer from the employees towards their contribution to any provident or superannuation fund or any other fund set up under the provisions of the ESI Act, 1948 or any other fund for the welfare of the employees is income.
3.Section 36(1)(va) of the Act says that any sum so received by the assessee - employer from his employees to which provisions of Section 2(24)(x) applies, the assessee - employer shall be entitled to deduction while computing income under Section 28, if such sum is credited by the assessee - employer to the employees account before the due date.
4.The Explanation to Section 36(1) (va) says that the 'due date' means the date by which the assessee -employer is required to credit the employees contribution in the relevant fund under any Act, Rule, Order or Notification issued thereunder.
5.There are two School of thoughts as regards the interpretation of the words "due date".
6.A combined reading of the Section 2(24)(x) and that Section 36(1) (va) of the Act, prima facie is indicative that any sum received by the assessee - employer from any of his employees as contribution towards PF & ESI is the income of the assessee under Section 2(24)(x) and it continues to be so, unless it is credited by the assessee - employer to the employee's account in the relevant fund on or before the due date specified under the relevant PF, ESI Act.
7.The employee's contribution towards PF, ESI received by the assessee - employer is his income under Section 2(24)(x) and if he wants to have it deducted from his income under Section 36(1)(va), he must credit the same to the employee's account in the relevant fund on or before the due date specified under the relevant PF,ESI Act.
8.The aforesaid view is supported by the following judgments of the High Courts:-
(i)Unifac Management Services (India) (P.) Ltd. v. Dy. CIT [2018] 100 taxmann.com244 [2019] 260 Taxman 60/[2018] 409 ITR 225 (Mad.), (ii) CIT v. Gujarat State Road Transport Corpn. [2014]41 taxmann.com 100/366 ITR 170/223 Taxman 398 (Guj.), (iii) CIT v. Merchem Ltd. [2015] 61 taxmann.com 119/235 Taxman 291/378 ITR 443 (Ker.), (iv) B.S. Patel v. Dy. CIT [2010] 326 ITR 457/[2008] 171 Taxman 304 (MP) and (v) Popular Vehicles & Services Pvt Ltd v. CIT [2018] 96 taxmann.com 13/257 Taxman 120/406 ITR (Ker).
9.The other view is that there is no difference between employees and employer contribution to PF, ESI and both would be guided by the provisions of Section 43B of the Act so as to allow deduction in the hands of the assessee - employer if the contributions are deposited on or before the due date of filling of return under Section 139(1) of the Income Tax Act, 1961.
10.The aforesaid view is supported by the following Judgments:- (i) CIT v. Aimil Ltd. [2010] 188 Taxman 265/321 ITR 508 (Delhi HC), (ii) Pr. CIT v. Plamman HR (P) Ltd. (IT Appeal No. 170 of 2018, dated 12.02.2018 (Delhi HC). (iii) CIT v. Nipso Ployfabriks Ltd. [2013] 350 ITR 327/213 Taxman 376/30 taxmann.com90 (HP). (iv) Sagun Foundry (P.) Ltd. v. CIT [2017] 78 taxmann.com 47 (All). (v) CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2014] 366 ITR 163/[2013] 217 Taxman 64 (Mag.)/35 taxmann.com 616 (Raj.). (vi) CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar). (vii) CIT v. Hemla Embroidery Mills (P.) Ltd. [2014] 366 ITR 167/[2013] 217 Taxman 207/37 taxmann.com 160 (Punj. & Har.). (viii) CIT v. Ghatge Patil Transports Ltd. [2014] 368 ITR 749/[2015] 53 taxmann.com 141/228 Taxman 340. (ix) Bihar State Warehousing Corpn. Ltd. v. CIT [2016] 368 ITR 410 (Patna). (x) CIT v. Vijay Shree Ltd. [2014] 43 taxmann.com 396/224 Taxman. 12 (Cal.) (Mag.) (xi) CIT v. Industrial Security & Intelligence India Pvt. Ltd. [Tax Case (Appeal) Nos.585 and 586 of 2015 & M.P.No.1 of 2015, dated 24-7-2015. (xii) Gauhati High Court in the case of CIT v. George Williamson (Assam) Ltd. [2006] 284 ITR 619 (Gauhati). (xiii) CIT v. Kichha Sugar Ltd. [2013] 356 ITR 351/216 Taxman 90/35 taxmann.com 54 (Uttarakhand). (xiv) Pr. CIT v. Plamman HR (P) Ltd, [IT Appeal No. 599 of 2017, dated 11.09.2017].
11.In view of the conflicting opinion, as referred to above, we would like to look into this issue.
12.Issue notice, returnable in four weeks.
13.Dasti, in addition, is permitted.
Faced with this situation, we find that for the reasons best known to the concerned assessee, it had not brought into light hon’ble apex court’s “larger” bench decision in Checkmate Services (P) Ltd. vs CIT 2022 448 ITR 518(SC) having already adjudicated the very issue in the department’s favour. We thus find merit in the Revenue’s vehement contentions herein to reject the assessee’s instant twin arguments against the impugned disallowance in very terms.
This assessee’s appeal is dismissed.