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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal of the assessee is directed against the order dated 01.11.2024 of Id. CIT(A)/NFAC, Delhi passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") wherein the addition of Rs.24,37,331/- by way of disallowance u/s 36(1)(va) of the Act vide assessment order dated 19.12.2022 were confirmed.
The facts in brief as culled out that the assessee company engaged in the business of manufacture/assembly of car audio systems of Japanese brand Kenwood/ and others car accessories including car security systems etc. The return of income for A.Y. 2021-22 was e-filed by the assessee on 28.02.2022 declaring total income of Rs.102,38,21,280. The return was processed u/s 143(1) of the Act. Subsequently, the case was selected for complete scrutiny by issuing statutory notice u/s 143(2) of the Act dated 28.06.2022, from the details submitted by the assessee. It was noticed that employees contribution towards provident fund to the extent of Rs.24,37,331/- was paid beyond the due dates of remittance as stipulated under the respective Acts and reflected in the following table:
| Sr. No. | Due date | Nature of Fund | Date of payment | Employees' contribution towards Provident Fund |
|---|---|---|---|---|
| 1 | 15.05.2020 | Provident Fund | 28.05.2020 | 835134 |
| 2 | 15.06.2020 | Provident Fund | 24.06.2020 | 813167 |
| 3 | 15.07.2020 | Provident Fund | 17.07.2020 | 789030 |
| 24,37,331 |
The Id. AO further noted that since the said amount was deposited beyond the period provided under the relevant Act, the same was required to be disallowed u/s 36(1)(va) of the Act.
Aggrieved by the impugned order, the assessee filed appeal before the Id. CIT(A) who dismissed the same by observing that the Hon'ble Supreme Court in decision dated 12.10.2022 in the case of Checkmate Services P. Ltd. vs. CIT-I (2022) 448 ITR 518 (SC) has held that if the employees' contribution fund towards PF/ESI is deposited beyond the date prescribed in the relevant facts, the same is liable to be disallowed. Accordingly, the appeal was dismissed.
Aggrieved by the impugned order, the assessee filed appeal before us and has raised the following grounds of appeal:
"1.That Ld. CIT (A) erred in confirming the disallowance / addition to income of Rs.24,37,331/- a/c Employee's Contribution to PF, on a/c of delay in deposit of the following three instalments during the "Peak Covid Pandemic Lock Down Period".
a)Rs.8,3 5,134/- due date 15.05.2020, deposited on 28.05.2020 (delays of 13 days).
b)Rs.8,13,167/- due date 15.06.2020, deposited on 24.06.2020 (delays of 9 days).
c)Rs.7,89,03 8/- due date 15.07.2020, deposited on 17.07.2020 (delays of 2 days).
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Total Rs.24,37,339/-
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in view of the following.
i)In non-consideration of the fact that the disqualification u/s 36(1)(va) -Explanation-1 of the Income Tax Act, gets applicable only in the event of any delay under EPF Act, which delay impliedly constitutes a default under the provisions of the EPF Act. ii) In non-consideration of the fact that there was no default under the provisions of the EPF Act in view of the relief granted in terms of notification dt.15.05.2020 issued by Employee's Provident Fund organisation.
iii) In non-consideration of the fact that the period of April 2020 - July 2020 was under Lock-Down in terms of notifications issued by the Govt.
iv) By completely setting aside the Equity, Spirit and Intent of various statutory notifications, in non-appreciation of the fact that during April 2020 - July 2020, Covid Pandemic was at its peak and life was full of un-certainties."
We have considered the rival submissions and examined the record. The only question to be determined by us is whether the AO was legally competent to make adjustment of the delayed payment of PF/ESI of Rs. 24,37,331/- u/s 36(1)(va) of the Act vide assessment order dated 19.12.2022?
The Ld. AR on behalf of the assessee has argued that the said disallowance was beyond the power of the AO u/s 143(1) of the Act. It was further argued that the Ld. CIT(A) has wrongly relied the Checkmate Services P. Ltd. (supra) case because the said case was not yet pronounced by Hon'ble Apex Court and at that time such disallowance of delayed deposit of PF/ESI amount was a debatable issue due to various decision by different Hon'ble High Courts in favour of the assessee or in favour of the Revenue. He has also relied the case of Hon'ble Chattisgarh High Court in Raj Kumar Bothra vs. DCIT in ITA No. 56/2025 dated 08.05.2025 Raipur Chhattisgarh.
The Ld. AR has further relied the case of the Co-ordinate Bench of Raipur ITA No. 357/RPR/2023 vide order dated 11.01.2024, Parv Buildcon vs. DCIT, Bangaluru and also ITA No. 04/RPR/2023 vide order dated 11.05.2023, Satpal Singh Sandhu vs. DCIT. The identical issues were decided in favour of the assessee and the assessment order as well as the first appellate authority order were quashed.
The Ld. Sr. DR on the other hand supported the judgment of the Ld. CIT(A) and prayed for dismissal of the appeal because the assessee’s auditor has categorically qualified his audit report and furnished details of the delayed deposit of the employees share of contribution towards PF/ESI as referred u/s 36(1)(va) of the Act . It was further argued that there was no infirmity of the order of the Ld. AO while processing the returning of income u/s 143(1) of the Act.
We have considered the rival submissions and examined the record. The issue before us is regarding the legality of disallowance made u/s 143(1) of the Act with regard to the late deposit of PF and ESI amount u/s 36(1)(va) of the Act. This issue is no more res integra as it has been specifically settled by various Tribunals and also by the Hon’ble Chattishgarh High Court. In both the cases referred, the Ld. Co-ordinate Bench in Parv Buildcon vs. DCIT (supra) and Satpal Singh Sandhu vs. DCIT (supra) has decided the identical issue in favour of the assessee and in Satpal Singh Sandhu (supra) para Nos. 14-15 are relevant and extracted as under:
"14.Also, I find that a similar view had been taken by the ITAT, Mumbai in the case of P.R Packaging Service Vs. ACIT (supra). In the aforesaid case, the Tribunal after drawing support from its earlier order in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), had, further observed, that as in the subsequent judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT (supra) assessment was framed u/s.143(3) of the Act and not u/s. 143(1)(a) of the Act, therefore, the same would not assist the case of the department before them, wherein the assessee had assailed the validity of the addition of the delayed deposit of the employee's share of contributions towards labour welfare funds, i.e. ESI & EPF that were made by the A.O u/s. 143(1)(a) of the Act. Further, I find that similar view had been taken by the ITAT, Jaipur in the case of Paris Elysees India Private Limited Vs. DCIT, ITA No.357/JPR/2022 dated 20.02.2023; and ITAT, Delhi in the case of M/s. 360 Realtors LLP Vs. ADIT, CPC in ITA No.303/Del/2022 and Garg Heart Centre & Nursing Home Private Limited, ITA No.1700/Del/2022.
15.On the basis of my aforesaid observations, I am of the considered view that as the issue involved in the present appeal is squarely covered by the order of the ITAT Mumbai in the case of Kalpesh Synthetics (P) Ltd. Vs. DCIT (supra), therefore, I respectfully follow the same and vacate the addition of Rs.19,91,318/- that was summarily made by the A.O, CPC u/s.143(1)(a) of the Act. Accordingly, I set-aside the order of the CIT(Appeals) and vacate the addition of Rs.19,91,318/- made by the A.O u/s.143(1)(a) of the Act."
Shri Satpal Singh Sandhu (supra) has been relied by the Co-ordinate Bench in Parv Buildcon (supra), and the matter was decided in favour of the assessee. The Hon'ble Chhattisgarh High Court, in Raj Kumar Bothra vs. DCIT (supra), was pleased to hold in para Nos. 16 to 20 extracted as under:
"16.Furthermore, the submission of the Revenue that the judgment passed in Checkmate Services Pvt Ltd (supra) would have retrospective effect, as held in Ramesh Prasad Verma (supra), P.V. George (supra) and in R.R. Kishore's case (supra), is no longer a dispute and well settled as the law declared by a Court will have a retrospective effect if not otherwise stated to be so specifically. However, the retrospective effect of the decision rendered by the Supreme Court in Checkmate Services Pvt Ltd. (supra) is not an issue involved in present case, as the question involved herein was quite different as to whether Section 143 (1) (a) of the Act of 1961 can be resorted to when there is highly debatable issue. Therefore, the case laws relied upon by the Revenue are not applicable to the facts of the present case.
17.Concludingly, we are of the considered opinion that the Assessing Officer should not have resorted to the provisions contained under Section 143(1)(a) of the Act of 1961 and instead could have resorted to the provisions under Section 143(3) of the Act of 1961, as on the date of issuance of intimation order dated 16.12.2021 by the Assessing Officer, exercising power under Section 143(1)(a) of the Act of 1961, the subject issue was highly debatable and ultimately, that issue was resolved by their Lordships in the matter of Checkmate Services Pvt Ltd (supra) on a later date.
18.As a fallout and consequence of above-stated discussion, the prima facie disallowance of impugned contribution towards ESI and EPF under Section 36(1)(va) read with Section 2(24)(x) of the Act of 1961 made by the Assessing Officer under Section 143(1)(a) by order dated 16.12.2021 is hereby set-aside. Consequently, the order dated 15.07.2024 passed by the CIT (Appeals) and the subsequent order dated 26.09.2024 passed by the ITAT are also set-aside. However, liberty is reserved in favour of the respondent/Revenue to proceed in accordance with law.
19.The substantial question of law is answered in favour of the appellant/assessee and against the respondent/Revenue.
20.In the result, the appeal is allowed to the extent indicated above leaving the parties to bear their own cost(s)."
On perusal of the judicial precedents referred above, we are of the considered opinion that the facts and circumstances of the present case are squarely covered by the judicial pronouncements and therefore, the disallowance made by the AO u/s 36(1)(va) of the Act is not legally sustainable and is accordingly set aside. The impugned order dated 01.11.2024, challenged before us, is also set aside. Accordingly, the appeal of the assessee is allowed and the question framed by us is answered in the negative.
In the result, the appeal of the assessee is accordingly allowed in above terms.