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Judgment
ORDER
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the Commissioner of Income Tax Appeal Addl/JCIT (A)-2 Jaipur [hereinafter referred to as “Ld. CIT(A))”] vide order dated 25-11-2025 pertaining to A.Y. 2020-21 arising out the assessment order dated 30-11-2021 u/s.143(1) of the Income-tax Act, 1961, (in short ‘the Act’)
The assessee raised the following grounds in the appeal”
1.The order passed by ld. AO(CPC) and CIT(A) is bad in law and against the facts of the case.
2.That the Ld. CIT(A) erred in sustaining the adjustment u/s 1432(1) made by the Ld. AO without giving an opportunity of being heard.
3.That the Ld. CIT(A) erred in sustaining the addition made by ld. AO without issuing a notice u/s 143(1)(a) of the Act before issuing the intimation.
4.That the Ld. CIT(A) erred in confirming the addition made by the Ld. AO(CPC) u/s 36(1) (va) amounting Rs.10,56,726/- on account of late payment of Employee’s contribution towards ESI/PF.
5.That the Ld. CIT(A) and Ld. AO erred in not allowing the expenditure of Rs.10,56,726/- being business expenditure u/s 37 of the Act.
6.That the Ld. CIT(A) erred in confirming the addition made by Ld. AO(CPC) u/s 43B of the Act amounting Rs.18,61,961/- on account of Employer’s contribution towards ESI/PF payable.
7.That the Ld. AO(CPC) erred in making the disallowance of Rs.29,18,687/- by invoking the provisions of Section 36(1)(va) and section 43B of the Act.
8.That the Ld. AO(CPC) erred in not considering the various judgements of jurisdictional High Court and ITAT decided in favour of assessee at the time relevant AY as well as at the time of processing of ITR.
9.That the appellant craves leave to add, alter modify or delete any of the ground of appeal.
The brief facts of the case are that the assessee has filed his return of income electronically for A.Y.2020-21 declaring total income of Rs.86,06,260/-. The Ld. AO(CPC) without issuing any notice u/s 143(1)(a) of the Act has processed the ITR and assessed the total income of Rs.1,98,75,980/-. The CPC has made the following additions:-
Rs. 24,76,210/- under section 36(1)(va) on Employees Contribution towards ESI and PF out of which amount of Rs.10,56,726/- has been deposited by the assessee before the filing of income tax return.
Rs. 55,18,967/- under section 43B on account of GST payable.
Rs.18,61,961/- 43B on account of Employers Contribution towards ESI and PF
Rs. 14,14,752/- u/s 43B on account of Employees Contribution towards ESI/and PF which was already disallowed by Ld. AO(CPC) u/s 36(1)(va) of the Act.
Aggrieved the order of the ld. AO the assessee preferred the appeal before the Ld. CIT(A), who vide his order dated 25-11-2025 partly allowed the appeal of the assessee and sustained the disallowances of Employers contribution of Rs.18,61,961/- and Rs. 10,56,726/- towards the Employee’s Contribution of ESI/PF. Being aggrieved the order of the Ld. CIT(A) the assessee is in appeal before the Tribunal.
The Ld. AR of the assessee submitted that the assessee had filed its tax audit report on 13-01-2021 wherein an amount of Rs. 18,61,961/- was reported as payable u/s 43B of the Act being unpaid as on the date of finalization of audit report. He further submitted that after finalization of the audit report, the assessee actually paid Rs.18,61,961/-towards Employers Contribution and accordingly claimed the same as allowable deduction under section 43B of the Act.
The Ld. DR relied upon the order of the Ld. CIT(A). We have heard the parties and gone through the material available on record. We observed that the disallowances related to employer’s contribution towards PF/ ESI governed by the section 43B of the Act. In the present case the assessee made the payment before filing the return of income under section 139(1) of the ACT. The expenses of the employer contributions of PF or ESI is allowable deduction if the payment was made before the due date of filing the return of income under section 139(1) of the Act. Since the assessee paid the amount before the due date of the filing the return therefore, the disallowance sustained by the Ld. CIT(A) is liable to be deleted and deleted accordingly. Ground no. 6 raised by the assessee is allowed.
The Ld. AR of the assessee submitted that intimation order under section 143(1) is not a regular scrutiny assessment under section 143(3) of the Act. The intimation order under section 143(1) of the Act was passed on 30-11-2021 prior to the judgement of the Hon’ble Supreme Court in Checkmate services Pvt. Ltd. v. CIT (2022) 448 ITR 518. He argued that the impugned addition has been made under section 143(1) of the Act when such an adjustment is clearly outside the scope of adjustments envisaged under section. He also stated that in the present case the payment was made before the due date of filing return of income under section 139(1) of the Act. In the tax audit report delay was shown however the assessee had not suo moto disallowed the same in the computation of income. Further ld. AR has placed reliance on the decision of the co-ordinate benches.
In the case of R.K. & Company Manpower Pvt. Ltd. Vs, DCIT ITA No. 6600/Del/2025 the Co-ordinate bench held as under:-
6.We have heard the rival submissions and perused the material on record as well as the relevant judicial pronouncements. Admittedly, the additions u/s 143(1) have been made in the Assessment Year prior to the decision of the Hon’ble Apex Court. We are, therefore of the considered view that the impugned addition was outside the scope of adjustments permissible u/s 143(1) of the Act. Accordingly, respectfully following the decisions of the co-ordinate benches cited hereinbefore, we delete the addition of Rs. 2,38.15.146/- u/s 36(1) (va) of the Act. The appeal of the assessee is hereby allowed.
Some other decisions relied upon by the ld. AR are as under:
Raj Kumar Bothra vs. DCIT, TAXC No.56 of 2025 dated 08-05-2025
Rajesh Kumar Garg vs. ACIT in ITA no 970/Del/2025 order dated 22-08-2025
M/s Tinna Rubber and Infrastructure Ltd. vs. DCIT in ITA No. 816 & 817/del/2025 order dated 31-07-2025
Ranbir Singh Sorout vs. ITO In ITA No. 52 to 54 /Del/2023 order dated 20-08-2025
A2Z Infra Services Ltd. vs. DCIT, ITA No. 970/Del/2023 order dated 16-06-202
We have heard the Ld. DR and perused the material available on record. Ld. DR relied the decision of the Hon’ble Supreme Court in the case of Checkmate Services (Supra). Reliance also placed the decision of the case MI2C Business Enterprises Pvt. Ltd. vs. DCIT ITA No. 1361 to 1363 /Del/2024 order dated 16-06-2026 in this case the co-ordinate bench held as under:
13.The issue of disallowance u/s 36(1)(va), being in violation of constitutional provisions of Article 14,19 and 21 of the Constitution of India, is not adjudicated as being outside our mandate. We however, shall deal with the assessee’s several taxation arguments raised on the issue, one by one. Firstly, reliance of the Hon'ble jurisdictional Delhi High Court in the case of CIT v. AIMIL Ltd. and ITAT decisions is no longer valid as these decisions predate the decision of Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. vs. CIT (supra). The hon’ble Supreme Court in Checkmate Services P. Ltd. vs. CIT has authoritatively laid down the law that disallowance u/s 36(1)(va) for employee's contribution to ESI/PF, that was deposited by assessee employer after due date prescribed in PF/ESCI Acts but before due date of filing return under section 139(1), is valid.
14.Moreover, the hon’ble Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT [2025] 178 taxmann.com 207 (Delhi)[08-09-2025] wherein relying on the decision of Checkmate Services P. Ltd. vs. CIT, held that for assessment year 2019-20, disallowance u/s 36(1)(va) for employee's contribution to ESI/PF that was deposited by assessee-employer after due date prescribed in PF/ESCI Acts but before due date of filing return under section 139(1), is valid. The hon’ble Delhi High Court also observed that the Supreme Court in Checkmate Services (P) Ltd. v. CIT had also considered Alom Extrusions Ltd (2009) 185 Taxman 416(SC) and distinguished the same by observing that the judgment had not considered sections 2(24)(x) and 36(1)(va), and also the separate provisions for employers' and employees' contributions under section 36(1). Ground 7 to 12 are accordingly dismissed.
15.The assessee’s argument that the aforesaid disallowance does not fall within the scope of permissible prima facie adjustments and was a debatable legal issue at the time of processing, is no longer valid and res-integra as the hon’ble jurisdictional Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT [2025] 178 taxmann.com 207 (Delhi) dated 08-09-2025 has brought the aforesaid quarrel to rest. The hon’ble Delhi High Court conclusively dispelled the assessee’s argument that the Assessing Officer under section 143(1) could not have passed the order dated 28-5-2020, by holding that at the time when the Assessing Officer proposed the deductions, the judgment of the Gujarat High Court in CIT v. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Gujarat) was in existence, which has been affirmed by the Supreme Court in Checkmate Services (P) Ltd. v. CIT, hence the Assessing Officer did not err in passing the order. In the instant case, the intimation u/s 143(1) was passed on 15.03.2019; 12.01.2020 and 07.05.2020 for the AYs 2017-18; 2018-19 and 2019-20 respectively, hence was much after the judgement of Gujrat High Court and therefore the disallowance u/s 36(1)(va) u/s 143(1), is legally permitted. Ground 1 to 5 are dismissed.
The second argument is that since the jurisdictional Delhi High Court in the case of CIT vs AIMIL Ltd. (2010) 321 ITR 508 (Delhi) has deleted the aforesaid disallowance u/s 36(1)(va), the issue was in favour of the assessee at the time of passing order u/s 143(1), hence as per the ratio of DCIT vs. M/s. Raghuvir Synthetics Ltd., the same cannot be disallowed under section 143(1). We find that the issue before the Hon’ble Delhi High Court in CIT vs AIMIL Ltd was disallowance u/s 36(1)((va) u/s 143(3) and not 143(1), hence distinguishable. Further, the decision of CIT vs AIMIL Ltd was superseded by the decision of the hon’ble Supreme Court in Checkmate Services (P) Ltd. v. CIT which laid the law from the date of its inception 01.04.1988. In this context, we outrightly reject the assessee’s arguments that the hon’ble Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT is per-incuriam.
Another argument of the assessee that the decision of Checkmate (Supra) was in context of scrutiny assessment under Section 143(3) and hence it is not applicable, is also answered by the hon’ble Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT which held the disallowance of PF/ESI u/s 143(1) is permissible.
We do note that there are decisions on the issue in favour as well as against the assessee. We also note that the this issue was decided against the assessee by the hon’ble Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT; by the hon’ble Bombay High Court in the case of Rohan Korgaonkar V DCIT (2024) 159 taxmann.com 321(Bom); by the Delhi ITAT in Savleen Kaur vs. Income-tax officer [2023] 147 taxmann.com 402 (Delhi - Trib.)/[2023] 199 ITD 437 (Delhi-Trib.) [09-01-2023]; Ram Dayal Bansal (Proprietor Bansal Associates) in ITA No. 1336/Del/2026 and Novelox Softwares India Pvt Ltd in ITA 3757/Del/2023 dated 10.12.2024 wherein disallowance of PF/ESI u/s 143(1) was upheld. Whereas the Hon'ble Chhattisgarh High Court in Raj Kumar Bothra vs. DCIT (TAXC No. 56 of 2025); ITAT Delhi Bench "A" in A2Z Infra Services Ltd. vs. DCIT (ITA Nos. 970/Del/2023 & 72/Del/2024); and ITAT Delhi Bench 'B' in Hisar Metal Industries Ltd. VS Vs DCIT, Circle, Hisar (1.T.A. Nos. 2244 & 2248/Del/2022) (Date of Pronouncement: 15.05.2026) are in favour of the assessee. In such factual matrix, under the doctrine of judicial discipline, we are bound by the decision of the hon’ble Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT, and therefore following the binding judgement of the Hon’ble Delhi High Court, we uphold the aforesaid disallowance u/s 36(1)(va) while processing the return u/ 143(1) of the Act.
The argument that the issue has not attained finality as the Hon'ble Supreme Court has admitted the Special Leave Petition in Woodland (Aero Club) Pvt. Ltd. vs. ACIT, is also misleading and misplaced. We find that the hon’ble Supreme Court was not appraised of the 3 bench decision of the hon’ble Supreme Court in the case of Checkmate Services [Pvt] Ltd (supra) before admitting the SLP.
Another argument that the Legislature, under the provisions of Section 29(1)(e) of the Income tax Act, 2025, has allowed for deduction of PF/ESI in case the employee contribution was deposited with in due date of filing ITR, and since the Finance Minister and the Income Tax Department have said there is no tax policy change in drafting the section, the disallowance may be deleted, is again misleading. We are of the considered view that since the legislature has made the provision of section 29(1)(e) in the Income Tax Act 2025 vide the Finance Act 2026, operating with effect from 01.04.2026, the said amendment is neither curative or clarificatory to have a retrospective application. We are of the considered view therefore, that the benefit is granted from 01.04.2026 only and if the legislature had intended to dilute the rigours of the Supreme Court decision in Checkmate Services (P) Ltd. v. CIT, it would have specifically made the amendment retrospective. We therefore hold that the provision of Section 29(1)(e) of the Income-tax Act, 2025 has prospective application and does not alter the legal position as mandated by Checkmate Services (P) Ltd. v. CIT and as available in AY 2018-19. We are fortified in our view by the decision of ITAT in the case of Dayal Bansal (Proprietor Bansal Associates) in ITA No. 1336/Del/2026 dated 15.06.2026.
The ground 13,14 and 15 is regarding the deposit of employees' contribution should be reckoned from the month in which the salary has been actually disbursed rather than the month for which the salary relates. The law on this subject as available in relevant provisions of section 38(1) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, reads as under:
"(1)The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an administrative charge of such percentage of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund "electronic through internet banking of the State Bank of India or any other Nationalized Bank authorized for collection" on account of contributions and administrative charge]: "Provided that the Central Provident Fund Commissioner may for reasons to be recorded in writing, allow any employer or class of employer to deposit the contributions by any other mode other than internet banking". Reading the above provision and specially the condition “within fifteen days of the close of every month” to our mind, would mean fifteen days from the month in which the wages/salary becomes due to the employees. For instance, the salary for the month of April, 2017 becomes due on 1st May, 2017. The assessee has to disburse the wages/salary and deduct employees’ contribution of PF/ESI in May 2017. Thereafter, within 15 days of the end of month of May, in which the deduction of PF/ESI has to take place, the employer has to deposit the employees’ contribution of PF/ESI with the respective fund. Accordingly, therefore, the due date for deposit of employees' contribution to PF/ESIC should be reckoned 15 days from end of May 2017 and consequently the due date should be recorded as 15.05.2017. To our mind, the provision of “due date” in PF/ESI Acts works as welfare legislation for the employees which ensures timely disbursal of wages to the employees. If the interpretation of the assessee that the month in which the salary has been actually disbursed rather than the month for which the salary relates, is adopted the same will go against the employees’ welfare as in that situation, the employers would delay the disbursal of salary for the month of May in any other month, for example July, deposit the employees contribution in July and claim deduction u/s 36(1)(va) of the Act with impunity.
We further note that the CPC picked up the late payment of PF/ESI from the Tax Audit report prepared by the Auditor of the assessee. The Auditor of the assessee, in their Tax Audit report in para 20 no.20(b), recognizes our interpretation that the due date is relevant from the end of month in which the wages/salary becomes due and not from the end of month in which the wages/salary is disbursed. The Auditor accordingly, pointed out that the assessee did not deposit the employees’ contribution towards PF/ESI on or before the due date as prescribed in the respective Acts. This note of the Auditor was picked up by the CPC which carried out the processing u/s 143(1). In view of the discussion as above, we therefore hold that the assessee has deposited the employees’ contribution towards PF/ESI into the accounts of respective funds, beyond the prescribed due dates and is therefore liable to be disallowed u/s 36(1)(va) r.w section 2(24)(x) of the Act while processing the return u/s 143(1) of the Act. Ground No.13 to 18 is dismissed.
In the present case the assessee did not deposit the employee’s contribution towards PF/ESI on or before the due date as prescribed in the respective Act. Respectfully following the decision of the co-ordinate, bench we dismissed the grounds no. 4 & 5 raised by assessee.
In the result the appeal of the assessee is partly allowed.