AI Structured Summary
Not yet generated for this judgment
Judgment
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This is appeal filed by the assessee against the order dated 07-01-2026 of the Commissioner of Income Tax Appeal Addl/ JCIT(A)-2 Guwahati [hereinafter referred to as “Ld. CIT(A)”] relevant to assessment year 2020-21 on the following grounds of appeal:
1, That the order passed by the Ld. CIT(A) is bad in law and against the provisions of the Act.
2.That the Ld. CIT(A) has wrongly upheld impugned order u/s 154 without verifying facts and merits of the case.
3.That the Ld. CIT(A) has wrongly upheld total additions of Rs.63,96,368/- made u/s 154 on account of misreporting and late payment of employee EPF/ESI.
4.That the Ld. CIT(A) has wrongly upheld additions of Rs.11,92,150/- which was merely due to misreporting in Form 3CD.
5.That the Ld. CIT(A) has wrongly upheld additions of Rs. 52,04,218/- on account of late payment of employee share of EPF/ESI, as the payment was duly made prior of filing of income Tax Return.
6.That the Ld. CIT(A) has wrongly not considered revised Form 3CA_3CD filed by the appellant.
7.That the appellant craves leave to add, amend, alter or withdraw any ground of appeal before the final date of hearing.
The brief facts of the case are that the M/s Garima Enterprises, a sole proprietorship owned by Smt. Suman Saraswat, assessee provides manpower supply services to various clients, placing and deploying staff to fulfill contractual roles. The assessee filed her return of income for the A.Y. 2020-21 declaring total income at Rs.17,17,280/-. The CPC passed a rectification order under section 154 of the Act making the additions of Rs,63,96,368/-.
Aggrieved the order of the ld. CPC the assessee preferred the appeal before the Ld. NFAC who vide his order dated 07-01-2026 relying the case of Hon’ble Supreme Court’s judgement in Checkmate Services (P). Ltd. (supra) dismissed the appeal. The Ld. CIT(A) has observed in his order as under:
8.12Furthermore, the appellant’s arguments that Explanation 2 to section 36(1) (va) and Explanation 5 to section 43B has prospective application from AY2021-22 onwards is also not applicable to the present case in light of Hon’ble Supreme Court’s judgement in Checkmate Services (P). Ltd. (supra) wherein the Apex Court has laid down the law that for assessment years prior to 2021-22 non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee’s contribution which were deducted from their income and was held in trust by assesee-employer as per section 2(24) (x), thus said clause would not absolve assessee-employer from its liability to deposit employee’s contribution on or before due date as a condition for deduction.
6.13In light of the above discussion, provisions of the Income Tax Act,1961 and the judgement of Hon’ble Supreme Court’s judgement in Checkmate Services (P). Ltd. (supra), it is concluded that the action of the AO, CPC in making an addition of Rs63,96,368/- to the total income of the appellant for the AY 2020-21 in the facts of the case is absolutely within the purview of the Income Tax Act,1961 and do not call for any interference.
Being aggrieved the order of the Ld. NFAC the assessee is in appeal before the Tribunal.
Ground No.1&2 are general in nature.
Ground No. 4 & 6
The Ld. AR of the assessee submitted that the sum of Rs.11,92,150/- was wrongly disallowed because of an accidental reporting error in Form 3CD. It is submitted that the auditor accidentally entered a portion of the Employees’ Provident Fund Contribution under the Emloyees’ State Insurance (ESI)Column by which the ESI figure in the Tax Audit Report was mistakenly inflated even though there was no real increase in the employee contribution liability. He further submitted that the figure of Rs.11,92,150/- was already included in the total contributions. It is a typographical error. He further submitted that it is a settled principal that tax liability must be based on actual facts not on reporting mistakes in audit report.
The Departmental Representative relied the order of the lower authorities. We have heard the parties and perused the material available on record. It is submitted that the figure of Rs.11,92,150/- was simply added in the Tax audit report by typographical mistake. This fact may be verified by the AO, so we find deem fit to send this issue to the AO to verification. In the result the ground no. 4&6 raised by the assessee are allowed for statistical purposes.
Ground No. 3 &5;
The Ld. AR of the assessee submitted that when the CPC passed the rectification order, the law regarding whether employee contributions paid before the tax return deadline are deductible, was highly, contested with the conflicts view of the courts. In the case of T.S. Balram, ITO vs. Volkart Brothers clearly held that when two views are possible the issue cannot be treated as a mistake apparent from the record under section 154 of the Act. The Hon’ble Supreme Court has passed the judgement in the case of Checkmate Services Pvt. Ltd. On 12-10-2022 whereas the Ld. CPC passed the rectification order earlier, on 04-10-2022. The issue was not gotten finality on the date of order. He further submitted that asper section 36(1) (va) of the Act, the employer can deduct employee welfare contributions for PF & ESI if the amount deposited by the due date set by those welfare laws. He also submitted that before the due date assessee must credit the contribution to the relevant fund. On the other hands section 43 B provides that certain business deductions are allowed if they are paid on or before the due date for filing the return of Income under section 139(1) of the Act. It is also submitted the appeal of the assessee for the year 2020-21 so the Finance Act ,2021 by which explanation 2 of section 36(1) (va) and explanation 5 of section 43 B were added do not apply in the assessee’s case. He further submitted that the because the assessee deposited employee contributions before the tax return filing dead line so he is entitled for the disallowance under section 36(1)(va) of the Act. Reliance is placed the judgement of Maa Harsiddi Infra Developers (P) Ltd. V, Assistant Commissioner of Income Tax (2026) 350 CTR 539.In this case the Hon’ble Chattisgarh High Court held us under:
16.Furthermore, the submission of the Revenue that the judgement passed in Checkmate Services(P) 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 (P) Ltd. (supra) is not an issue involved in present case, as the question involved herein was quite different as to whether s.143(1) (1)(a) of the Act of 1961 can be restored 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. Accordingly, we are of the considered opinion that the AO should have restored to the provisions contained under s.143(1)(a) of the Act of 1961 as on the date of issuance of intimation order dt.27th Feb, 2020 by the AO, exercising power under s.143(1)(a) of the Act of 1961, the subject issue was highly debatable and ultimately, the issue was resolved by their Lordships in Checkmate Services (P) 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 s. 36(1)(va) r/w s. 2(24)(x) of the Act, 1961 made by the AO under s.143(1)(a) by order dt.27th Feb, 2020 is hereby set aside. Consequently, the order dt. 28 Nov.,2022 passed by the CIT(A) and subsequent order dt. 19th Dec., 2024 passed by the Tribunal are also set aside. However, liberty is reserved in favour of the respondent/ Revenue to proceed in accordance with law.
The Ld. DR relied upon the order of the Ld. CIT(A) and the decision in the case of Checkmate Services (Supra) rendered by the Hon’ble Supreme Court. The Ld. DR also relied the decision of the case of woodland (Aero Club) (P.) Ltd. V. Assistant Commissioner of Income -tax [2025] 178 taxmann.com 207(Delhi).
We have heard the rival submissions and have perused the relevant material on record. Firstly, reliance of the Hon’ble Jurisdictional Delhi High Court in the case of CIT vs AIMIL Ltd. And other ITAT decisions is no longer valid as these decisions predate the decision of the 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 under section 139(1) is valid. More over 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 the A.Y.2019-20 disallowance u/s 36(1)(va) of the Act for employee’s contribution to ESI/PF that was deposited by assessee-employer after due date prescribed in PF/ESI Acts but before due date of filing return under section 139(1) of the Act is valid. The Hon’ble Delhi High Court also observed that the Hon’ble 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 judgement had not considered section 2(24) (x) and 36(1)(va) of the Act, and also the separate provisions for employers’ and employees’ contributions under section 36(1) of the Act. We find that the CPC picked up the late payment PF/ESI from the Tax Audit report prepared by the Auditor of the assessee. The assessee did not deposit the employees’ contribution towards PF/ESI on or before the due date as prescribed in the respective Act. We do not find any reasons to interfere with the findings of the Ld. CIT(A) regarding the deposit of the employees’ contribution towards PF/ESI into the accounts of the respective funds beyond the prescribed due dates and therefore liable to be disallowed u/s 36(1)(va) r.w.s. 2(24) (x) of the Act. Ground No. 3 & 5 are dismissed.
In the result, the appeal of the assessee is partly allowed.