Delayed PF, ESI Payments Disallowable Even at CPC Stage: ITAT Upholds Adjustments Under Section 143(1)

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has dismissed appeals filed for Assessment Years (AYs) 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 when the payments are made before the due date of filing the income-tax return. The bench of Shrimahavir Singh (Vice President) and Shrisanjay Awasthi (Accountant Member) ruled that the Centralised Processing Centre (CPC) is empowered to make disallowances while processing returns under Section 143(1). The appellant/assessee company had filed appeals challenging the adjustments made by CPC under Section 143(1) of the Income-tax Act, 1961, whereby employees’ PF and ESI contributions deposited after the statutory due dates under the respective welfare laws were disallowed. The additions amounted to over ₹51 lakh for AY 2018-19 alone. The appeals were filed with delays of 289 days and 166 days respectively. The assessee sought condonation citing incorrect legal advice, subsequent legal opinion, and personal hardships, including health issues of a senior director and a family wedding. After examining affidavits filed by the assessee and its tax consultant, the Tribunal condoned the delay and admitted the appeals for adjudication. The core issue before the Tribunal was whether CPC could disallow employees’ contribution to PF and ESI under Section 143(1)(a) when such contributions were deposited late under the respective Acts but before the due date of filing the return under Section 139(1). The assessee argued that at the time of processing the returns, the issue was debatable, as several High Courts had taken a favourable view prior to the Supreme Court’s ruling in Checkmate Services Pvt. Ltd. v. CIT (2022). The ITAT rejected the assessee’s contentions and relied heavily on the Supreme Court’s decision in Checkmate Services Pvt. Ltd., which clarified that employees’ contributions are governed exclusively by Section 36(1)(va) and must be deposited within the due dates prescribed under PF/ESI laws. Section 43B applies only to employer’s contributions, not employees’ share. Payment of employees’ contribution after the statutory due date results in permanent disallowance, even if paid before filing the return. The Tribunal emphasized that the Supreme Court decision is clarificatory in nature and therefore applies retrospectively, explaining the law as it always stood. Addressing the argument that CPC lacks 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) is irrelevant once the legal position is settled by the Supreme Court. Adjustments under Section 143(1)(a)(iv) are valid where the claim is contrary to statutory provisions. A Supreme Court judgment clarifies the law retrospectively and removes any debate on the issue. The Tribunal held that CPC’s action in making the disallowance at the processing stage was legally sustainable. The ITAT also rejected the argument that the issue was debatable at the time of processing and hence outside the scope of summary adjustments. It observed that Judicial interpretation by the Supreme Court declares the law as it has always been. Once clarified by the Apex Court, the issue ceases to be debatable, irrespective of when the assessment or processing took place. Subsequent judicial decisions can form the basis for sustaining earlier adjustments. After an extensive review of statutory provisions, judicial precedents, and legislative intent, the Tribunal concluded that disallowance of delayed employees’ PF and ESI contributions was correct in law. CPC was justified in making adjustments under Section 143(1). The appellate authorities had rightly relied on the Supreme Court’s ruling. Case Details Case Title: Rational Business Corporation Private Limited Versus DCIT Case No.: I.T.A Nos.4402 & 4403/Del/2025 Date: 31.12.2025 Counsel For Appellant: Amit Kumar Gupta, CA Counsel For Respondent: Sabyasachi Roy, Sr. DR Click Here To Read Order Read More: Can GST Limitation Periods Be Retrospectively Extended Without GST Council Recommendation? Punjab & Haryana HC Examines Scope of Section 168A

Delayed PF, ESI Payments Disallowable Even at CPC Stage: ITAT Upholds Adjustments Under Section 143(1)

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