ITAT: CPC Cannot Disallow Employees’ PF/ESI Contributions Under Section 143(1)

Shri Chandrakant Shamappa Kontha filed appeals for AYs 2019-20 and 2020-21 against CPC adjustments that added back employees’ PF and ESI contributions deposited beyond statutory due dates, based on figures reported in Form 3CD. The NFAC had partly upheld the CPC’s action by relying on Checkmate Services (SC) and directed the Assessing Officer to verify dates of salary payment while computing the final disallowance.

Acting on the Chartered Accountant’s advice that the CIT(A) had remanded the matter, the assessee did not appeal at first. However, when the AO maintained the full disallowance in the effect order, he approached new counsel and filed appeals with a delay of 102 days.

Issue Raised: Whether CPC was empowered to make adjustments under Section 143(1)(a) for disallowing employees’ PF/ESI contributions paid after the statutory due dates, when the law was unsettled at the time, and the 2021 amendments were expressly prospective.

ITAT Decided: The Tribunal first condoned the 102-day delay, accepting that the assessee acted under a bona fide misconception created by the initial advice of his Chartered Accountant, who believed the CIT(A) had already granted relief by remanding the matter. The Bench held that the explanation for delay constituted sufficient cause and did not indicate negligence or mala fides.

The ITAT ruled that CPC could not have invoked Section 143(1)(a) to disallow employees’ contributions for these years. The Bench noted that Checkmate Services (SC) was delivered only on 12.10.2022, whereas CPC intimations preceded this judgment. The High Court decided the issue in favour of taxpayers. The Tribunal emphasized that the 2021 amendments were explicitly prospective from AY 2021-22, as confirmed by the Finance Bill Memorandum and supported by rulings in PCIT v. TV Today Network Ltd and Sanjay Kumar Sharma. ITAT held that CPC adjustments for AYs 2019-20 and 2020-21 were invalid and directed their deletion.

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