ITAT held that a debatable PF/ESI disallowance issue could not be adjusted while processing the return under Section 143(1), as the law was unsettled at the relevant time.
Vanshika verma | Jun 26, 2026 |
ITAT: Debatable PF/ESI Disallowance Cannot Be Adjusted Under Section 143(1)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the appeal filed by the Revenue against taxpayer Rajbir (through legal heir Rajesh) for Assessment Year 2017-18. The issue pertains to the disallowance of Rs 1,71,70,670 on account of employees’ contribution to PF and ESI, which was treated as a late deposit by the AO.
The Revenue submitted that the CIT(A) had erred in deleting the addition and relied upon the decision of the Supreme Court in Checkmate Services Pvt. Ltd. v. CIT where it was held that the PF/ESI contributions of the employees deposited after the due dates prescribed under the respective laws are not deductible.
It was submitted on behalf of the assessee that the PF and ESI contributions are deducted from the salaries of employees only when the salaries are actually paid. Thus, the deposits were made within the specified time from the date of salary disbursement. The taxpayer further argued that the legal position on this issue was not settled at the time of issuance of intimation under Section 143(1) on 19 March 2019, and different views were held in different High Courts.
The assessee further submitted that before the decision of the Supreme Court in Checkmate Services dated 12 October 2022, several courts had held that if the PF/ESI contributions had been deposited before the due date of filing the income tax return, then no disallowance can be made. Therefore, the matter was highly debatable at the time.
While considering the submissions, the Tribunal noted that the adjustment was made at the time of processing of the return under section 143(1). The Tribunal observed that at the time of issue of the intimation on 19 March 2019 the issue was controversial and there were judicial decisions supporting the view of the taxpayer.
The ITAT held that “the decision of the Honourable Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) was delivered on 12.10.2022. On the date of the order passed u/s 143(1), the issue under consideration was debatable, and the majority of the decisions were in favour of the assessee. Invoking the decision of the Hon’ble Supreme Court in the present case is beyond jurisdiction.”
Accordingly, the Tribunal upheld the order of the CIT(A) and dismissed the Revenue’s appeal.
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