ITAT quashes CPC disallowance of delayed PF/ESI contributions made under Section 143(1)

The assessee, a private limited company, filed its return of income for AY 2019-20, which was processed by the CPC under Section 143(1). While issuing the intimation, the CPC made an adjustment of Rs. 5,51,903 by disallowing employees’ contribution towards PF and ESI under Section 36(1)(va) on the ground that the amounts were deposited beyond the due dates prescribed under the respective welfare statutes, though admittedly paid before the due date of filing the return under Section 139(1). The assessee challenged the adjustment, contending that such a disallowance was beyond the scope of Section 143(1) and that no speaking order was passed.

The NFAC upheld the adjustment by relying on the Supreme Court decision in Checkmate Services (P.) Ltd.. Aggrieved, the assessee carried the matter in appeal before the Tribunal.

Main Issue: Whether the disallowance of employees’ contribution to PF and ESI under Section 36(1)(va) could be validly made through an adjustment while processing the return under Section 143(1), when the issue was debatable on the date of intimation.

ITAT Ruled: The Tribunal held that, at the time when the CPC issued the intimation under Section 143(1), the issue relating to allowability of delayed employees’ contribution to PF/ESI was highly debatable, with conflicting High Court decisions holding the field. It observed that the Supreme Court ruling in Checkmate Services (P.) Ltd. was delivered subsequently and arose from a regular assessment under Section 143(3), not from summary processing under Section 143(1).

The Tribunal held that such a debatable issue could not be resolved through a prima facie adjustment under Section 143(1). Therefore, the disallowance of Rs. 5,51,903 and the NFAC order affirming it were set aside, and the appeal of the assessee was allowed.

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