ITAT Upholds CPC Disallowance of Delayed PF & ESI Contributions Despite Pre-Return Payment

Rational Business Corporation Pvt. Ltd. filed appeals before the Delhi Bench of the ITAT for AYs 2018-19 and 2019-20, challenging disallowances made by the CPC while processing returns under Section 143(1). The CPC had disallowed employees’ contribution to PF and ESI on the ground that the payments were deposited beyond the due dates prescribed under the respective welfare laws.

The first appellate authorities confirmed the disallowances by relying on the Supreme Court’s decision in Checkmate Services Pvt. Ltd. The appeals before the ITAT were delayed by 289 days and 166 days, respectively, which were condoned.

Main Issue: Whether the disallowance of delayed employees’ PF and ESI contributions could validly be made by CPC under Section 143(1)(a) for years before the ruling in Checkmate Services, on the ground that the issue was allegedly debatable at the relevant time.

ITAT’s Ruling: The ITAT dismissed both appeals and upheld the disallowances. The Tribunal held that the Supreme Court in Checkmate Services clarified the law as it always stood, namely that employees’ contributions to PF and ESI are governed strictly by Section 36(1)(va) and must be deposited within the statutory due dates under the respective Acts. Payments made after those dates are not allowable, even if paid before filing the return.

The Tribunal rejected the argument that the issue was debatable or that Checkmate Services applied prospectively. It further held that adjustments under Section 143(1)(a) were valid, as the Supreme Court’s interpretation operates retrospectively.

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