Section 36(1)(va) & 143(1) IT Act | Retrospective Adjustments for Late PF/ESI Deposits Invalid for Pre-Checkmate AYs: ITAT Delhi

The Income Tax Appellate Tribunal, Delhi Bench, has clarified that Section 143(1) of the Income Tax Act does not permit adjustments for late deposit of employees' contributions to PF/ESI for assessment years preceding the Supreme Court's decision in Checkmate Services P. Ltd. v. CIT (2022) 448 ITR 518. The Tribunal deleted additions aggregating Rs. 5,45,51,939, reinforcing that prima facie adjustments under Section 143(1) cannot resolve debatable legal issues.

Background & Facts

The Dispute

The appellant, R. K. & Company Manpower Pvt. Ltd., a contractor providing facility management and manpower services, was subjected to adjustments under Section 143(1) of the Income Tax Act for late deposit of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI). The Assessing Officer (AO) disallowed these deposits under Section 36(1)(va), treating them as non-compliant with the due dates prescribed under the respective PF and ESI Acts.

Key Facts

• The appellant filed returns for A.Y. 2018-19, 2019-20, and 2020-21 on 31.10.2018, 30.09.2019, and 30.11.2020, respectively.
• The AO processed the returns under Section 143(1) and made the following adjustments:
  • A.Y. 2018-19: Rs. 2,38,15,146 (PF/ESI) + Rs. 17,43,407 (Bonus) = Rs. 2,55,58,553
  • A.Y. 2019-20: Rs. 1,73,88,975 (PF/ESI)
  • A.Y. 2020-21: Rs. 1,33,47,818 (PF/ESI)
• The appellant deposited the contributions before the due date for filing the income tax return under Section 139(1) but after the due dates prescribed under the PF and ESI Acts.

Procedural History

• 23.10.2019: AO passed intimation order u/s 143(1) for A.Y. 2018-19, disallowing Rs. 2,55,73,010.
• 27.12.2020: AO passed intimation order u/s 143(1) for A.Y. 2019-20, disallowing Rs. 1,73,88,975.
• 18.12.2021: AO passed intimation order u/s 143(1) for A.Y. 2020-21, disallowing Rs. 1,33,47,818.
• 31.10.2022: CIT(A) partly allowed the appeal for A.Y. 2018-19, reducing the disallowance to Rs. 2,38,15,146 (PF/ESI).
• 29.11.2023: ITAT (co-ordinate bench) restored the matter to the AO for de novo adjudication, directing consideration of the appellant's plea that the due date under Section 36(1)(va) should be construed as the date of actual salary disbursement, not the date on which salary was due.
• 21.03.2025: AO passed fresh order, confirming the disallowance of Rs. 2,38,15,146 for A.Y. 2018-19.
• 20.08.2025: CIT(A) dismissed the appellant's appeal.
• 29.04.2026: Present order passed by ITAT Delhi, allowing all three appeals.

Relief Sought

The appellant sought deletion of the disallowances made under Section 36(1)(va) for late deposit of PF/ESI contributions, arguing that:

1. The adjustments were beyond the scope of Section 143(1).
2. The contributions were deposited before the due date for filing the income tax return under Section 139(1).
3. The amended provisions of Section 36(1)(va) and Section 43B (as per Finance Act, 2021) should not apply retrospectively.

The Legal Issue

The central question was whether Section 143(1) of the Income Tax Act permits adjustments for late deposit of employees' contributions to PF/ESI under Section 36(1)(va) for assessment years prior to the Supreme Court's decision in Checkmate Services (2022) 448 ITR 518. Specifically:

1. Can prima facie adjustments under Section 143(1) resolve debatable legal issues?
2. Does the due date for deposit under Section 36(1)(va) refer to the date of actual salary disbursement or the date on which salary was due?
3. Are the amended provisions of Section 36(1)(va) and Section 43B (Finance Act, 2021) applicable retrospectively?

Arguments Presented

For the Appellant

1. Scope of Section 143(1): The adjustments made by the AO were beyond the scope of Section 143(1), which permits only prima facie adjustments and not resolution of debatable legal issues.
2. Due Date Interpretation: The due date under Section 36(1)(va) should be construed as the date of actual salary disbursement, not the date on which salary was due. Reliance was placed on:
   • Rakesh Janghu, ITA No. 2675/Del/2022, dated 09.10.2023
   • Prime Comfort Products Pvt. Ltd. v. ACIT, ITA No. 530/Del/2023, dated 26.04.2023
3. Retrospective Application: The amended provisions of Section 36(1)(va) and Section 43B (Finance Act, 2021) should not apply retrospectively.
4. Primary Liability: The appellant, being a contractor/sub-contractor, argued that the primary liability for PF/ESI contributions lies with the principal employer under the respective PF and ESI Acts, not the contractor.

For the Respondent

1. Supreme Court Precedent: The AO and CIT(A) relied on the Supreme Court's decision in Checkmate Services P. Ltd. v. CIT (2022) 448 ITR 518, which held that the due date for deposit under Section 36(1)(va) is the date prescribed under the PF/ESI Acts, not the date of actual disbursement.
2. Non-Responsiveness: The AO argued that the appellant failed to provide any explanation or documentary evidence in response to the show-cause notice.

The Court's Analysis

The Tribunal examined the scope of Section 143(1) and the nature of the adjustments made by the AO. Key observations included:

1. Scope of Section 143(1):

   "Admittedly, the additions u/s 143(1) have been made in the Assessment Year prior to the decision of the Hon'ble Apex Court. We are, therefore, of the considered view that the impugned addition was outside the scope of adjustments permissible u/s 143(1) of the Act." The Tribunal held that Section 143(1) is intended for prima facie adjustments and cannot be used to resolve debatable legal issues, especially those pending before higher judicial forums.

2. Judicial Precedents: The Tribunal relied on multiple decisions of co-ordinate benches where similar disallowances under Section 143(1) for late deposit of PF/ESI contributions were deleted for assessment years prior to Checkmate Services:

   • Rajesh Kumar Garg v. ACIT, ITA No. 970/Del/2025, dated 22.08.2025
   • Dondapati Sudhakara Rao v. DCIT, ITA No. 701/Hyd/2025, dated 20.08.2025
   • M/s Tinna Rubber and Infrastructure Ltd. v. DCIT, ITA Nos. 816 & 817/Del/2025, dated 31.07.2025
   • Ranbir Singh Sorout v. ITO, ITA Nos. 52 to 54/Del/2023, dated 20.08.2025
   • A2Z Infra Services Ltd. v. DCIT, ITA No. 970/Del/2023, dated 16.06.2025

3. Due Date Interpretation: While the Tribunal did not explicitly rule on the interpretation of the due date under Section 36(1)(va), it noted that the appellant's plea merited consideration. The Tribunal restored the matter to the AO in its earlier order (29.11.2023) for de novo adjudication, emphasizing the need for a well-reasoned order after considering the appellant's submissions and judicial precedents.

4. Retrospective Application: The Tribunal implicitly rejected the retrospective application of the amended provisions of Section 36(1)(va) and Section 43B (Finance Act, 2021) by deleting the additions for assessment years prior to Checkmate Services.

The Verdict

The Tribunal allowed all three appeals, deleting the following additions:

• A.Y. 2018-19: Rs. 2,38,15,146 (disallowance under Section 36(1)(va) for late PF/ESI deposit)
• A.Y. 2019-20: Rs. 1,73,88,975 (disallowance under Section 36(1)(va))
• A.Y. 2020-21: Rs. 1,33,47,818 (disallowance under Section 36(1)(va))

The Tribunal held that the adjustments made under Section 143(1) were beyond the scope of permissible adjustments, especially for assessment years prior to the Supreme Court's decision in Checkmate Services.

What This Means For Similar Cases

Adjustments u/s 143(1) Cannot Resolve Debatable Issues

• Prima Facie Limitation: Section 143(1) is designed for prima facie adjustments based on arithmetical errors, incorrect claims, or disallowances evident from the return itself. It cannot be used to resolve debatable legal issues, such as the interpretation of Section 36(1)(va).
• Judicial Precedent: Practitioners should cite the co-ordinate bench decisions relied upon in this case to argue against similar adjustments for assessment years prior to Checkmate Services.

Due Date Interpretation Remains Open

• AO's Discretion: While the Tribunal deleted the additions, it did not conclusively rule on whether the due date under Section 36(1)(va) is the date of actual salary disbursement or the date on which salary was due. This issue remains open for de novo adjudication by the AO.
• Opportunity for Assessees: Assessees should present detailed submissions and documentary evidence to argue that the due date should be construed as the date of actual disbursement, especially where contributions were deposited before the due date for filing the income tax return.

Retrospective Application of Amendments

• Finance Act, 2021: The Tribunal's decision implies that the amended provisions of Section 36(1)(va) and Section 43B (Finance Act, 2021) do not apply retrospectively. Assessees can rely on this decision to challenge disallowances for assessment years prior to Checkmate Services.
• Contractors/Sub-Contractors: The appellant's argument that the primary liability for PF/ESI contributions lies with the principal employer under the respective PF and ESI Acts may be relevant for contractors/sub-contractors in similar disputes.