The Delhi Income Tax Appellate Tribunal has clarified that disallowances under Section 36(1)(va) of the Income Tax Act cannot be imposed through a mechanical intimation under Section 143(1)(a) when the legal position on the issue was unsettled at the time of assessment. This ruling reinforces procedural fairness in income tax assessments and sets a critical precedent for handling disputed deductions.
Background & Facts
The Dispute
The appellant, Purshottam Lal Dhingra, was assessed for Assessment Year 2018-19. The Assessing Officer (AO) issued an intimation under Section 143(1) of the Income Tax Act, 1961, disallowing a deduction of Rs. 76,65,883 claimed by the appellant towards employees' contributions to the Labour Welfare Fund. The AO relied on Section 36(1)(va), which mandates that contributions to provident funds, ESI, or other welfare schemes are deductible only if deposited by the due date prescribed under the respective statutes. The appellant had deposited the amount after the statutory due date but before the due date for filing the return under Section 139(1).
Key Facts
- The appellant claimed a deduction of Rs. 76,65,883 for employees' contributions to welfare funds for AY 2018-19
- The statutory due date for depositing such contributions under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, was 15.05.2018
- The appellant deposited the amount on 18.07.2018, which was prior to the due date for filing the return under Section 139(1) (31.07.2018)
- The AO issued intimation under Section 143(1)(a) on 16.05.2021, disallowing the entire amount
- The appellant did not file an appeal against the Section 143(1) intimation but challenged the subsequent order under Section 154 passed on 16.05.2021
- The Section 154 order was a rectification order issued by the CPC to correct an apparent error in the original assessment
Procedural History
- 16.05.2021: AO issued intimation under Section 143(1)(a) disallowing Rs. 76,65,883
- 16.05.2021: AO passed order under Section 154 confirming the disallowance
- 15.09.2025: First Appellate Authority (CIT(A)) upheld the disallowance, relying on Checkmate Services Pvt. Ltd. v. CIT (2022) 143 Taxmann.com 178 (SC)
- 01.06.2026: Hearing before ITAT Delhi
- 05.06.2026: ITAT Delhi delivered judgment
The Parties' Positions
The appellant contended that the disallowance under Section 143(1)(a) was procedurally flawed because the legal position on the allowability of late deposits was not settled at the time of the intimation. The appellant relied on the Chhattisgarh High Court’s decision in Raj Kumar Bothra v. DCIT (2025) 174 Taxmann.com 1199 and the Delhi Tribunal’s own decision in A2Z Infra Services Ltd. v. DCIT (2025) 176 Taxmann.com 639, both of which held that Section 143(1)(a) cannot be used to disallow deductions on issues that were legally debatable at the time of assessment.
The Revenue, through the DR, argued that the appellant had not challenged the original Section 143(1) intimation and was therefore barred from raising the issue in appeal against the Section 154 order. The Revenue further relied on the Supreme Court’s decision in Checkmate Services Pvt. Ltd., which held that contributions deposited after the statutory due date are not deductible under Section 36(1)(va).
Relief Sought
The appellant sought deletion of the disallowance of Rs. 76,65,883 made under Section 143(1)(a) and Section 154 order, and restoration of the claimed deduction on the ground that the issue was legally unsettled at the time of intimation.
The Legal Issue
Can an assessing officer disallow a deduction under Section 36(1)(va) through a mechanical intimation under Section 143(1)(a) when the legal position on the allowability of late deposits was unsettled at the time of issuance of the intimation, and the matter was later conclusively decided by the Supreme Court?
Arguments Presented
For the Appellant
The appellant argued that Section 143(1)(a) is a summary provision meant only for mechanical adjustments based on clear, undisputed facts. Where the legal position is debatable, the AO must proceed under Section 143(3), which allows for detailed scrutiny and opportunity of hearing. The appellant relied on Raj Kumar Bothra v. DCIT and A2Z Infra Services Ltd. v. DCIT, both of which held that using Section 143(1)(a) to disallow deductions on unsettled legal questions violates the principles of natural justice and procedural fairness. The appellant further submitted that the Supreme Court’s decision in Checkmate Services Pvt. Ltd. was delivered after the intimation was issued, and therefore could not have been anticipated by the AO.
For the Respondent
The Revenue contended that the appellant had not filed an appeal against the Section 143(1) intimation and was therefore estopped from challenging the disallowance in an appeal against the Section 154 order. The Revenue relied on the Supreme Court’s ruling in Checkmate Services Pvt. Ltd., which unequivocally held that contributions deposited after the statutory due date are not deductible under Section 36(1)(va), regardless of whether they were paid before the return filing deadline. The Revenue argued that the subsequent clarification by the Supreme Court validated the AO’s disallowance.
The Court's Analysis
The Tribunal examined the nature of Section 143(1)(a) and Section 143(3) and held that the former is a summary, non-adversarial provision intended for correcting obvious mathematical or clerical errors, not for resolving complex legal disputes. The Tribunal noted that the Supreme Court’s decision in Checkmate Services Pvt. Ltd. was delivered on 27.04.2022, whereas the intimation under Section 143(1)(a) was issued on 16.05.2021. At the time of the intimation, the law on the issue was unsettled, with conflicting decisions across various High Courts and Tribunals.
"The Assessing Officer should not have resorted to the provisions contained under Section 143(1)(a) of the Act of 1961 and instead could have resorted to the provisions under Section 143(3) of the Act of 1961, as on the date of issuance of intimation order... the subject issue was highly debatable."
The Tribunal emphasized that the Chhattisgarh High Court’s reasoning in Raj Kumar Bothra was sound and consistent with the principle that taxpayers are entitled to a fair opportunity to present their case before a deduction is disallowed. The Tribunal further noted that its own Coordinate Bench in A2Z Infra Services Ltd. had already adopted this view and deleted similar disallowances. The Tribunal held that the Revenue’s reliance on the Supreme Court’s later decision could not retrospectively validate a procedurally flawed assessment.
The Tribunal also rejected the Revenue’s argument that the appellant was barred from challenging the disallowance because he appealed only the Section 154 order. It held that the Section 154 order was merely a confirmation of the Section 143(1)(a) intimation, and the appellant was entitled to challenge the substantive error underlying it.
The Verdict
The appeal was allowed. The ITAT Delhi deleted the disallowance of Rs. 76,65,883 made under Section 36(1)(va) via the Section 143(1)(a) intimation and the subsequent Section 154 order. The Tribunal directed the Assessing Officer to allow the deduction claimed by the appellant for AY 2018-19 and to recalculate the tax liability accordingly. No interest or penalty was imposed.
What This Means For Similar Cases
Section 143(1)(a) Cannot Be Used for Legal Disputes
- Practitioners must now challenge any disallowance under Section 143(1)(a) on grounds of unsettled law, regardless of whether the taxpayer appealed the original intimation
- The burden shifts to the Revenue to prove that the issue was clear and undisputed at the time of intimation
- Any disallowance based on a legal issue later resolved by higher courts must be reassessed under Section 143(3)
Procedural Fairness Trumps Technical Compliance
- Taxpayers are not estopped from challenging substantive errors in assessments even if they did not appeal the initial intimation, provided the challenge is against a rectification order that confirms the error
- The ITAT has affirmed that procedural fairness under Section 143(3) is mandatory when legal interpretation is involved
- This judgment provides a strong basis for filing writ petitions against similar disallowances in High Courts
Precedent Value of Coordinate Bench Decisions
- Coordinate Bench decisions within the same Tribunal are binding unless overruled by a larger bench
- Practitioners can now cite A2Z Infra Services Ltd. and Raj Kumar Bothra as authoritative precedents to oppose Section 143(1)(a) disallowances on unsettled legal issues
- This creates a uniform standard across jurisdictions for handling Section 36(1)(va) disputes
