The Income Tax Appellate Tribunal (ITAT), Delhi, has delivered a significant ruling on the disallowance of late payments of employees' provident fund (PF) and employees' state insurance (ESI) contributions under Section 36(1)(va) of the Income Tax Act, 1961. The Tribunal upheld the validity of such disallowance even when processed under Section 143(1) of the Act, relying on the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT. This judgment clarifies the legal position on the taxability of delayed employer contributions and the scope of adjustments under Section 143(1).
Background & Facts
The Dispute
The appellant, Cico Technologies Ltd., filed its income tax returns for Assessment Years (AY) 2018-19 and 2019-20, declaring incomes of Rs. 49,07,670 (normal provisions) and Rs. 59,79,603 (under Section 115JB), respectively. The returns were processed under Section 143(1) of the Income Tax Act by the Centralized Processing Centre (CPC), Bangalore, which made adjustments disallowing late payments of employees' contributions to PF and ESI. The CPC added Rs. 25,42,560 for each AY under Section 36(1)(va) and Rs. 2,10,000 for unpaid excise duty.
Key Facts
- The appellant filed its return for AY 2018-19 on 28.09.2018 and for AY 2019-20 on a later date (not specified).
- The CPC processed the returns under Section 143(1) and issued intimations on 16.10.2019 (AY 2018-19) and 24.08.2020 (AY 2019-20).
- The disallowance of Rs. 25,42,560 was made on account of late payment of employees' contributions to PF/ESI beyond the due dates prescribed under the respective Acts.
- The appellant's tax audit report, prepared by its auditor, highlighted the non-compliance with the prescribed due dates for PF/ESI contributions.
Procedural History
- 16.10.2019: Intimation order passed under Section 143(1) for AY 2018-19 by the CPC, disallowing Rs. 25,42,560 under Section 36(1)(va).
- 24.08.2020: Intimation order passed under Section 143(1) for AY 2019-20 by the CPC, disallowing Rs. 25,42,560 under Section 36(1)(va).
- 14.07.2023: The Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC) dismissed the appellant's appeal for AY 2018-19, relying on the decision in Checkmate Services Pvt. Ltd. v. CIT.
- 03.04.2024: The Commissioner of Income Tax (Appeals), ADDL/JCIT(A)-6, Chennai, dismissed the appellant's appeal for AY 2019-20.
- 20.05.2026: The appellant filed appeals before the ITAT, Delhi (ITA Nos. 6198 & 6199/Del/2025).
Relief Sought
The appellant sought the following reliefs:
- Quashing of the orders passed by the CIT(A)/NFAC and the CPC under Section 143(1).
- Deletion of the disallowance of Rs. 25,42,560 under Section 36(1)(va) for both AYs.
- Deletion of the additional interest levied under Sections 234B and 234C of the Act.
The Legal Issue
The central question before the ITAT was whether the disallowance of employees' contributions to PF/ESI under Section 36(1)(va) of the Income Tax Act, 1961, could be validly made while processing the return under Section 143(1) of the Act, particularly in light of the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT.
Arguments Presented
For the Appellant
The appellant contended that:
- The disallowance under Section 36(1)(va) could not be made while processing the return under Section 143(1), as the issue was highly debatable and required a detailed assessment.
- The CPC's adjustment was made before the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT, which settled the law on the matter.
- The appellant relied on the decisions of the Chhattisgarh High Court in Raj Kumar Bothra (174 taxmann.com 1199) (2025) and the ITAT Delhi in Tinna Rubber and Infrastructure Limited (ITA No. 816 & 817/Del/2025) and Novelvox Softwares India Pvt. Ltd. v. ADIT, CPC (ITA No. 3757/Del/2023), which supported the appellant's position.
For the Revenue
The Revenue argued that:
- The disallowance under Section 36(1)(va) was validly made under Section 143(1), as the law was settled by the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT.
- The CPC's adjustment was based on the tax audit report, which clearly indicated the late payment of PF/ESI contributions.
- The decision of the Delhi High Court in Woodland (Aero Club) Private Limited v. ACIT (2025) 178 taxmann.com 207 (Delhi) upheld the validity of such disallowances under Section 143(1).
The Court's Analysis
The ITAT examined the legal framework governing the disallowance of late payments of employees' contributions under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The Tribunal noted that the issue was no longer res integra, as the Supreme Court had settled the law in Checkmate Services Pvt. Ltd. v. CIT, holding that late payments of employees' contributions to PF/ESI are disallowable under Section 36(1)(va).
The Tribunal observed that the appellant's primary contention was that the CPC was not empowered to make such disallowances under Section 143(1). However, this argument was rejected based on the decision of the Delhi High Court in Woodland (Aero Club) Private Limited v. ACIT, which upheld the validity of disallowances under Section 143(1) for late payments of PF/ESI contributions. The High Court had relied on the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT and distinguished the earlier decision in Alom Extrusions Ltd. (2009) 185 Taxman 416 (SC), noting that the latter did not consider Sections 2(24)(x) and 36(1)(va).
"The quarrel has however, been brought to rest by the hon'ble jurisdictional Delhi High Court in the case of Woodland (Aero Club) Private Limited vs ACIT [2025] 178 taxmann.com 207 (Delhi)[08-09-2025] wherein following the decision of Checkmate Services P. Ltd. vs. CIT, it held that disallowance u/s 36(1)(va) for employee's contribution to ESI/PF that was deposited by assessee-employer after due date prescribed in PF/ESCI Acts but before due date of filing return under section 139(1), is valid."
The ITAT further noted that the CPC's adjustment was based on the tax audit report, which clearly indicated the late payment of PF/ESI contributions. The Tribunal held that since the appellant had deposited the employees' contributions beyond the prescribed due dates, the disallowance under Section 36(1)(va) was valid and could be made while processing the return under Section 143(1).
The Verdict
The ITAT dismissed the appeals in ITA Nos. 6198 & 6199/Del/2025, upholding the disallowance of Rs. 25,42,560 under Section 36(1)(va) for both Assessment Years 2018-19 and 2019-20. The Tribunal also confirmed the levy of additional interest under Sections 234B and 234C of the Income Tax Act.
What This Means For Similar Cases
Disallowance Under Section 143(1) Is Valid for Late PF/ESI Payments
- The ITAT's ruling clarifies that the CPC is empowered to disallow late payments of employees' contributions to PF/ESI under Section 36(1)(va) while processing returns under Section 143(1).
- Assessees can no longer argue that such disallowances require a detailed assessment or that the issue was debatable at the time of processing.
Tax Audit Reports Are Critical for Compliance
- The Tribunal relied on the tax audit report, which highlighted the late payment of PF/ESI contributions. Assessees must ensure that their auditors accurately report such non-compliances to avoid disallowances.
- The ruling underscores the importance of adhering to the prescribed due dates for PF/ESI contributions to avoid tax implications.
Supreme Court's Decision in Checkmate Services Is Binding
- The ITAT and the Delhi High Court have consistently relied on the Supreme Court's decision in Checkmate Services Pvt. Ltd. v. CIT to uphold disallowances under Section 36(1)(va).
- Assessees must ensure timely compliance with statutory contributions to avoid disallowances, as the legal position is now settled in favor of the Revenue.
