ITAT dismisses delayed ESIC payments claim under Section 43B, directs separate appeal for excess DDT under Section 115O

ITAT Mumbai dismissed assessee's ground regarding delayed payment of employees' contribution to ESIC and Labour Welfare Fund under Section 43B, following SC precedent in Checkmate Services Pvt. Ltd. On DDT applicability under Section 115O, ITAT held that excess DDT paid being independent of total income assessment under Section 143(3) must be adjudicated in separate appeal under Section 246A. Fresh appeal before CIT(A) on DDT issue shall be admitted with delay condoned due to bona fide belief based on evolving judicial interpretations.

---

---

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal across the three appeals relate to:

• The procedural propriety and natural justice in dismissal of an appeal due to duplication arising from merger and identical entity names (AY 2017-18).
• The failure of the first appellate authority to consider detailed submissions filed by the assessee and consequent restoration of certain grounds for fresh adjudication (AY 2018-19).
• The correctness of disallowance under Section 43B of the Income-tax Act relating to delayed payment of statutory employee contributions.
• The applicability and treatment of additional deduction under Section 80JJAA.
• The entitlement to refund of excess Dividend Distribution Tax (DDT) paid under Section 115-O of the Act, particularly in light of the India-Germany Double Taxation Avoidance Agreement (DTAA) and whether such DDT liability forms part of the assessment order under Section 143(3) or requires separate appeal under Section 246A.
• The entitlement to interest under Section 244A on any refund of excess DDT.
• The allowability of profession tax paid, particularly where such payments are not routed through the profit and loss account.

2. ISSUE-WISE DETAILED ANALYSIS

a) Dismissal of Appeal due to Duplication (AY 2017-18)

Legal Framework and Precedents: The principles of natural justice require that an appeal is not dismissed without hearing the merits. The Income-tax Act under Section 250 governs appeals before the Commissioner of Income-tax (Appeals).

Court's Interpretation and Reasoning: The Tribunal observed that the Ld. CIT(A) dismissed one of the two appeals filed by the assessee bearing identical entity names post-merger merely on the ground of duplication without examining the merits. This was held to be a violation of natural justice.

Key Evidence and Findings: The merger of HDFC Ergo General Insurance Company Limited with HDFC General Insurance Company Limited was approved by IRDA, and the merged entity retained the name HDFC Ergo General Insurance Company Limited. The duplicate appeals arose due to this name identity.

Application of Law to Facts: The Tribunal directed restoration of the appeal dismissed on grounds of duplication to the file of Ld. CIT(A) for adjudication on merits, granting reasonable opportunity to the assessee.

Treatment of Competing Arguments: The Revenue did not seriously object to the restoration.

Conclusion: Appeal bearing ITA No. 2843/Mum/2025 was allowed by restoring the appeal for fresh consideration.

b) Failure to Consider Submissions and Restoration of Grounds (AY 2018-19)

Legal Framework and Precedents: The principles of natural justice and fair hearing require that all submissions filed by an assessee before the appellate authority must be duly considered. The CIT(A) passes orders under Section 250 of the Act.

Court's Interpretation and Reasoning: The Tribunal found that the Ld. CIT(A) failed to consider the detailed submissions dated 16-12-2021 filed by the assessee addressing several grounds (notably Grounds 3, 5, 6, and 8), and erroneously dismissed these grounds for lack of specific submissions.

Key Evidence and Findings: The assessee had uploaded extensive submissions online with acknowledgment receipts, which were not considered by the CIT(A).

Application of Law to Facts: The Tribunal restored Grounds 3, 5, and 8 to the file of the Ld. CIT(A) for fresh adjudication with a direction to pass a speaking order after affording reasonable opportunity of hearing. Ground 6, relating to DDT, was treated separately (see below).

Treatment of Competing Arguments: The Revenue did not oppose the restoration.

Conclusion: The appeal in ITA No. 2844/Mum/2025 was partly allowed for statistical purposes with restoration of specified grounds.

c) Disallowance under Section 43B for Delayed Payment of Employee Contributions

Legal Framework and Precedents: Section 43B mandates that certain payments, including contributions to statutory funds, are allowable only if paid on or before the due date of filing the return. The Supreme Court judgment in Checkmate Services Pvt. Ltd. v. CIT (2022) is binding.

Court's Interpretation and Reasoning: The Tribunal upheld the disallowance of Rs. 2,80,592 comprising contributions to ESIC and Labour Welfare Fund paid after the due date, in line with the Supreme Court precedent.

Key Evidence and Findings: The payments were made after the due date for filing the return for AY 2018-19.

Application of Law to Facts: The disallowance under Section 43B was confirmed.

Treatment of Competing Arguments: The assessee argued for allowability, but the binding precedent was decisive.

Conclusion: Ground No. 4 was dismissed.

d) Additional Deduction under Section 80JJAA

Legal Framework and Precedents: Section 80JJAA provides additional deduction for employment generation subject to conditions.

Court's Interpretation and Reasoning: The Tribunal found that the Ld. CIT(A) did not adjudicate this ground due to failure to consider the submissions.

Key Evidence and Findings: Detailed submissions were filed by the assessee but ignored.

Application of Law to Facts: The ground was restored for fresh adjudication.

Treatment of Competing Arguments: No objection from Revenue.

Conclusion: Ground No. 5 restored to CIT(A).

e) Refund of Excess Dividend Distribution Tax (DDT) under Section 115-O and Applicability of DTAA

Legal Framework and Precedents: Section 115-O levies DDT on distributed profits of domestic companies. The India-Germany DTAA provides for a reduced rate of 10% on dividends under Article 10. The Supreme Court in Genpact India Pvt Ltd v. DCIT (2019) and ITAT decisions including Texas Instruments (India) Pvt Ltd (2022) clarified that additional taxes like DDT can be challenged separately under Section 246A. The Special Bench of ITAT Mumbai in DCIT v. Total Oil Pvt Ltd held that DTAA benefits do not automatically apply to DDT unless contracting states provide so.

Court's Interpretation and Reasoning: The Tribunal analyzed whether the DDT liability forms part of the assessment order under Section 143(3) or requires separate appeal under Section 246A. It held that DDT is an additional tax on dividend distribution, independent of total income assessment, and thus not part of the assessment order under Section 143(3). Following Genpact India and Texas Instruments, the Tribunal ruled that the issue of excess DDT paid must be adjudicated in a separate appeal under Section 246A.

Key Evidence and Findings: The assessee paid DDT at 20.35765% on dividends paid to its foreign promoter shareholder ERGO International AG, a German resident, whereas the India-Germany DTAA prescribes a 10% rate. The assessee filed a fresh appeal before the CIT(A) for refund of excess DDT, which was initially rejected for lack of submissions.

Application of Law to Facts: The Tribunal admitted the fresh appeal filed by the assessee under Section 246A, condoned delay due to bona fide belief based on evolving judicial interpretations, and directed the CIT(A) to adjudicate the matter on merits with a speaking order. The Tribunal also directed that the ground on DDT in the original appeal be treated as infructuous to avoid duplication.

Treatment of Competing Arguments: The Revenue argued that the issue was already raised and rejected in the original appeal and should not be duplicated. The Tribunal, however, emphasized the separate nature of DDT liability and the requirement for a distinct appeal.

Conclusion: The appeal bearing ITA No. 2870/Mum/2025 was allowed to the extent of admitting and directing adjudication of the separate appeal on DDT refund under Section 246A.

f) Interest under Section 244A on Refund of Excess DDT

Legal Framework and Precedents: Section 244A provides for interest on refunds of excess tax.

Court's Interpretation and Reasoning: Since the refund of excess DDT is contingent upon the success of the separate appeal under Section 246A, the interest claim is consequential and does not require separate adjudication at this stage.

Conclusion: Ground No. 7 was held to be consequential and not separately adjudicated.

g) Allowability of Profession Tax Paid

Legal Framework and Precedents: Profession tax paid by an employer is generally allowable if it is routed through profit and loss account. Section 438 of the Act allows certain deductions.

Court's Interpretation and Reasoning: The CIT(A) confirmed disallowance of Rs. 40,074 paid towards profession tax on the ground that it was not routed through profit and loss account. The Tribunal found that the CIT(A) had failed to appreciate the nature of payment.

Application of Law to Facts: The ground was restored for fresh adjudication by the CIT(A).

Conclusion: Ground No. 8 restored for fresh consideration.

3. SIGNIFICANT HOLDINGS

"We find that the appeal was dismissed merely on the ground of duplication, without examining the merits of the case, which amounts to a violation of the principles of natural justice. We, therefore, direct the Ld. CIT(A) to restore the appeal... The assessee shall be granted a reasonable opportunity of being heard in the restored appeal."

"The Ld. CIT(A) has passed the order without considering the assessee's submissions and without adjudicating the matter on merits... Ground Nos. 3, 5 and 8 are restored to the file of the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) is directed to pass a speaking order after affording a reasonable opportunity of being heard to the assessee."

"The issue of excess DDT paid under Section 115-O, being independent of the assessment of total income under Section 143(3) of the Act, must be adjudicated in a separate appeal under Section 246A of the Act... The fresh appeal filed by the assessee before the Ld. CIT(A) on this issue shall be admitted and adjudicated on merits, and delay in filing the same shall be condoned."

"The DDT is a 'tax payable on the distribution of dividend and it is in no way connected to the determination of 'total income'. The appeal filed by the assessee before us is related to the 'determination of total income' u/s 143(3) of the Act."

Core principles established:

• An appeal dismissed solely on procedural grounds without merit consideration violates natural justice and must be restored.
• The first appellate authority must consider all submissions filed by an assessee and pass speaking orders.
• Disallowance under Section 43B for delayed statutory payments is upheld in line with binding Supreme Court precedents.
• Additional tax liabilities such as DDT under Section 115-O are independent of total income assessment and require separate appeal under Section 246A.
• DTAA provisions can limit DDT rates but claims must be pursued through proper appellate channels.
• Interest on refunds is consequential to the success of substantive claims.
• Allowability of profession tax payments depends on accounting treatment and requires proper adjudication.

Final determinations:

• Appeal for AY 2017-18 dismissed due to duplication was restored and allowed for fresh adjudication.
• For AY 2018-19, grounds relating to failure to consider submissions and certain disallowances were restored for fresh adjudication; disallowance under Section 43B was upheld.
• Ground relating to excess DDT paid was held not maintainable in the appeal against assessment order under Section 143(3) and required separate appeal under Section 246A, which was admitted and directed to be adjudicated.
• Interest claim on DDT refund was held consequential.
• Profession tax disallowance was restored for fresh consideration.

---