PF/ESI disallowance under s.36(1)(va) r.w.s.43B can't be adjusted in s.143(1) intimation before Checkmate ruling retrospectively applied

The ITAT allowed the assessee's appeal, holding that the AO/CPC was not empowered to disallow employees' PF/ESI contributions under s.36(1)(va) r.w.s. 43B while issuing intimation under s.143(1) for a period when binding jurisdictional HC precedents permitted such deductions if paid before the due date of filing the return. As the intimation preceded the SC ruling in Checkmate Services, the later contrary SC interpretation could not retrospectively justify the prima facie adjustment. The Tribunal directed deletion of the PF/ESI disallowance and restoration of the returned income.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, while processing a return under Section 143(1), disallowance of employees' contribution to PF/ESI under Section 36(1)(va) read with Section 43B was permissible when the intimation preceded the Supreme Court's decision in Checkmate Services Pvt. Ltd. and the issue was covered in favour of the assessee by binding jurisdictional High Court precedent.

1.2 Consequentially, whether the disallowance of employees' PF/ESI contribution sustained by the first appellate authority was legally valid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Disallowance of employees' PF/ESI contribution under Section 36(1)(va) read with Section 43B in processing under Section 143(1) prior to Checkmate Services Pvt. Ltd.

(a) Legal framework (as discussed)

2.1 The Tribunal examined the scope of adjustment permissible under Section 143(1) of the Act in relation to disallowance of employees' contribution to PF/ESI claimed under Section 36(1)(va), with reference to Section 43B.

2.2 The Tribunal referred to and relied upon its coordinate Bench decision in A2Z Infra Services Ltd. v. DCIT, which in turn followed the decision of the High Court in Raj Kumar Bothra v. DCIT, and considered the impact of the subsequent Supreme Court judgment in Checkmate Services Pvt. Ltd. v. CIT on the permissibility and timing of such disallowances.

(b) Interpretation and reasoning

2.3 The Tribunal noted that, as per the coordinate Bench decision in A2Z Infra Services Ltd., on the date when intimation under Section 143(1) was issued, there existed binding decisions of the jurisdictional High Court in favour of the assessee on the interpretation of Section 36(1)(va), holding that employees' contributions deposited after the due dates under the respective welfare enactments but before the due date for filing the return were allowable.

2.4 It was observed that, prior to the Supreme Court's decision in Checkmate Services Pvt. Ltd., there was a divergence of judicial opinion among various High Courts on the interpretation of Section 36(1)(va), and the issue was therefore debatable. In such circumstances, the Tribunal, following A2Z Infra Services Ltd. and Raj Kumar Bothra, held that such a debatable disallowance could not be made as a prima facie adjustment while processing a return under Section 143(1).

2.5 The Tribunal noted that in A2Z Infra Services Ltd. it had already been held that, where the intimation under Section 143(1) was passed prior to the Supreme Court's ruling in Checkmate Services Pvt. Ltd., the Assessing Officer/CPC could not, in law, disallow employees' contribution to PF/ESI under Section 36(1)(va) by way of adjustment under Section 143(1), in view of binding jurisdictional High Court decisions prevailing at that time.

2.6 The Tribunal recorded that the present case was factually identical in that the intimation under Section 143(1) disallowing employees' PF/ESI contribution was passed on a date prior to the Supreme Court's decision in Checkmate Services Pvt. Ltd., when such binding favourable precedent existed.

2.7 While the Departmental Representative relied on the substantive ratio of Checkmate Services Pvt. Ltd. on the merits of Section 36(1)(va) disallowance, the Tribunal confined itself to the limited question whether, at the time of processing under Section 143(1), such an adjustment was permissible in light of the then-prevailing legal position and the nature of Section 143(1) as permitting only prima facie, non-debatable adjustments.

2.8 Respectfully following its earlier decision in A2Z Infra Services Ltd. and the reasoning adopted therein, the Tribunal held that the Assessing Officer/CPC exceeded the permissible scope of Section 143(1) by making the impugned disallowance prior to the Supreme Court's decision in Checkmate Services Pvt. Ltd.

(c) Conclusions

2.9 The Tribunal concluded that, since the intimation under Section 143(1) disallowing employees' contribution to PF/ESI was issued prior to the Supreme Court's decision in Checkmate Services Pvt. Ltd., and at a time when there were binding jurisdictional High Court decisions in favour of the assessee, the Assessing Officer/CPC was not legally justified in making such disallowance while processing the return under Section 143(1).

2.10 The Tribunal directed the Assessing Officer/CPC to delete the disallowance of employees' contribution to PF/ESI made under Section 36(1)(va) read with Section 43B.

2.11 Having allowed the core ground challenging the disallowance, the Tribunal considered it unnecessary to examine or decide the remaining grounds raised by the assessee and declined to adjudicate them.

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