Late deposit of employer PF and ESI: intimation under section 143(1) set aside, disallowance struck down

Assessment of employer-side late deposits of employee PF and ESI under the tax code was contested as the AO/CPC issued an intimation under the assessment procedure to disallow deductions under the provision addressing employer contributions. The tribunal relied on coordinate-bench precedents that treated identical issues in favour of the taxpayer, holding that a disallowance effected through an intimation under the assessment procedure is not legally sustainable; the intimation was set aside and the disallowance overturned, decided against revenue.

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Issues: Whether the Assessing Officer/CPC was competent to disallow contributions towards PF/ESI by issuing an intimation under section 143(1) of the Income-tax Act, 1961 and thereby disallow amount under section 36(1)(va) when the question of liability was a debatable issue.

Analysis: The question involves the scope and jurisdictional limits of intimation proceedings under section 143(1) vis-à-vis disallowance under section 36(1)(va) where the liability for delayed deposit of employees' share of PF/ESI was contested and subject to divergent judicial decisions. Judicial precedents addressing identical facts and issues, including coordinate Tribunal orders and a High Court decision, treat such additions made by AO/CPC under section 143(1) as not sustainable where the issue was highly debatable and required adjudication under section 143(3) or appropriate assessment proceedings. The factual record indicated that the disallowance arose from audit qualifications and delayed deposit entries, and the body of precedents squarely covered the present circumstances, leading to the conclusion that summary adjustment under section 143(1) was beyond its proper scope in these circumstances.

Conclusion: The intimation under section 143(1) effecting disallowance under section 36(1)(va) is not legally sustainable in the present facts; the disallowance and the impugned order are set aside and the appeal is allowed in favour of the assessee.

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