2026 (4) TMI 98 - AT - Income Tax

Debatable provident fund disallowance cannot be made as a prima facie adjustment when jurisdictional High Court precedent favours the assessee.

A prima facie adjustment under section 143(1)(a)(iv) could not be used to disallow employees' provident fund contribution under section 36(1)(va) where, ... Adjustment u/s 143(1)(a) on debatable issue - employee's contribution to the provident fund disallowed under section 36 (1) (va) - Binding nature of jurisdictional High Court precedent HELD THAT: - The Tribunal held that the legality of an adjustment under section 143(1)(a) had to be examined with reference to the legal position prevailing on the date of the intimation. On that date, decisions of the Karnataka High Court held the field in favour of the assessee on allowability of employees' contribution paid before the due date of filing the return, and the later decision of the Supreme Court in Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT (LB)] had not yet been rendered. In that situation, the question was clearly debatable, and an issue covered by binding jurisdictional precedent in favour of the assessee could not be adjusted by CPC under section 143(1)(a). The Tribunal also held that reliance on a non-jurisdictional High Court decision could not override the jurisdictional High Court position prevailing at the relevant time. [Paras 8, 9, 11, 12, 13] The adjustment disallowing employees' contribution to provident fund was deleted and the assessee's claim was allowed. Final Conclusion: The Tribunal held that the impugned adjustment under section 143(1)(a) in respect of employees' contribution to provident fund was impermissible for AY 2019 - 20, since the issue was debatable and stood covered in the assessee's favour by the jurisdictional High Court on the date of intimation. Issues: (i) Whether the adjustment under section 143(1)(a)(iv) of the Income-tax Act, 1961 to disallow employees' contribution to provident fund under section 36(1)(va) was sustainable when, on the date of intimation, the jurisdictional High Court had taken a view in favour of the assessee and the issue was debatable.Issue (i): Whether the adjustment under section 143(1)(a)(iv) of the Income-tax Act, 1961 to disallow employees' contribution to provident fund under section 36(1)(va) was sustainable when, on the date of intimation, the jurisdictional High Court had taken a view in favour of the assessee and the issue was debatable.Analysis: The return had been processed under section 143(1) of the Income-tax Act, 1961 on 12 May 2020. On that date, the jurisdictional High Court decisions held that employees' contribution, though not deposited within the due date under the relevant labour statute, could still be allowed if paid up to the due date for filing the return. The issue had not then been settled against the assessee by the Supreme Court decision in Checkmate Services, which came later. In that legal setting, the disallowance involved a debatable issue and could not be made by way of adjustment under section 143(1)(a)(iv).Conclusion: The adjustment disallowing employees' contribution to provident fund was not sustainable and the issue was decided in favour of the assessee.Final Conclusion: The appeal succeeded on the substantive disallowance issue, while the interest additions were treated as consequential, leaving the assessee with only partial relief.Ratio Decidendi: A prima facie adjustment under section 143(1)(a)(iv) cannot be used to disallow a claim where, at the time of processing, the issue was debatable and the jurisdictional High Court had already taken a view in favour of the assessee.