2025 (4) TMI 786 - AT - Income Tax

Disallowance u/s 36(1)(va) - delayed payment of Provident Fund and ESI received from the employees - HELD THAT - We are inclined to accept the view of the ld. Addl/JCIT(A) that the assessee continues to be governed by the ratio of Checkmate Services P. Limited 2022 (10) TMI 617 - SUPREME COURT and any delay in deposit of employees contribution to PF/ESI beyond the due date as prescribed in those Acts cannot be condoned. Subsequent to the order u/s 143(1) the case was taken up for scrutiny u/s 143(3) and AO in those proceedings has accepted the returned income of the assessee - We observe that while deciding the case of Rohan Korgaonkar 2024 (2) TMI 1373 - BOMBAY HIGH COURT the Bombay High Court after considering the case of PR Packaging 2022 (12) TMI 841 - ITAT MUMBAI effectively overruled the same holding that after the decision of the Hon Supreme Court in Checkmate Services(P) Ltd supra it is of no relevance whether the disallowance has been made under section 143(3) or under section 143(1). Therefore in view of the aforesaid we hold that once the legal position had been made clear in the case of Checkmate Services (P)Ltd (supra) and the disallowance had been indicated by the information in the audit report the Assessing Officer was well within his rights to make the disallowance while processing the return under section 143(1)(a). Appeal of the assessee is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the extension of limitation periods granted by the Supreme Court in Suo Moto Writ Petition (Civil) No.03 of 2020 due to the COVID-19 pandemic applies to the payment of statutory dues such as Provident Fund (PF) and Employees' State Insurance (ESI) contributions.
Whether the disallowance of Rs. 43,04,355/- under section 36(1)(va) of the Income Tax Act, 1961, for delayed payment of employees' contributions to PF and ESI, was justified.
Whether the subsequent acceptance of the assessee's return under section 143(3) of the Act, without any additions, affects the disallowance made under section 143(1).
The applicability of the Supreme Court's decision in Checkmate Services P. Ltd. vs. Commissioner of Income Tax to the current case.
Whether the disallowance under section 143(1) was permissible given the prior conflicting interpretations of section 36(1)(va) and section 43B by various courts and tribunals.

2. ISSUE-WISE DETAILED ANALYSIS

Extension of Limitation Periods

Relevant Legal Framework and Precedents: The Supreme Court's order in Suo Moto Writ Petition (Civil) No.03 of 2020 extended limitation periods for filing legal proceedings due to COVID-19. The assessee argued this extension applied to statutory dues.
Court's Interpretation and Reasoning: The Tribunal held that the Supreme Court's order was specific to litigation-related limitations and did not extend to statutory dues like PF and ESI contributions. The extension of payment deadlines for statutory dues requires specific notifications from relevant authorities, not covered by the Supreme Court's order.
Conclusions: The Tribunal concluded that the Supreme Court's order did not apply to the payment of statutory dues, and the disallowance for delayed payment was valid.

Disallowance Under Section 36(1)(va)

Relevant Legal Framework and Precedents: Section 36(1)(va) of the Income Tax Act deals with the disallowance of employee contributions to welfare funds if not paid within the due date. The Supreme Court's decision in Checkmate Services P. Ltd. clarified that section 43B does not override section 36(1)(va).
Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's decision in Checkmate Services, which held that employee contributions must be deposited within the due date specified in the respective Acts, and section 43B's non-obstante clause does not apply to these contributions.
Conclusions: The Tribunal upheld the disallowance under section 36(1)(va) for delayed payments, as the Supreme Court's decision in Checkmate Services applied retrospectively.

Acceptance of Return Under Section 143(3)

Relevant Legal Framework and Precedents: Section 143(3) involves scrutiny assessment, while section 143(1) pertains to processing returns. The assessee argued that acceptance under section 143(3) implied acceptance of delayed payments.
Court's Interpretation and Reasoning: The Tribunal noted that the scrutiny under section 143(3) was for different issues, and the PF/ESI issue was not examined. Therefore, there was no merger of the two assessments.
Conclusions: The Tribunal concluded that the acceptance under section 143(3) did not affect the disallowance made under section 143(1), as the issues were distinct.

Debatability of the Issue

Relevant Legal Framework and Precedents: The Tribunal considered whether the issue was debatable due to conflicting court interpretations before the Supreme Court's decision in Checkmate Services.
Court's Interpretation and Reasoning: The Tribunal held that the Supreme Court's decision clarified the law as it always stood, and previous conflicting interpretations were incorrect.
Conclusions: The Tribunal concluded that the disallowance under section 143(1) was justified, as the Supreme Court's decision resolved any prior debate.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The Supreme Court's decision in Checkmate Services applies retrospectively, clarifying that employee contributions to welfare funds must be deposited by the due date specified in the respective Acts, and section 43B does not apply.
Final Determinations on Each Issue: The Tribunal dismissed the appeal, upholding the disallowance under section 36(1)(va) for delayed payments of employee contributions to PF and ESI. The Tribunal rejected the argument that the Supreme Court's extension of limitation periods applied to statutory dues and confirmed that the acceptance of the return under section 143(3) did not affect the disallowance made under section 143(1).
Verbatim Quote: "The Hon'ble Supreme Court, vide its order in Checkmate Services (P.) Ltd. vs. CIT (supra), has in fact clarified the law as it always stood and removed that controversy."

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