MI2C Business Enterprises Pvt. Ltd. Vs DCIT (ITAT Delhi)
Delhi ITAT Upholds PF/ESI Disallowance in U/s 143(1) Processing; Income-tax Act, 2025 Relief Held Prospective
The Delhi ITAT held that employees’ contribution to PF/ESI deposited beyond the due dates prescribed under the respective welfare laws is liable for disallowance under section 36(1)(va) even where the amounts were deposited before the due date for filing the return of income. The Tribunal upheld the CPC’s adjustment made while processing returns under section 143(1) for AYs 2017-18 to 2019-20.
The assessee argued that such an adjustment could not be made under section 143(1) since the issue was debatable at the relevant time and was covered in its favour by Delhi High Court decisions such as AIMIL Ltd. The Tribunal rejected the contention, relying on the Delhi High Court decision in Woodland (Aero Club) Pvt. Ltd., which held that disallowance under section 36(1)(va) can validly be made in processing under section 143(1). The Tribunal observed that the Supreme Court’s ruling in Checkmate Services Pvt. Ltd. authoritatively settled the law that employees’ contributions deposited after the statutory due dates are not deductible.
The Tribunal further held that the benefit introduced under Section 29(1)(e) of the Income-tax Act, 2025, allowing deduction where employee contributions are deposited before the due date of filing the return, is prospective from 01.04.2026 and cannot be applied to earlier assessment years. According to the Tribunal, had Parliament intended to dilute the effect of the Supreme Court’s ruling in Checkmate Services, it would have expressly granted retrospective effect.
On the issue of determining the PF/ESI due date, the Tribunal held that the due date must be reckoned with reference to the month in which the salary becomes due and not the month in which salary is actually disbursed. Since the tax auditor had itself reported delays in Clause 20(b) of the Tax Audit Report, the CPC was justified in making the adjustment while processing the return.
However, the Tribunal accepted the assessee’s contention that once the CIT(A) had examined the matter on merits, the delay in filing the appeal stood impliedly condoned and the appeal could not thereafter be dismissed solely on limitation grounds. Nevertheless, on merits the disallowance was sustained.
FULL TEXT OF THE ORDER OF ITAT DELHI
