Tonganagaon Tea Co. (P) Ltd. Vs DCIT (ITAT Kolkata)
Disallowance of Employees’ PF Contribution May Enhance Section 80-IC Deduction; Claim Cannot Be Rejected Merely for Not Being Made in Return: Kolkata ITAT
Tonganagaon Tea Co. (P.) Ltd. suffered a disallowance of ₹65.21 lakh u/s 36(1)(va) for the delayed payment of employees’ PF contribution. Although the disallowance increased its business income, the CPC restricted the Section 80-IC deduction to ₹54.94 lakh—the amount originally claimed in the return. The CIT(A) upheld this restriction by relying on Goetze (India) Ltd.
The Kolkata ITAT confirmed the PF disallowance in view of the Supreme Court’s decision in Checkmate Services. It held that judicial decisions ordinarily operate retrospectively, as they declare the correct legal position as it always stood. Therefore, after Checkmate Services, delayed employees’ contributions could not be regarded as a debatable issue merely because the assessment year preceded that judgment.
However, the Tribunal held that the CIT(A) wrongly refused to examine whether the enhanced business income resulting from the disallowance qualified for deduction under Section 80-IC. The restriction in Goetze (India) applies to the Assessing Officer and does not curtail the powers of appellate authorities to entertain a legal claim based on facts already on record. Reliance on Sun Engineering Works was also misplaced, as that ruling concerned claims made in reassessment proceedings.
The Tribunal observed that employees’ contributions constitute business income under Section 2(24)(x), but Section 80-IC applies only to profits “derived from” an eligible undertaking. It therefore restored the matter to the CIT(A) to examine whether the disallowed contribution had a direct nexus with the eligible business and to determine the allowable deduction under Section 80-IC after obtaining a remand report.
Cases Discussed
- Checkmate Services (P.) Ltd. vs. Commissioner of Income-tax-1 (SC), [2022] 143 taxmann.com 178 (SC)/[2023] 290 Taxman 19 (SC)/[2022] 448 ITR 518 (SC)[12-10-2022].
- Assistant Commissioner of Income -tax, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. (SC), [2008] 173 Taxman 322 (SC)/[2008] 305 ITR 227 (SC)/[2008] 219 CTR 90 (SC)[15-09-2008]
- Goetze (India) Ltd. v. CIT (SC), (2006) 284 ITR 323 (SC)
- Pandian Chemicals Ltd. vs. Commissioner of Income -tax (SC), [2003] 129 Taxman 539 (SC)/[2003] 262 ITR 278 (SC)/[2003] 183 CTR 99 (SC)[24 -04- 2003]
- National Thermal Power Co. Ltd. vs. Commissioner of Income-tax (SC), [1998] 97 Taxman 358 (SC)/[1998] 229 ITR 383 (SC)/[1999] 157 CTR 249 (SC) [04-12-1996]
- CIT v. Sun Engineering Works (P) Ltd. (SC), (1992) 198 ITR 297 (SC)
- Jute Corpn. of India Ltd. v. CIT (SC), [1991] 187 ITR 688
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Addl/JCIT(A)-2, Pune [hereinafter referred to as Ld. ‘Addl/JCIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2019-20 dated 17.11.2025.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That under the fact and in the circumstances of the case, the CIT(A) erred in confirming disallowance of a sum of Rs.65,21,529/- made by the AO for the delayed payment of employees contribution to PF in terms of section 36(1)(va) read with sections 2(24)(x) of the Income Tax Act, 1961. The disallowance is unjustified and need be deleted.
2. Without prejudice to the Ground No-1:
That, due to the disallowance of delayed payment of employees contribution to PF in terms of section 36(1)(va) read with sections 2(24)(x) of the Income Tax Act, 1961, the profit & gains of business & profession increased by Rs.65,21,529/- and thus the AO should have allowed deduction under section 80IC on the profit & gains of business & profession determined at Rs.1,20,15,450/-.
3. The assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing”
3. Brief facts of the case are that the assessee had filed its return of income on 23.10.2019 declaring gross total income of ₹1,25,77,938/- and had claimed deduction u/s 80-IC of the Act to the tune of ₹54,93,921/-. The return was processed u/s 143(1) of the Act and an adjustment was made to the income of the assessee. Aggrieved with the intimation issued u/s 143(1) of the Act, the assessee filed a rectification application u/s 154 of the Act which was rejected. Aggrieved with the order of the rejection of the rectification application, the assessee filed an appeal before the Ld. Addl/JCIT(A), who dismissed the appeal by holding as under:
“6. DECISION:
6.1 I have gone through the facts of the case, the grounds of appeal and submission made by the appellant. It is seen that all the three grounds raised against the rectification order u/s 154 of the act passed by CPC vide order dated 12.01.2023 for A.Y 2019-20, therefore the grounds of appeal are adjudicated as under:
6.2 Ground No.1: The main issue involved in these grounds of appeal are that the CPC had made adjustment on account of late deposit of Employee Contribution towards EPF and ESI of an amount of Rs. 65,21,529/- in view of the provisions of section 36(1)(va) of the Act. The appellant had made its submission and other related documents in response to the hearing notice u/s 250 of the Act issued by the undersigned. (Note: The order then reproduces an extract of Form 3CD detailing the PF payment dates, which is omitted here for readability, before continuing with the findings).
6.3 On careful perusal and consideration of aforementioned detailed reply along with evidences/documents submitted in support of grounds of appeal corroborating the facts of the case; it is observed that the appellant had not made deposits of employee contribution towards EPF/ESI to the tune of Rs. 65,21,529/- within the due date as specified in respective acts. It is to mention here that the issue of employees’ contribution involving section 36(1)(va) r.w.s. 2(24)(x) of the Act has now been well settled in view of the judgment dated October 12, 2022 made by the Hon’ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax -1 in Civil Appeal No 2833 of 2016. In view of the judgement of Hon’ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax 1 in Civil Appeal No 2833 of 2016, the aggregate addition/adjustment of Rs. 65,21,529/- made by the CPC u/s 36(1)(va) of the act is hereby confirmed. Therefore, this ground of the appeal is dismissed.
6.4 Ground No.2: In this ground, the appellant has contended that it was eligible to claim deduction under section 80IC of the Act on the entire income assessable under the head “Profits and Gains of Business or Profession” and accordingly claimed deduction of Rs. 54,93,921/- in the return of income for A.Y. 2019-20. However, the CPC, AO, after making an addition of Rs. 65,21,529/-, computed the business income at Rs. 1,20,15,450/- but restricted the deduction under section 80IC of the act to Rs. 54,93,921/-, being the amount claimed in the ROI. It is a settled legal position, as held in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), that the claim of deduction cannot exceed what is made in the return of income unless a revised return is filed. Further, the Hon’ble Supreme Court in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) has held that appellate proceedings cannot be used to enlarge the scope of the claim beyond what has been made before the assessing authority.
6.5 Since the appellant itself claimed deduction under section 80IC of the act only to the extent of Rs. 54,93,921/- in ROI, the restriction imposed by the CPC is in accordance with law. Accordingly, the action of the CPC is upheld and this ground of appeal is dismissed.
7. As a result, the present appeal of the appellant is Dismissed.”
4. Aggrieved with the order of the Ld. Addl/JCIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that there are two issues involved. Ground No. 1 relates to the delayed payment of EPF on account of employees’ contribution. The Ld. Addl/JCIT(A) noted that the assessee had not made deposits of employees’ contribution towards EPF/ ESI to the tune of ₹65,21,529/- within the due date as specified in the respective Acts and the issue has been settled by the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. Commissioner of Income-tax-1 [2022] 143 taxmann.com 178 (SC)/[2023] 290 Taxman 19 (SC)/[2022] 448 ITR 518 (SC)[12-10-2022]. The aggregate addition/adjustment of ₹65,21,529/- made by the CPC u/s 36(1)(va) of the Act was confirmed and the ground of appeal was dismissed. The Ld. AR submitted that the issue was debatable, therefore, it could not have been adjusted.
6. The Ld. DR requested that the order of Ld. Addl/JCIT(A) may be confirmed as the Hon’ble Supreme Court has not laid down the law but has only enunciated the law as it stood in the statute, and therefore, the same was liable to be adjusted in the intimation issued as the claim was not justified. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld.
7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). Ground No. 1 is regarding confirmation of disallowance for the delayed payment of employees’ contribution to PF. The Ld. CIT(A), decided the issue by relying upon the decision of Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. Commissioner of Income -tax-1 [2022] 143 taxmann.com 178 (SC)/[2023] 290 Taxman 19 (SC)/[2022] 448 ITR 518 (SC) [12-10- 2022]. It has been held in Assistant Commissioner of Income -tax, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. [2008] 173 Taxman 322 (SC)/[2008] 305 ITR 227 (SC)/[2008] 219 CTR 90 (SC)[15-09-2008] that it is also well – settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a ‘new rule’ but to maintain and expound the ‘old one’. In other words, the Judges do not make law; they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make a new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite sometime, the decision rendered later on would have retrospective effect, clarifying the legal position which was earlier not correctly understood. The issue relating to delayed payment of employees’ contribution of EPF etc. is no longer res integra in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Private Limited (supra). The Bench was of the view that the Hon’ble Supreme Court only interpreted the law as it was in the statute, therefore, it cannot be said that the issue was debatable after the decision of the Hon’ble Supreme Court and this ground of appeal is dismissed.
8. In Ground No. 2 as an alternative plea, the assessee has contended that the Ld. AO should have allowed the enhanced profits and gains of business or profession determined at ₹1,20,15,450/- for the claim of deduction u/s 80-IC of the Act. The Ld. Addl/JCIT(A) dismissed this ground of appeal by observing as under:
“6.4 Ground No.2: In this ground, the appellant has contended that it was eligible to claim deduction under section 80IC of the Act on the entire income assessable under the head “Profits and Gains of Business or Profession” and accordingly claimed deduction of Rs. 54,93,921/- in the return of income for A.Y. 2019-20. However, the CPC, AO, after making an addition of Rs. 65,21,529/-, computed the business income at Rs. 1,20,15,450/- but restricted the deduction under section 80IC of the act to Rs. 54,93,921/-, being the amount claimed in the ROI. It is a settled legal position, as held in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), that the claim of deduction cannot exceed what is made in the return of income unless a revised return is filed. Further, the Hon’ble Supreme Court in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) has held that appellate proceedings cannot be used to enlarge the scope of the claim beyond what has been made before the assessing authority.
6.5 Since the appellant itself claimed deduction under section 80IC of the act only to the extent of Rs. 54,93,921/- in ROI, the restriction imposed by the CPC is in accordance with law. Accordingly, the action of the CPC is upheld and this ground of appeal is dismissed.”
9. We have considered the submission made and also gone through the case of Goetze (India) Ltd. (supra) and Sun Engineering Works (P) Ltd. (supra) relied upon by the Ld. Addl/JCIT(A) which are not correctly applied. In the case of Sun Engineering Works (P) Ltd. (supra) the Hon’ble Supreme Court have held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by the Court, to support their proceedings. It is further held that Section 147, although part of a taxing statute, imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at gathering the ‘escaped income’ of an assessee, the same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable….Therefore, in the reassessment proceedings, it was not open to the assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the escaped income. The issue before the Ld. Addl/JCIT(A) was claim of deduction u/s 80-IC of the Act on account of the disallowance made which had increased the profit. Therefore, the reliance upon the decision in the case of Sun Engineering Works (P.) Ltd. (supra) is not correct which relates to the reopening of the assessment and claim of deduction in the reassessment proceeding and was held to be not allowable. Further, in the case of Goetze (India) Ltd. (supra) the question raised was in relation to whether the appellant- assessee could make a claim for deduction other than by filing a revised return. The assessment year in question was 1995-96. The return was filed on 30.11-1995 by the appellant for the assessment year in question. On 12.01.1998, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income-tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return. It has been held as under:
“3. This appellant’s appeal before the Commissioner of Income-tax (Appeals) was allowed. However, the order of the further appeal of the Department before the Income-tax Appellate Tribunal was allowed. The appellant has approached this Court and has submitted that the Tribunal was wrong in upholding the Assessing Officer’s order. He has relied upon the decision of this Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal.
4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs.”
10. As regards the judgement in National Thermal Power Co. Ltd. vs. Commissioner of Income-tax [1998] 97 Taxman 358 (SC)/[1998] 229 ITR 383 (SC)/[1999] 157 CTR 249 (SC) [04-12-1996], the facts were that during the AY 1978-79, the assessee kept surplus funds not immediately required in short-term deposits and earned interest. The interest, thus, earned was offered for tax and the assessment was completed accordingly. The assessee learnt subsequently, from the decision of the Tribunal in the case of Anasan Aluminium Industries (P.) Ltd. & Nagarjuna Steels Ltd. that the interest earned in this manner before the setting up of business was not taxable as income and it went to reduce the capital cost of the plant. The assessee raised this as an additional point before the Tribunal not in grounds of appeal but in a forwarding letter, for the first time, contending that the interest earned was erroneously included in the total income. But the Tribunal declined to entertain the additional grounds. On reference to the Hon’ble Supreme Court, it was held as under:
“Under section 254, the Tribunal may after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is, thus, expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. There is no reason why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
In the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688, the Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. The Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.
The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) takes too narrow a view of the powers of the Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
The Tribunal has, therefore, jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. Proceedings remanded back to the Tribunal for consideration of the new grounds raised by the assessee on the merits.”
11. Therefore, the Ld. CIT(A) was not justified in not adjudicating the issue as per law and dismissing it by relying upon decisions which were distinguishable on facts and not applicable to the facts of the case of the assessee and the issue before him. Now we now have to consider whether the disallowance made u/s 36(1)(va) of the Act qualifies for deduction u/s 80-IC of the Act or not and whether the claim was admissible as claimed by filing the rectification application. The contribution by the employees to the funds mentioned and received by the assessee is income of the assessee as defined in clause (x) of sub- section (24) of section 2 as under:
“2. In this Act, unless the context otherwise requires,—
…
(24) “income” includes—
…
(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees”
12. Further, the same is allowable as a deduction only if paid as per clause (va) of sub-section (1) of section 36 of the Act, which is as under:
“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—
…
(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.
Explanation 1.—For the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
Explanation 2.—For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the “due date” under this clause”
13. However, though the employees’ contribution forms part of business income but it is not every income whic h is eligible for deduction u/s 80-IC of the Act but only the income derived by an undertaking or an enterprise from any business referred to in sub- section (2) which is eligible for deduction as per sub-section (3) thereof as under:
80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub- section (3).
14. Since the issue requires examination of the facts of the case and has not been adjudicated by the Ld. Addl./Joint CIT(A), the Bench was of the view that the same may be remanded to the Ld. Addl/JCIT(A) to decide the issue as per law as regards the eligibility and the quantum to be allowed after considering the provision of sub-section (3) of section 80-IC of the Act and other related provisions. He shall call for a remand report from the Ld. AO regarding the claim of the assessee and also decide whether the employee’s contribution can be treated as income derived from any business referred to in sub-section (2) of section 80- IC of the Act. He may refer to the decision in the case of Pandian Chemicals Ltd. vs. Commissioner of Income -tax [2003] 129 Taxman 539 (SC)/[2003] 262 ITR 278 (SC)/[2003] 183 CTR 99 (SC)[24 -04- 2003] as to the meaning of the term “derived from” and thereafter adjudicate the issue as per law. Hence, the issue is remanded to the Ld. Addl/JCIT(A) to consider the provisions of section 80-IC of the Act and the law as laid down and adjudicate the ground relating to the grant of deduction u/s 80-IC of the Act and Ground No. 2 is allowed for statistical purposes.
15. Ground No. 3 is general in nature and does not require any separate adjudication.
16. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 10th August, 2026.
