ITAT Deletes ₹2.29 Crore PF/ESI Disallowance Under Sections 143(1) and 154

By CA Vijayakumar Shetty Income Tax Judiciary October 22, 2026

TaxGuru Citation: 2026 taxguru.in 16465
Case Name: RK Swamy Limited Vs DCIT (ITAT Chennai)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2018-19 & 2020-21
Courts: All ITAT, ITAT Chennai

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RK Swamy Limited Vs DCIT (ITAT Chennai)

The Income Tax Appellate Tribunal, Chennai Bench, deleted employees’ PF and ESI contribution disallowances aggregating to ₹2,29,28,461 across two assessment years. The disputed adjustments had been made through return processing under section 143(1) and rectification under section 154, before the Supreme Court’s decision in Checkmate Services settled the substantive controversy.

The Tribunal distinguished the merits of deductibility under section 36(1)(va) from the authority to decide a then-debatable issue through summary processing or rectification. It also found that the adjustment under section 154 had been made without issuing the required notice seeking the assessee’s explanation.

Background of the Appeals

The assessee, RK Swamy Limited, carried on an advertising business at the national and international levels.

For assessment year 2018-19, it declared total income of ₹5,42,02,730 and claimed a refund of ₹5,36,12,930 against TDS of ₹7,14,81,406.

While processing the return, the Centralised Processing Centre made a ₹1,77,85,122 disallowance concerning belated deposit of employees’ contributions to provident fund and Employees’ State Insurance.

The CIT(A) upheld the disallowance by following the Supreme Court’s decision in Checkmate Services v. CIT, 448 ITR 518, delivered on 12 October 2022.

For assessment year 2020-21, the disputed disallowance was ₹51,43,339. It was introduced through a rectification order under section 154 dated 9 March 2022, rather than through the original processing adjustment.

The assessee challenged both appellate orders before the Tribunal.

Assessee’s Challenge to Summary Adjustment

The assessee argued that, when the relevant adjustments were made, the treatment of delayed employees’ contributions was subject to conflicting judicial views.

Accordingly, the issue could not be resolved through the limited adjustment mechanism under section 143(1). The assessee maintained that the later decision in Checkmate Services did not answer the separate question concerning the permissible scope of summary processing at the relevant time.

It relied on the Chhattisgarh High Court’s decision in Sanjay Kumar Sharma v. ITO, 174 taxmann.com 592, and the Mumbai Tribunal’s decision in P.R. Packaging Service.

The assessee also argued that, for assessment year 2018-19, a notice under section 143(2) had already been issued before the section 143(1) intimation.

Revenue’s Submissions

The Department supported the CIT(A)’s application of Checkmate Services.

It also relied on paragraph 56.2 of CBDT Circular No. 3/2017, discussing legislative changes concerning processing of returns where scrutiny notices had been issued.

According to the Revenue, the amended position supported processing before completion of the regular assessment. It alternatively suggested restoration of the legal issue to the appellate authority.

Tribunal Follows Sanjay Kumar Sharma

The Bench, comprising Accountant Member Inturi Rama Rao and Judicial Member S.S. Viswanethra Ravi, examined the Chhattisgarh High Court’s reasoning.

That decision distinguished the substantive law declared in Checkmate Services from whether section 143(1)(a) could be used when the issue remained highly debatable.

The Tribunal noted that the relevant intimation in the present case preceded the Supreme Court judgment dated 12 October 2022. It therefore considered the circumstances comparable to those examined by the High Court.

Following that reasoning, the Tribunal held that the CPC’s disallowance through summary processing was not justified.

Checkmate Services Did Not Resolve the Procedural Objection

The Tribunal did not hold that Checkmate Services lacked retrospective effect. Instead, it accepted the distinction between the binding substantive interpretation and the statutory mechanism used to make the adjustment.

It also relied on P.R. Packaging Service, which distinguished an assessment under section 143(3) from an intimation under section 143(1).

On the facts before it, the Tribunal directed deletion of the ₹1,77,85,122 disallowance for assessment year 2018-19.

It additionally relied on CIT v. Gujarat Electricity Board, 260 ITR 84, while rejecting the Revenue’s argument concerning processing after commencement of scrutiny proceedings.

Rectification Without Notice

For assessment year 2020-21, the Tribunal separately examined the ₹51,43,339 adjustment under section 154.

The assessee argued that no rectification notice had been issued and that the disputed question was debatable when the order was passed.

The Tribunal held that the adverse adjustment could not be made without seeking objections and an explanation from the assessee. It also applied its reasoning concerning the then-debatable nature of the contribution issue.

The disallowance was consequently deleted.

Conclusion

Both appeals were allowed, and the respective CIT(A) orders were set aside.

The relief concerned defects in the summary adjustment and rectification routes used in these proceedings. The ruling does not establish a general entitlement to deduct employees’ contributions deposited after the statutory due dates or displace the substantive law declared in Checkmate Services.

List of Cases Discussed / Relied Upon

1. Sanjay Kumar Sharma Vs Income-tax Officer (Chhattisgarh High Court), 174 taxmann.com 592: The principal precedent followed by the Tribunal. The High Court held that delayed employees’ PF/ESI contributions constituted a debatable issue before the Supreme Court’s decision in Checkmate Services and could not be disallowed through summary adjustment under Section 143(1)(a). Its reasoning was applied to both assessment years.

2. Commissioner of Income Tax Vs Gujarat Electricity Board (Supreme Court), 260 ITR 84: The Supreme Court held that after regular assessment proceedings commence under Section 143(2), summary proceedings under Section 143(1)(a) cannot be initiated. The Tribunal applied this principle to reject the Revenue’s justification for processing the return after issuance of the scrutiny notice.

3. Checkmate Services Pvt. Ltd. Vs Commissioner of Income Tax (Supreme Court), (2022) 448 ITR 518: The Supreme Court’s substantive ruling on delayed employees’ contributions was relied upon by the CIT(A) and discussed extensively by the Tribunal. The Tribunal distinguished the question of substantive deductibility from the procedural validity of CPC adjustments made when the legal issue was debatable.

4. P.R. Packaging Service (ITAT Mumbai), (2023) 148 taxmann.com 153: The Mumbai Tribunal had directed deletion of a PF contribution adjustment under Section 143(1)(a), observing that Checkmate Services concerned a regular assessment under Section 143(3). The Chennai Tribunal followed the reasoning in deciding the AY 2018-19 appeal.

5. Kvaerner John Brown Engg. (India) (P.) Ltd. Vs ACIT (Supreme Court), 305 ITR 103: Discussed through the Chhattisgarh High Court’s judgment for the principle that prima facie adjustments cannot be used to adjudicate debatable legal questions.

6. ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd. (Supreme Court), 291 ITR 500: Referred to in the Chhattisgarh High Court’s reasoning concerning the scope of summary processing and the limits of adjustments based on the return and accompanying documents.

7. Gujarat Poly-Avx Electronics Ltd. (Gujarat High Court): Mentioned in the Supreme Court’s extracted decision in Gujarat Electricity Board as an earlier authority relevant to the relationship between summary processing and regular assessment proceedings.

8. DCIT Vs Parv Buildcon (Chhattisgarh High Court), Tax No. 149/2024: Mentioned in the reproduced Chhattisgarh High Court judgment as a Revenue appeal withdrawn on 10 February 2025 concerning adjustments of debatable issues.

9. DCIT Vs Satpal Singh Sandhu (Chhattisgarh High Court), Tax No. 15/2024: Mentioned alongside Parv Buildcon as another Revenue appeal withdrawn on 21 May 2025 concerning the permissible scope of Section 143(1)(a).

10. BPS Infrastructure (Chhattisgarh High Court): Distinguished in the reproduced judgment of Sanjay Kumar Sharma because the earlier appeal had been dismissed on limitation without adjudication of the relevant substantial question of law.

11. Ramesh Prasad Verma; P.V. George; and R.R. Kishore: Referred to in the extracted Chhattisgarh High Court judgment on the retrospective operation of judicial decisions. The High Court clarified that retrospectivity was not the determinative issue in deciding whether a debatable matter could be adjusted under Section 143(1)(a).

FULL TEXT OF THE ORDER OF ITAT CHENNAI

Both the appeals filed by the assessee are directed against orders dated 09.12.2025 and 14.08.2025 passed by the ld. Commissioner of Income Tax (Appeals), ADDL/JCIT (A)-1, Bengaluru for the assessment years 2018-19 & 2020-21, respectively.

2. Since the issues raised in both these appeals are similar and based on the same identical facts, with the consent of both the parties, we proceed to hear both the appeals together and pass a consolidated order for the sake of convenience.

-:I.T.A. No.504/Chny/2026:-
(Assessment Year: 2018-19)

3. The assessee raised five grounds of appeal, amongst which the only issue that emanates for our consideration is as to whether the Ld. CIT(A) is justified in confirming the disallowance made by the CPCunder Section 143(1) of the Income-tax Act, 1961 (for short, “the Act”), in the facts and circumstances of the case.

4. Brief facts of the case are that the assessee is a company engaged in the business of advertisement at the national and international level and conducts its business under the name and style of R.K. Swamy Ltd. The assessee filed a return of income declaring a total income of Rs. 5,42,02,730/- under Section 139(1) of the Act, claiming a refund of Rs. 5,36,12,930/- against the TDS of Rs.7,14,81,406/-. The said return of income was processed under Section 143(1) of the Act, determining a demand of Rs. 1,81,22,920/- vide intimation dated 21.02.2022, inter alia, making a disallowance of Rs.1,77,85,122/- on account of provident fund and Employees’ State Insurance contribution as mentioned in Section 36(1)(va) of the Act. Aggrieved by the order of the AO (CPC), the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), following the decision dated 12.10.2022 passed by the Hon’ble Supreme Court in the case of M/s. Checkmate Services v. Commissioner of Income Tax, reported in 448 ITR 518, upheld the disallowance made by the CPC to the extent of Rs.1,77,85,122/- towards belated payment of employees’ contribution towards EPF and ESI. Aggrieved by the said order, the assessee is before us.

5. Ld. AR, Mr. Sibi. L, CA, submits that the order of the Ld. CIT(A) is arbitrary, contrary to law and without application of mind, disregarding the computation of income of the assessee. He submits that the Ld. CIT(A) erred in appreciating the action of the CPC in failing to note that the subject matter of disallowance, as on the date of issuing the intimation, was a debatable issue which cannot be the subject matter of adjustment under Section 143(1) of the Act, and sought interference of this Tribunal in setting aside the order of the Ld. CIT(A). He argued that the Ld. CIT(A) totally failed to consider that the disallowance of employees’ contribution to PF and ESI under Section 36(1)(va) of the Act made by the CPC was ultra vires the provisions of the Act, as the CPC does not have the power to make an adjustment of an issue which is debatable in nature. He vehemently argued that the order of the CPC in making the addition is beyond the powers vested under Section 143(1) of the Act and suffers from illegality. He referred to a decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax v. Gujarat Electricity Board, reported in 260 ITR 84, and argued that the intimation issued by the CPC under Section 143(1) of the Act, after issuing a notice under Section 143(2) of the Act, is illegal and contrary to the decision of the Hon’ble Supreme Court in the case of Gujarat Electricity Board (supra), and drew our attention to paragraph No. 2 of the said decision. Further, he referred to the decision of the Hon’ble High Court of Chhattisgarh in the case of Sanjay Kumar Sharma v. Income-tax Officer, reported in 174 taxmann.com 592 (Chhattisgarh), by referring to the question of law, and submits that the Hon’ble High Court was pleased to set aside the order of the CPC in making a disallowance on account of contribution towards ESI and EPF under Section 36(1)(va) of the Act, by holding that the CPC should not have resorted to the provisions contained under Section 143(1)(a) and instead should have resorted to the provisions under Section 143(3) of the Act, as on the date of issuance of the intimation order passed by the CPC, exercising power under Section 143(1)(a) of the Act, the subject issue was highly debatable and was ultimately resolved by the Hon’ble Supreme Court on a later date.

6. Further, he drew our attention to the order dated 07.12.2022 of the ITAT Mumbai Benches in the case of P.R. Packaging Service, reported in (2023) 148 taxmann.com 153 (Mumbai-Tribunal), and drew our attention to paragraph No. 5, and submits that the Tribunal held that the Hon’ble Supreme Court decision rendered in the case of Checkmate Services (supra) was in the context where the assessment was framed under Section 143(3) of the Act and not under Section 143(1)(a) of the Act; accordingly, it directed deletion of the addition made in respect of employees’ contribution to provident fund. Paragraphs 5 and 6 of the said order are reproduced as under:-

“5. We are conscious of the fact that the issue on merits is decided against the assessee by the recent decision of the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR518. This decision was rendered in the context where assessment was framed under section 143(3) of the Act and not under section 143(1)(a).

6. Hence we direct the Ld. Assessing Officer to delete the addition made in respect of employees’ contribution to Provident Fund, in the facts and circumstances of the instant case. Accordingly, grounds 1 to 3 raised by the assessee are allowed.”

7. In the case of Gujarat Electricity Board (supra), the Hon’ble Supreme Court has held as under:-

“2. The short question which arises in these appeals is whether it is open to the Revenue to issue intimation under section 143(1)(a) of the Income-tax Act, after notice for regular assessment has been issued under section 143(2) of the Income-tax Act, 1961?

3. As far as the Gujarat High Court was concerned, the question was not res integra as it had before it the judgment in Gujarat Poly-Avx Electronics Ltd’s case (supra) and, therefore, the High Court was right in holding that a substantial question of law did not arise for determination. Mr. T.L.V. Iyer, learned senior counsel for the appellant, submits that the question needs to be decided by this Court.

4. Learned counsel appearing for the respondents have pointed out that in a number of judgments, several High Courts have consistently taken the view that once regular assessment proceedings have commenced under section 143(2) of the Income-tax Act, 1961, it is a limitation on the jurisdiction of the Assessing Officer to commence proceedings under section 143(1)(a) of the Act.

5. Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under section 154. Apart therefrom, the provisions of section 143(1)(a)(i) indicate that the intimation sent under section 143(1)(a) shall be without prejudice to the provisions of sub-section (2). The Legislature, therefore, intended that, where the summary procedure under sub-section (1) has been adopted, there should be scope available for the revenue, either suo motu or at the instance of the assessee to make a regular assessment under sub-section (2) of section 143. The converse is not available; a regular assessment proceeding having been commenced under section 143(2), there is no need for a summary proceeding under section 143(1)(a).

6. In the result, we see no infirmity in the judgment of the High Court. The appeals are dismissed. There shall be no order as to costs.”

8. Ld. DR, Ms. Premi, Sr. AR, submits that the legal issue may be remanded to the Ld. CIT(A), as it was not considered in the first appellate proceedings. She drew our attention to paragraph No. 56.2 of Circular No. 3/2017, wherein the CBDT issued an explanatory note in terms of processing under Section 143(1) of the Act, as mandated before assessment. She submits that the said sub-section 1(d) of the aforesaid section has been amended to provide that, in cases where a notice has been issued under sub-section (2) of Section 143 of the Act, the processing of the return shall not be necessary before the expiry of one year from the end of the financial year in which the return is furnished; however, it is mandated to process the return before issuance of the order under sub-section (3) of Section 143 of the Act. Further, she submits that the said amendment, which takes effect from 01.04.2017, will apply in relation to AYs 2017-18 and subsequent years. She submits that the Ld. CIT(A) made a detailed discussion in respect of the disallowance vis-à-vis the submissions of the assessee and, by applying the ratio of the Hon’ble Supreme Court in the case of Checkmate Services (supra), held that the order passed by the CPC is justified. Lastly, she prayed to dismiss the grounds of appeal raised by the assessee.

9. Heard both the parties and perused the relevant material available on record. We find that the assessee filed a return of income on 22.11.2018 under Section 139(1) of the Act. Admittedly, the said return was processed under Section 143(1), making a disallowance under Section 36(1)(va) of the Act, vide intimation dated 21.02.2020. We find that the said intimation is on record and, on perusal of the same, we note that the CPC disallowed the above-said amount by holding that any sum received from employees as contribution to any provident fund or superannuation fund or any fund set up under the ESI Act or any other fund for the welfare of employees, to the extent not credited to the employees’ account on or before the due date under Section 36(1)(va) of the Act, which is evident from page No. 7 of the said intimation. The main contention of the Ld. AR is that the issue of disallowance under Section 36(1)(va) of the Act by the CPC under Section 143(1) of the Act is a debatable issue which cannot be made by the CPC, supporting by a decision of the Hon’ble High Court of Chhattisgarh in the case of Sanjay Kumar Sharma (supra), wherein the Division Bench was pleased to formulate the substantial questions of law, which are at page No. 133 of the paper book, and which read as under:-

“Whether the CIT (Appeals) and the Income Tax Appellate Tribunal are justified in dismissing the appeals holding that the Assessing Officer has rightly processed the return of the appellant herein under Section 143(1)(a) of the Act ignoring the fact that in light of conflicting judgments on the issue of due date the Assessing Officer was required to resort to the provisions contained in Section 143(3)/Section 147 of the Act, by recording a finding which is perverse to the record?”

10. On careful reading of the said decision, we note that the Hon’ble High Court was pleased to observe, vide paragraph 8 of the said decision: “In the instant case, at the time of passing of the intimation order under Section 143(1)(a) of the Act of 1961 on 30.11.2021, the decision of the Supreme Court in Checkmate Services Pvt. Ltd. (supra) was not available, in view of the divergent views amongst the various High Courts, as it was rendered on 12.10.2022.” Admittedly, in the present case, as discussed above, the intimation dated 21.02.2020 under Section 143(1) of the Act was passed, and we find that the said intimation is prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services (supra) dated 12.10.2022. Therefore, the facts and circumstances in the present case are similar to the facts and circumstances before the Hon’ble High Court of Chhattisgarh. We find that the relevant paragraphs, from 13 to 19, for better understanding, are reproduced hereinbelow:-

“13. Coming back to the facts of the present case, while following the principles of law laid down in above stated judgments of the Supreme Court for exercise of power and jurisdiction under Section 143 (1) (a) of the Act of 1961, it is quite vivid that on the date of issuance of intimation order by the Assessing Officer i.e. on 30.11.2021 under Section 143(1)(a) of the Act of 1961, the issue as to whether the delayed deposit of employees’ share of contribution towards Employees State Insurance and Employees Provident Fund, though deposited by the assessee beyond the due date prescribed under the relevant Acts, but before the due date of filing of the return of income under Section 139(1) of the Act of 1961, could be held as the income of the appellant/assessee under Section 36(1)(va) read with Section 2(24)(x) of the Act of 1961 or not or whether it is subject to the provisions contained in Section 43-B of the of the Act of 1961, was highly debatable, which was pending consideration before the Supreme Court in Checkmate Services Pvt Ltd (supra) and subsequently, it was resolved by the Supreme Court by the judgment dated 12.10.2022. Furthermore, the assessee in its tax report had only furnished the details of delayed deposit in Column 20 (b) of the Form No.3CB and had not shown the same as disallowance. Therefore, the Assessing Officer has committed a grave legal error in processing the return of the assessee under Section 143(1)(a) of the Act of 1961, in light of principles of law laid down by their Lordships of Supreme Court in the matters of Kvaverner John Brown Engg. (India) (P.) Ltd (supra) and Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra).

14. Furthermore, the orders passed in Satpal Singh Sandhu (supra) and Parv Buildcon (supra) by the ITAT holding that Section 143(1) (a) of the Act of 1961 cannot be resorted to in case of highly debatable issue were challenged by the Revenue before this Court by filing two appeals and ultimately, both the appeals vide Tax No.149/2024 (DCIT v. Parv Buildon) and TAX No.15/2024(DCITv. Satpal Singh Sandhu), were withdrawn by the Revenue by orders dated10.02.2025 and 21.05.2025, respectively, and thereby, the Revenue has allowed the plea of the assessees therein to stand that in a highly debatable issue, the Assessing Officer ought not to have resorted to Section 143 (1)(a) of the Act of 1961. Therefore, the Revenue cannot be allowed to take a different stand before different forums as it may lead to uncertainty and chaos.

15. In the instant case, the ITAT has committed a grave legal error by relying upon the decision rendered by this Court in Infrastructre supra, wherein this Court has dismissed the appeal preferred by the Revenue as barred by limitation summarily without formulating any substantial question of law and as such the substantial question of law formulated herein in this appeal was neither involved, formulated and answered in BPS Infrastructure (supra).

16. Furthermore, the submission of the Revenue that the judgment passed in Checkmate Services Pvt Ltd (supra) would have retrospective effect, as held in Ramesh Prasad Verma (supra), P.V. George case (supra) and in R.R. Kishore’s case (supra), is no longer a dispute and well settled as the law declared by a Court will have a retrospective effect if not otherwise stated to be so specifically. However, the retrospective effect of the decision rendered by the Supreme Court in Checkmate Services (P.) Ltd. (supra) is not an issued involved in present case, as the question involved herein was quite different as to whether Section 143(1) (a) of the Act of 1961 can be resorted to when there is highly debatable issue. Therefore, the case laws relied upon by the Revenue are not applicable to the facts of the present case.

17. Concludingly, we are of the considered opinion that the Assessing Officer should not have resorted to the provisions contained under Section 143(1)(a) of the Act of 1961 and instead could have resorted to the provisions under Section 143(3) of the Act of 1961, as on the date of issuance of intimation order dated 30.11.2021 by the Assessing Officer, exercising power under Section 143(1)(a) of the Act of 1961, the subject issue was highly debatable and ultimately, that issue was resolved by their Lordships in the matter of Checkmate Services Pvt Ltd ( supra) on a later date.

18. As a fallout and consequence of above-stated discussion, the prima facie disallowance of impugned contribution towards ESI and EPF under Section 36(1)(va) read with Section 2(24)(x) of the Act of 1961 made by the Assessing Officer under Section 143(1)(a) by order dated 30.11.2021 is hereby set-aside. Consequently, the order dated 01.04.2022 passed under Section 154 of the Act confirming the order dated 30.11.2021; the order dated 31.07.2024 passed by the CIT (Appeals) and the subsequent order dated 21.10.2024 passed by the ITAT are also set-aside. However, liberty is reserved in favour of the respondent/Revenue to proceed in accordance with law.

19. The substantial question of law is answered in favour of the appellant/assessee and against the respondent/Revenue.”

11. On perusal of the above, we note that the Hon’ble High Court of Chhattisgarh was pleased to hold that the CPC committed a grave legal error in processing the return of the assessee under Section 143(1)(a) of the Act, in the light of the principle of law laid down by the Lordships of the Hon’ble Supreme Court in the matter of Kvaerner John Brown Engg. (India) (P.) Ltd. v. Asstt. CIT, reported in 305 ITR 103 (SC), and Rajesh Jhaveri Stock Brokers (P.) Ltd., reported in 291 ITR 500 (SC), wherein we find that the Hon’ble Supreme Court was pleased to hold that, when there were conflicting judgments on interpretation, the prima facie adjustments contemplated under Section 143(1)(a) were not applicable, and what were permissible under the first proviso to Section 143(1)(a) to be adjusted were: (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return; (ii) loss carried forward, deduction, allowance or relief which was prima facie admissible on the basis of information available in the return but not claimed in the return; and similarly, (iii) those claims which, on the basis of information available in the return, were prima facie inadmissible, were to be rectified/allowed/ disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The AO had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the AO had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowances or reliefs, respectively.

12. Further, the Hon’ble High Court was pleased to hold that the submission of the Revenue that the judgment passed in Checkmate Services (supra) would have retrospective effect is no longer in dispute and is well settled, as the law declared by a Court will have retrospective effect if not otherwise specifically stated to be so. Further, the Hon’ble High Court held that the retrospective effect of the decision rendered by the Hon’ble Supreme Court in Checkmate Services (supra) is not an issue involved in the present case, as the question involved herein was quite different, namely, whether Section 143(1)(a) of the Act can be resorted to when there is a highly debatable issue. In such circumstances, the Hon’ble High Court was pleased to hold that the case laws relied upon by the Revenue are not applicable to the facts of the present case, by holding that the AO should not have resorted to the provisions under Section 143(1)(a) of the Act and instead should have resorted to the provisions under Section 143(3) of the Act. Therefore, we find that the facts and circumstances in the present case are similar to the facts and circumstances before the Hon’ble High Court of Chhattisgarh, as discussed above. Admittedly, in the present case, the disallowance/adjustment under Section 36(1)(va) of the Act on account of employees’ contribution to provident fund and ESI was made by the CPCvide intimation order dated 21.02.2020 under Section 143(1)(a) of the Act. Respectfully following the decision of the Hon’ble High Court of Chhattisgarh, the addition by way of disallowance made by the CPC is not justified and is liable to be deleted.

13. Further, the Mumbai Benches of the ITAT, in the case of P.R. Packaging Service (supra), while taking into consideration the decision of the Hon’ble Supreme Court in the case of Checkmate Services (supra), directed the AO to delete the addition made in respect of employees’ contribution to provident fund, by stating that the decision of the Hon’ble Supreme Court in the case of Checkmate Services (supra) is not applicable, as the issue therein was with reference to the adjustment made under Section 36(1)(va) of the Act under Section 143(3) of the Act but not an intimation under Section 143(1)(a) of the Act. The relevant part of the decision in the case of P.R. Packaging Service (supra) is as under:-

14. On perusal of the above, we note that the facts before the Mumbai Tribunal were that the Ld. CIT(A) upheld the disallowance of the employees’ contribution to the provident fund made by the CPC, based on the statement made in the tax audit report, while processing the return under Section 143(1) of the Act. The Tribunal, while considering the decision of the Hon’ble Supreme Court in the case of Checkmate Services (supra), held that the said decision was not applicable, as the disallowance therein had been made by the AO under Section 143(3) of the Act and not by way of an intimation under Section 143(1) of the Act. We find that the facts and circumstances of the present case are similar to those before the Mumbai Tribunal. In the present case, the intimation was passed under Section 143(1) of the Act, making a disallowance on account of the delayed payment of the employees’ contribution towards EPF and ESI. Since the issue is debatable in nature, the disallowance made in an intimation under Section 143(1) of the Act is not justified. Admittedly, as the Ld. AR and DR concede, the issue before the Hon’ble Supreme Court, with reference to the disallowance under Section 36(1)(va) of the Act, arose from an assessment made under Section 143(3) of the Act. Therefore, we accept the arguments of the Ld. AR that the disallowance made by the CPC and confirmed by the Ld. CIT(A) is not justified. Accordingly, the addition made by the AO by way of disallowance under Section 36(1)(va) of the Act is liable to be deleted.

15. Coming to the decision of the Hon’ble Supreme Court in the case of Gujarat Electricity Board (supra) wherein a question arises is as to whether it is open to the Revenue to issue intimation under Section 143(1) of the Act after notice for regular assessment has been issued under Section 143(2) of the Act. The relevant portion of the said decision is hereinbelow:-

16. On perusal of the above, the Hon’ble Supreme Court decided the short question therein vide paragraph No. 2 of the said decision and held that the decision taken by the High Court of Gujarat, that once regular assessment proceedings have commenced under Section 143(2) of the Act, it is a limitation on the jurisdiction of the AO to commence proceedings under Section 143(1)(a) of the Act. The Hon’ble Supreme Court upheld the view taken by the Hon’ble Gujarat High Court by holding that the summary procedure is for quick collection of tax and quick refunds. If there is a serious objection to any of the orders made by the AO determining the income, it is open to the assessee to ask for rectification under Section 154 of the Act. Apart therefrom, the provisions of Section 143(1)(a)(i) indicate that the intimation sent under Section 143(1)(a) shall be without prejudice to the provisions of sub-section (2). Further, it held that, when the regular assessment proceedings have been commenced under Section 143(2) of the Act, there is no need for summary proceedings under Section 143(1)(a) of the Act.

17. Coming to the arguments of the Ld. DR with reference to relying on paragraph 56.2 of Circular No. 3/2017, we note that, in the present case, admittedly, a notice under Section 143(2) was issued prior to the issuance of the intimation under Section 143(1); therefore, the arguments of the Ld. DR do not merit acceptance in view of the findings of the Hon’ble Supreme Court in the case of Gujarat Electricity Board (supra). Thus, the arguments of the Ld. DR are rejected with reference to reliance on Circular No. 3/2017. Thus, in view of our discussion made hereinabove, with reference to the facts and circumstances of the case and the decisions of the Hon’ble Supreme Court, the Hon’ble High Court of Chhattisgarh and the order of the Mumbai Tribunal, we, respectfully following the decision of the Hon’ble High Court of Chhattisgarh, hold that the disallowance made by the CPC under Section 143(1) is not justified, accordingly, we direct the AO to delete it, and the order of the Ld. CIT(A) is set aside. The grounds raised by the assessee are allowed.

18. In the result, the appeal filed by the assessee is allowed.

-:I.T.A. No.2822/Chny/2025:-
(Assessment Year: 2020-21)

19. Admittedly, for brevity and at the cost of repetition, without referring to the entire facts, we note that the return of income was filed on 07.10.2021, and no adjustment was made under Section 143(1) of the Act vide intimation dated 31.03.2021; however, the adjustment was made under Section 154 of the Act vide order dated 09.03.2022, making an adjustment of Rs.51,43,339/- on account of contribution towards PF and ESI under Section 36(1)(va) of the Act. The Ld. AR vehemently argued that the AO failed to note that this aspect as on the date of issuing the order under Section 154 of the Act highly debatable issue and the same cannot be the subject matter of adjustment under Section 154 of the Act. Further, the contention of the Ld. AR is that no notice under Section 154 of the Act was issued to the assessee, and the CPC arbitrarily disallowed the above-said amount. He adopted the same arguments as were made in ITA No. 504/Chny/2026 and prayed to apply the same to the facts and circumstances of the present case.

20. Ld. DR relied on the order of Ld. CIT(A) particularly para No.6.2.1 of the impugned order.

21. After hearing both the parties, we note that the issue is similar to the facts and circumstances in the assessee’s own case in ITA No.504/Chny/2026, wherein we held that the order of the Ld. CIT(A) is not justified in upholding the order of the CPC in making disallowance under Section 36(1)(va) of the Act. In the present case, the disallowance was made under Section 154 of the Act, wherein no adjustment can be made without notice being issued to the assessee seeking objections in proposing the addition under Section 36(1)(va) of the Act. It is a settled principle, as we held in the aforementioned paras, that no disallowance could be made under Section 154 of the Act without seeking an explanation from the assessee. Since it is a debatable issue, thus, following the decision of the Hon’ble High Court of Chhattisgarh in the case of Sanjay Kumar Sharma (supra), we hold that the disallowance as confirmed by the Ld. CIT(A) under Section 36(1)(va) of the Act suffers from legal infirmity and, accordingly, it is deleted. Thus, order of the Ld. CIT(A) is set aside and the grounds raised by the assessee are allowed.

22. In the result, the appeal filed by the assessee is allowed.

Order pronounced on 14th October, 2026 at Chennai.