Dell International Services India Private Limited Vs JCIT (ITAT Bangalore Bench)
Checkmate Cannot Travel Back in Time: Subsequent Supreme Court Ruling Cannot Convert a Debatable PF/ESI Issue into an Apparent Mistake u/s 154
Rectification Application Takes an Unexpected Turn
The assessee was engaged in providing IT-enabled services & related operations. It filed its return for AY 2011-12 on 30.11.2011, declaring total income of ₹35.55 crore.
Scrutiny assessment was completed u/s 143(3) r/w Section 144C(13) on 27.01.2016, determining total income at ₹29.94 crore. Pursuant to an order passed u/s 263, the assessment was subsequently modified & total income was computed at ₹150.45 crore, mainly after disallowing the deduction claimed u/s 10AA.
The assessee noticed certain mistakes in the modified assessment order & filed an application u/s 154 on 12.02.2018, seeking their rectification.
While considering the mistakes pointed out by the assessee, the AO suo motu noticed another issue. The employees’ contributions towards Provident Fund & ESI, aggregating to ₹87,67,420, had been deposited after the due dates prescribed under the respective welfare statutes.
After considering the assessee’s response, the AO passed a rectification order dated 10.06.2019, disallowing ₹87,67,420 u/s 36(1)(va) r/w 2(24).
CIT(A) Relies on Subsequent Checkmate Decision
The assessee challenged the rectification order before the CIT(A)/NFAC.
By the time the appeal was decided, the Supreme Court had delivered its judgment in Checkmate Services (P.) Ltd. v. CIT, [2022] 448 ITR 518 (SC). The Supreme Court held that employees’ contributions deposited beyond the due dates specified under the respective welfare statutes are not deductible merely because they were paid before the due date for filing the return.
Relying on Checkmate Services, the CIT(A) held that the earlier controversy among various High Courts had been conclusively resolved in favour of the Revenue. According to the CIT(A), the issue no longer remained debatable & the rectification made by the AO was consistent with the law declared by the Supreme Court.
The disallowance of ₹87,67,420 was accordingly upheld.
Assessee Questions the Timing, Not Merely the Merits
Before the Tribunal, the assessee contended that the validity of an order u/s 154 had to be examined with reference to the legal position prevailing on the date when the rectification was made.
The rectification order was passed on 10.06.2019, whereas the Supreme Court decided Checkmate Services only on 12.10.2022.
In 2019, divergent judicial views existed regarding the allowability of employees’ PF & ESI contributions deposited after the statutory due dates but before the due date for filing the return u/s 139(1).
More importantly, the binding decision of the jurisdictional Karnataka High Court in Essae Teraoka (P.) Ltd. v. DCIT, [2014] 366 ITR 408 (Karn.) was then in favour of the assessee. That decision was overruled only subsequently by the Supreme Court in Checkmate Services.
Therefore, even if the issue presently stood concluded against the assessee on merits, it was indisputably debatable when the AO invoked Section 154.
Issue Was Never Part of Earlier Assessment Orders
The Tribunal also noticed that the impugned disallowance had not been made in the original assessment order u/s 143(3) r/w Section 144C(13). It was also absent from the modified order passed pursuant to proceedings u/s 263.
The AO raised the PF/ESI issue for the first time while dealing with the assessee’s rectification application concerning entirely different mistakes.
The controversy was therefore introduced suo motu into the Section 154 proceedings, even though it required examination of a legal issue on which courts had expressed conflicting opinions.
Section 154 Covers Only Obvious & Patent Mistakes
The ITAT relied upon T.S. Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 (SC), which holds that a mistake apparent from the record must be an obvious & patent mistake.
A matter requiring a long-drawn process of reasoning, particularly where two views are reasonably possible, cannot be rectified u/s 154.
The Supreme Court itself, in Checkmate Services, had noticed the conflicting decisions of various High Courts before settling the controversy. This demonstrated that prior to 12.10.2022, the question was genuinely debatable.
Since the jurisdictional Karnataka High Court’s decision then supported the taxpayer, the AO could not have characterised the allowance as an apparent mistake on 10.06.2019.
Subsequent Judgment Cannot Validate Earlier Rectification
The Tribunal rejected the CIT(A)’s reasoning that the issue had ceased to be debatable after Checkmate Services.
The relevant question was not whether the issue was debatable when the CIT(A) decided the appeal, but whether it was debatable when the AO passed the rectification order.
Relying upon Mepco Industries Ltd. v. CIT, [2009] 319 ITR 208 (SC), the ITAT observed that a rectification order cannot be justified on the basis of a subsequent judicial decision.
Accordingly, the AO had exceeded the limited jurisdiction available u/s 154. The order of the CIT(A) was set aside, the disallowance of ₹87,67,420 made through rectification was deleted & the assessee’s appeal was allowed.
Author’s Comments
The ruling does not dilute the substantive law declared in Checkmate Services. Delayed employees’ contributions remain governed by that judgment in proceedings where the issue is validly open for determination.
The decision instead protects the narrow scope of Section 154. A later Supreme Court ruling may settle the law, but it cannot retrospectively make an issue “obvious” when conflicting High Court judgments, including a binding jurisdictional decision, existed on the date of rectification.
In short, Checkmate may decide the game prospectively in pending proceedings, but it cannot rewrite the scoreboard of an earlier Section 154 move.
Cases Discussed
- Checkmate Services (P.) Ltd. v. CIT, [2022] 448 ITR 518 (SC)
- T.S. Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 (SC)
- Essae Teraoka (P.) Ltd. v. Dy. CIT, [2014] 366 ITR 408 (Karn.)
- Mepco Industries Ltd. v. CIT, [2009] 319 ITR 208 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
The assessee has filed the present appeal against the impugned order dated 11.11.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”), by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the rectification order passed under section 154 of the Act, for the assessment year 2011-12.
2. In this appeal, the assessee has raised the following grounds: –
1. The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the adjustment made by the Additional Commissioner of Income-tax / Assessing Officer (‘AO’) in the order passed under section 154 of the Income-tax Act, 1961 (‘the Act’) is misconceived, incorrect, erroneous and not in accordance with the law and the Commissioner of Income-tax (Appeals) [‘CIT(A)’] ought to have held as such.
2:0 Re.: Disallowance of delayed payment of provident fund (‘PF’) and Employee State Insurance (‘ESI’) received from employees amounting to INR 8,767,420:
2:1 The CIT(A) erred in concluding the order passed under section 154 of the Act, making the aforementioned adjustment, is valid and erred in not appreciating that the adjustment made is not a rectification of a ‘mistake apparent from record’ and thus outside the scope of rectification under section 154 of the Act.
2:2 The CIT(A) erred in not appreciating that the adjustment made without a prior show cause notice to the Appellant is erroneous and in violation of the principles of natural justice and Section 154(3) of the Act.
2:3 The CIT(A) erred in not appreciating that an admittedly debatable issue at the time of passing the original order that was sought to be rectified (which remained debatable at the time of passing the rectification order) cannot be rendered “a mistake apparent from record” amenable to rectification, as a result of a subsequent decision of a higher court.
2:4 The CIT(A) erred in not appreciating the fact that the issue for rectification does not arise from the order under section 143(3) read with section 263 of the Act and hence, the rectification order is invalid on this ground.
2:5 The Appellant submits that the AO be directed to delete the disallowance so made and to recompute its total income and tax thereon accordingly.
3:0 Re.: General:
3:1 The Appellant craves leave to add, alter, amend, substitute and / or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
3. Ground No. 1 is general in nature. Therefore, the same needs no separate adjudication.
4. Ground No. 2, raised in assessee’s appeal, pertains to disallowance of delayed payment of employees’ contribution towards Provident Fund (“PF”) and Employees’ State Insurance Corporation Scheme (“ESIC”).
5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of providing IT-enabled Services and related operations. For the year under consideration, the assessee filed its return of income on 30.11.2011, declaring a total income of Rs. 35.55 crore. The return filed by the assessee was selected for scrutiny and, vide order dated 27.01.2016 passed under section 143(3) r.w.s. 144C(13) of the Act, the scrutiny proceedings were concluded, assessing the total income of the assessee at Rs. 29.94 crore. Pursuant to the order passed under section 263 of the Act, the assessment order was modified, and the total income of the assessee was computed at Rs. 150.45 crore, after disallowing the deduction claimed under section 10AA of the Act. As the assessee noticed certain mistakes in the order passed under section 143(3) r.w.s. 263 of the Act, a rectification application under section 154 of the Act was filed by the assessee on 12.02.2018. During the rectification proceedings, in addition to the mistakes sought to be rectified by the assessee, the Assessing Officer (“AO”) noticed that the assessee had credited the employees’ contributions towards PF and ESIC to the Government’s account after the due date prescribed under the respective statutes. After considering the response of the assessee on this aspect, the AO, vide order dated 10.06.2019 passed under section 154 of the Act, inter alia, disallowed the delayed payment of employees’ contribution towards PF and ESIC under section 36(1)(va) r.w.s. 2(24) of the Act and added the same to the total income of the assessee.
6. In the appeal by the assessee against the rectification order passed under section 154 of the Act, the learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee by placing reliance upon the decision of the Hon’ble Supreme Court in Checkmate Services (P) Ltd. vs. CIT, reported in [2022] 448 ITR 518 (SC). The learned CIT(A) held that though at one stage conflicting decisions of the Hon’ble High Courts existed on the allowability of employees’ contributions deposited after the due date prescribed under the respective statute, the said controversy now stands conclusively settled by the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd.(supra). Thus, the learned CIT(A) held that after the decision of the Hon’ble Supreme Court, this issue no longer remains debatable and the rectification carried out by the AO is in line with the decision of the Hon’ble Supreme Court. Accordingly, the learned CIT(A) upheld the disallowance of Rs. 87,67,420/- made by the AO on account of delayed payment of employees’ contribution towards PF and ESIC under section 36(1)(va) r.w.s. 2(24) of the Act. Being aggrieved, the assessee is in appeal before us.
7. During the hearing, the learned Senior Counsel, appearing for the assessee, submitted that on the date when the AO exercised its powers under section 154 of the Act and made the impugned disallowance, the issue of allowability of employees’ contribution towards PF and ESIC paid after the due date prescribed under the respective statute but before the due date for filing the return of income was a debatable issue, as Hon’ble High Courts have expressed divergent views. The learned Senior Counsel submitted that even though subsequently the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) has settled this controversy, on the date of passing of the order under section 154 of the Act, the issue was debatable, and thus outside the purview of the provisions of section 154 of the Act.
8. On the other hand, the learned Departmental Representative (“learned DR”) relied upon the order passed by the lower authorities.
9. We have considered the submissions of both sides and perused the materials available on record. In the present case, it is evident that the disallowance of delayed payment of employees’ contribution to PF and ESIC after the due date prescribed under the respective statute was neither made by the AO vide order passed under section 143 r.w.s. 144C(13) nor the same was made vide order passed under section 143(3) r.w.s. 263 of the Act. The AO, only while considering the assessee’s rectification application under section 154 of the Act in respect of certain mistakes, which were sought to be rectified by the assessee, suo motu raised the issue of disallowance of delayed payment of employees’ contribution towards PF and ESIC in the proceedings under section 154 of the Act. The primary contention of the assessee is that on the date of passing of the rectification order, i.e. 10.06.2019, the issue of allowability of delayed payment of employees’ contribution towards PF and ESIC was debatable as various Hon’ble High Courts have expressed divergent issues. Accordingly, as per the assessee, on the date of passing of the rectification order, i.e. on 10.06.2019, this issue was debatable. It is further the plea of the assessee that, even though the Hon’ble Supreme Court subsequently settled the controversy vide its decision in Checkmate Services Pvt Ltd. (supra), the same does not support the AO’s view in making the impugned disallowance vide order passed under section 154 of the Act.
10. From the careful perusal of the decision in Checkmate Services Pvt. Ltd. (supra), we find that in paragraphs 11 and 12 of the decision, the Hon’ble Supreme Court has also noted the divergent views of the Hon’ble High Courts on this issue. After considering the submissions of both sides, the Hon’ble Supreme Court, vide its judgment dated 12.10.2022, decided the issue in favour of the Revenue by categorically holding that the delayed payment of employees’ contribution towards PF and ESIC after the due date prescribed under the respective statute shall be taxable under section 2(24) of the Act. Therefore, it is evident that prior to the decision of the Hon’ble Supreme Court on 12.10.2022 this issue was indeed debatable.
11. The Hon’ble Supreme Court in T.S. Balram, ITO vs. Volkart Brothers, reported in (1971) 82 ITR 50 (SC), held that for initiating proceedings under section 154 of the Act, the “mistake apparent from record” must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning on points on which there may conceivably be two opinions.
12. Therefore, since on the date of passing of the rectification order, i.e. on 10.06.2019, the issue of allowability of delayed payment of employees’ contribution to PF and ESIC was a debatable issue, we of the considered view that the said rectification order qua this issue clearly falls beyond the ambit of the expression “mistake apparent from the record”. At this stage, it is also worth noting that on the date of passing of the rectification order even the view of the Hon’ble Jurisdictional Karnataka High Court (in Essae Teraoka (P.) Ltd. v. Dy. CIT, reported in [2014] 366 ITR 408) was in favour of the taxpayer, which was subsequently overruled by the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra).
13. Insofar as the findings of the learned CIT(A) that once the highest court of the land has clarified the scope of section 36(1)(va) of the Act, the disallowance no longer remains debatable, it is pertinent to note that in the present case the rectification order was not passed after the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) and the same was in fact passed prior to the aforesaid decision. Thus, we are of the considered view that only after the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) can the issue be said to have been conclusively settled. Prior thereto, even the Hon’ble Supreme Court has noted the divergent views taken by different Hon’ble High Courts. In any case, it is now well-settled that the rectification order under section 154 of the Act cannot be made on the basis of subsequent judgment. In this regard, gainful reference can be made to the decision of the Hon’ble Supreme Court in Mepco Industries vs. CIT, reported in (2009) 319 ITR 208 (SC).
14. Therefore, since on the date of passing of the rectification order under section 154 of the Act, in the instant case, the issue of allowability of delayed payment of employees’ contribution towards PF and ESIC was debatable, we are of the considered view that the AO erred in passing the rectification order on this issue as the same cannot be treated as “mistake apparent from record”. Consequently, the impugned order passed by the learned CIT(A) upholding the disallowance made on this issue vide order passed under section 154 of the Act is set aside. As a result, Ground No. 2 raised in assessee’s appeal is allowed.
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 04-Sept-2026.
