Atamjeet Singh Sandhu Vs ITO (ITAT Chandigarh)
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) in Atamjeet Singh Sandhu v. ITO delivered a consolidated order on 24 September 2025, deciding three appeals (AYs 2018–19, 2019–20, and 2020–21) concerning disallowance of delayed deposits of employees’ provident fund (PF) and employees’ state insurance (ESI) contributions. The Tribunal remanded the matter to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh adjudication after verifying the factual correctness of the disallowance and the proper segregation of employer and employee contributions.
Facts of the Case
The assessee, engaged in the business of security services, filed his return of income declaring total revenue of ₹18.7 lakh for AY 2018–19. The Centralized Processing Centre (CPC), Bengaluru, while processing the return under section 143(1)(a)(iv) of the Income-tax Act, 1961, made an adjustment of ₹31,01,954 on the basis of the tax audit report (Form 3CD), disallowing the amount as delayed deposit of employees’ PF and ESI contributions. The CIT(A) upheld the CPC’s adjustment, observing that the delay was apparent from the audit report and that the disallowance was consistent with section 36(1)(va) read with section 43B.
Aggrieved, the assessee appealed before the ITAT, contending both factual and legal infirmities in the disallowance.
Assessee’s Contentions
The assessee argued that the CPC’s adjustment was factually incorrect because the figures in Form 3CD had inadvertently combined the employees’ and employer’s contributions along with administrative charges. It was submitted that only employees’ contributions fall under section 36(1)(va), while employer’s contributions are governed by section 43B and are allowable if deposited before the due date for filing the return under section 139(1). The assessee produced a Chartered Accountant’s certificate dated 22 September 2025 certifying that the actual delayed employees’ contribution amounted to ₹2,42,162 towards ESI and ₹16,64,984 towards PF, significantly lower than the total figure of ₹31,01,954 adopted by CPC.
The assessee further argued that even assuming there was delay, the CPC was not empowered to make the adjustment under section 143(1)(a)(iv) since, at the time of processing (June 2020), the issue regarding allowability of delayed employees’ contribution was debatable and pending before the Supreme Court in Checkmate Services Pvt. Ltd. v. CIT (Civil Appeal No. 2833 of 2016). The assessee relied on the Chhattisgarh High Court’s ruling in Raj Kumar Bothra v. DCIT (2025) and the Delhi ITAT decision in Rajesh Kumar Garg v. ACIT (ITA Nos. 970 & 971/Del/2025, dated 22 August 2025), both holding that disallowance under section 143(1)(a) cannot be made where the issue is debatable or involves interpretation of law. The scope of section 143(1)(a), the assessee emphasized, is limited to prima facie adjustments or apparent errors, and the CPC exceeded its jurisdiction by making a substantive disallowance on a contentious issue.
Revenue’s Arguments
The Departmental Representative (DR) countered that the Supreme Court in Checkmate Services Pvt. Ltd. v. CIT (2022) had conclusively held that employees’ contribution to PF and ESI—being treated as income under section 2(24)(x)—is deductible only if deposited within the due dates specified under the respective welfare statutes. The DR contended that section 43B does not apply to employees’ contributions, and therefore, once the audit report itself disclosed delayed payments, CPC was justified in making the adjustment under section 143(1)(a). The DR supported the CIT(A)’s decision as consistent with the Apex Court’s ruling.
Tribunal’s Observations and Findings
The ITAT observed that the figures adopted by CPC and sustained by CIT(A) were mechanically drawn from Form 3CD without verifying whether they represented only employees’ contributions or also included employer’s contributions. The Tribunal noted that the assessee had filed a revised tax audit report on 22 September 2019 correcting the classification of contributions, but this had not been considered by the lower authorities. The Tribunal held that the factual aspect regarding the actual delayed employees’ contributions went to the root of the controversy and required verification.
On the legal issue, the Tribunal acknowledged that Checkmate Services (Supreme Court) laid down binding law that employees’ contributions must be deposited within the statutory due dates, and section 43B does not override section 36(1)(va). However, it also recognized that the jurisdiction under section 143(1)(a) is limited to prima facie or patent errors and cannot extend to debatable questions of law. The Tribunal referred to Raj Kumar Bothra v. DCIT (Chhattisgarh High Court, 2025) and Rajesh Kumar Garg v. ACIT (Delhi ITAT, 2025), which held that adjustments under section 143(1)(a) cannot be made on contentious matters such as delayed deposit of employees’ contributions.
The ITAT clarified that while Checkmate Services operates declaratorily and binds all authorities from inception (under Article 141 of the Constitution), the determination of factual correctness—specifically whether the disallowed amount truly represented employees’ contribution—was indispensable. Since the facts and figures in the audit report and revised report diverged, and the Chartered Accountant’s certification suggested lower delayed amounts, the Tribunal deemed it appropriate to remit the matter to the CIT(A) for fresh adjudication.
Directions of the Tribunal
The ITAT directed the CIT(A) to re-examine the factual record, segregate employer and employee contributions, and restrict disallowance only to the extent of employees’ contributions found deposited beyond the due dates prescribed under the relevant Acts. The CIT(A) was instructed to consider the Chhattisgarh High Court’s judgment in Raj Kumar Bothra (2025), assess the applicability of precedents in light of the facts, and provide the assessee with adequate opportunity to produce supporting material. The Tribunal emphasized that while the Checkmate Services ruling governs the substantive law, the procedural propriety under section 143(1)(a) must also be respected, ensuring that the CPC does not travel beyond its statutory limits.
As the remaining two appeals (AYs 2019–20 and 2020–21) involved identical facts differing only in quantum, the Tribunal applied the same reasoning and directions mutatis mutandis.
Conclusion
The ITAT thus allowed all three appeals for statistical purposes, setting aside the impugned orders and restoring the matters to the CIT(A) for de novo verification and adjudication. The ruling underscores the twin principles that (i) factual classification errors in audit reports cannot justify mechanical disallowances, and (ii) CPC’s powers under section 143(1)(a) are confined to patent errors and not to interpretative or debatable issues.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
