Climax Overseas Pvt. Ltd Vs DCIT (ITAT Delhi)
The appeal by Climax Overseas Pvt. Ltd. challenged an order from the Commissioner of Income-tax (Appeals) (CIT(A)), which had sustained a rectification order issued by the Assessing Officer (AO) under Section 154 of the Income Tax Act, 1961 (the Act). The core dispute centered on the AO’s attempt to disallow a deduction for the employee contributions to ESI and Provident Fund (PF) on the grounds of delayed payment.
The company’s original assessment was completed under Section 143(3) on December 29, 2019, where the deduction for ESI and PF contributions was fully accepted and allowed. Subsequently, on March 29, 2024, the AO invoked the rectification power under Section 154 to disallow a sum of ₹17,35,685. The basis for the disallowance was that the employee contributions had been deposited after the due dates stipulated by the respective ESI/PF Acts, even though they were paid before the due date for filing the income tax return under Section 139(1) of the Act.
This rectification was specifically triggered by the landmark Supreme Court decision in Checkmate Services P. Ltd. vs. CIT, pronounced on October 12, 2022. This judgment settled the law, ruling that employee contributions not paid by the due date of the respective social security acts are not allowable deductions. The AO essentially used this subsequent Supreme Court ruling to argue that the original allowance was a “mistake apparent from the record” correctable under Section 154.
