Issue of addition vide intimation U/S 143(1) in the case of delay in payment of Employee Contribution of PF 

 

 

Introduction:

1. The most common issue on deductibility of ESI/ PF expenses (i.e. whether the provisions of section 43B of the Income-tax Act, which allows deduction for deposit of employer’s contributions to specified funds before the ‘due date’ of filing of income tax return apply even to employee’s contributions under section (‘u/s.’) 36(1)(va) of the Income Tax Act) has always been a matter of debate before the tax authorities for several years.

2. Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. v. CIT (2022 SCC On Line SC 1423 has put a ‘check’ on the earlier position taken by High Courts favouring the tax payers and held that employee’s contributions if not paid within the due date specified under the relevant Act is not allowable u/s. 36(1)(va) of the Act and it was further held that the provisions of section 43B of the Act would not apply to the provisions of Section 36(1)(va) of the Act.

Addition vide Sec 143(1):

1. Issue:

In a case where addition is made u/s. 143(1) of the Act, a question of whether one may still argue on jurisdictional plea on the validity of such addition arise, given the limited/ narrow scope of proceedings under said section.

2. Mumbai Tribunal Judgement:

Mumbai Tribunal in P.R. Packaging Service v. Asstt. CIT [2023] 148 taxmann 153, deleted the disallowance u/s. 36(1)(va) made in the intimation u/s. 143(1) of the Act on a finding that such disallowance is beyond the scope of section 143(1)(a), albeit the Tribunal noted that it is conscious of the fact that the issue on merits is decided against the assessee in Checkmate Services. It was further held that the decision of Supreme Court was rendered in the context of section 143(3) of the Act and not section 143(1) of the Act.

3. Delhi Tribunal Judgement:

The Delhi Tribunal in Savleen Kaur v. ITO [2023] 147 taxmann 402, however, distinguished the above judgment on a finding that Mumbai Tribunal has simply relied on another coordinate bench decision which was decided in the absence of the binding decision of Supreme Court in Checkmate Services.

It was further held that, if any narrow interpretation is given to the decision of Supreme Court stating that it was rendered in context of only 143(3), such interpretation will defeat the very purpose of the intention of legislature and the Supreme Court decision. It was therefore held that the ratio lead down in the SC decision is equally applicable to intimation u/s. 143(1) and assessment order u/s. 143(3) of the Act.