ITAT Remands PF/ESI Disallowance; CIT(A) Must Consider Revised Tax Audit Report Proving Timely Payment

Issue

Whether the Commissioner (Appeals) [CIT(A)] was justified in confirming the disallowance of employees’ contribution to PF/ESI under Section 36(1)(va) based on the original Tax Audit Report (Form 3CD), while ignoring the Revised Tax Audit Report and payment challans submitted by the assessee which demonstrated that the payments were, in fact, made within the statutory due dates.

Facts

Assessment Year: 2019-20.
The Disallowance: The assessee-company filed its return of income. The Centralized Processing Centre (CPC), Bengaluru, processed the return under Section 143(1). Based on the data reported in the original Tax Audit Report (specifically Clause 20(b) of Form 3CD), the CPC disallowed the employees’ contribution to PF/ESI, treating it as a late deposit (paid after the due date prescribed under the PF/ESI Acts).
The Error: The assessee claimed that the original Tax Audit Report contained clerical errors (e.g., reporting wrong due dates or clubbing employer/employee contributions).
Correction: To rectify this, the assessee obtained a Revised Tax Audit Report from their auditor, which correctly reflected the payment dates and due dates, showing that the contributions were actually deposited on time.
Appellate Proceedings: The assessee submitted this Revised Tax Audit Report and the actual payment challans before the CIT(A).
CIT(A)’s Action: The CIT(A) disregarded the revised report and the challans, confirming the addition based on the original defective report.

Decision

The ITAT Chandigarh Bench ruled in favour of the assessee (by way of remand).
Duty to Verify: The Tribunal held that the CIT(A) failed in his quasi-judicial duty by ignoring the revised documents. The appellate authority is legally bound to examine the additional evidence (Revised TAR and Challans) that goes to the root of the matter.
Substance Over Form: The Tribunal emphasized that tax liability must be determined based on actual facts, not merely on inadvertent reporting errors. If the assessee had actually deposited the contribution within the time limits prescribed under the relevant welfare acts, the benefit cannot be denied solely because the original audit report was erroneous.
Scope of Checkmate Ruling: While the Supreme Court judgment in Checkmate Services mandates timely deposit for deduction, it applies to actual delays. It does not authorize the department to tax amounts that were paid on time but reported incorrectly.
Outcome: The order of the CIT(A) was set aside. The matter was remanded to the Assessing Officer (AO) to verify the payment dates against the Revised Tax Audit Report and allow the deduction if found compliant.

Key Takeaways

Revised Audit Report is Valid Evidence: A Revised Tax Audit Report is a valid evidentiary document to correct clerical errors in Form 3CD. Tax authorities cannot summarily reject it, especially when supported by primary evidence like challans.
143(1) Adjustments Rebuttable: Adjustments made by CPC u/s 143(1) are based on return data. If that data is erroneous, the taxpayer has the right to rebut the adjustment with corrected data at the appellate stage.
Verification of Challans: The ultimate proof of compliance is the bank challan showing the date of payment. This document overrides erroneous entries in the audit report.

IN THE ITAT DELHI BENCH ‘E’

Crown Gaskets (P.) Ltd.

Income-tax Officer^*

Sudhir Kumar, Judicial Member
and S. Rifaur Rahman, Accountant Member

ITAppeal No.3450 (Del) of 2025
[Assessment year 2019-20]

NOVEMBER 12, 2025

Ranjan Chopra, CA. for the Appellant. Ms. Pooja Swroop, CIT-DR. for the Respondent.

ORDER

Sudhir Kumar, Judicial Member.- This appeal by the assessee is directed against the order of Commissioner of Income Tax Appeal Addl. /JCIT(A)-1 Kolkata [hereinafter referred to as “Ld. CIT(A)”], vide order dated 29.03.2025 pertaining to A.Y. 2019-20 and arises out of the intimation order dated 26-05-2020 passed by the CPC Bengaluru under Section 143(1) of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’].

2. The assessee has raised the following grounds of appeal:

1. That the learned Addl./JCIT(A) has erred in law & on facts in confirming the addition of Rs.35,75,905/-made by CPC, Bangalore on account of disallowance u/s 36(1)(va) for alleged late deposit of employees contribution to ESI & Provident Fund. The appellant respectfully submits that the said contribution were deposited within the due dates prescribed under the respective Acts, i.e. within 15 days of the close of the month in which the salary was paid /disbursed & hence no disallowance is warranted.

2. That the learned Addl./JCIT(A) has failed to appreciate the submission of the appellant that Tax Auditor inadvertently reported total PF & ESI contributions (i.e. both employer & employee portion) under the head ‘sum received from employees’ in Clause 20(b) of Tax Audit Report. The appellant had furnished detailed monthly summary sheets & PF/ESI Challans clearly bifurcating the employer’s & employee’s contributions, which were ignored.

3. That the appellant had brought the above error to the attention of the Tax Auditor & upon review, the auditor has acknowledged the mistake & has agreed to issue a Revised Tax Audit Report to correctly reflect the bifurcation of PF/ESI contributions. This fact substantiates the bonafide nature of the reporting error.

4. That the addition of Rs,35,75,905/- confirmed by learned Addl./JCIT(A) pertains to a debatable issue & hence lies outside the scope of permissible adjustment under section 143(1) of the Income Tax Act 1961.

5. That the orders passed by both learned Addl./JCIT & CPC Bangalore are prejudicial to the interest of the appellant & violating the principles of natural Justice.

6. That the appellant prays for leaves to add, alter amend/ remove the above grounds of appeal either before/at the time of hearing.

3. The brief facts of the case are that the assessee company filed its return of income declaring income at Rs.24,41,107/-on 30-09-2019. The return of income was processed by the CPC Bengaluru and an intimidation was issued to the assessee by making the addition of Rs.35,75,905/ by disallowing the amount u/s 36(1) of the Act. Aggrieved the order of the CPC the assessee filed the appeal before the Ld. CIT(A), who vide his order dated 29-03-2025 partly allowed the appeal. The ld. CIT(A), has observed in the order as under:

“F-8 Moreover, when the incorrect claims are apparent from the information from the ITR there is no difference whether it is added u/s 143(1) (a) or on proceedings after issue of notice u/s 132(2). Even in the assessment u/s 143(3), the addition u/s 36(1) (va) is made on the basis of information from the Para 20(b) of the TAX AUDIT Report and no further enquiry is required unless the Appellants claims that the Tax Audit Report is correct. Hence, when the additions from the same sources, there is no difference as to whether the addition is made u/s 143(1) (a) or after service or after of notice u/s 143(2).

Any decision of the Hon’ble Supreme court is to be treated as the decision is valid since the inception of law. The earlier decisions of the Hon’ble Supreme Court, and Hon’ble ITATs as mentioned by the Appellant, can’t override the later decision of the Hon’ble Supreme Court.

In the case of the appellant, the Tax Auditor has categorically mentioned the due days of deposit of the Employees’ Contribution of PF & ESI as collected from the salary/wages of employees after due verification of the books of accounts. So, the Tax Auditor must have considered the same and mentioned the due dates in the TAR. Nowhere in the submission the Appellant has claimed that the LD Tax Auditor has wrongly mentioned the due dates in para20 (b) of the Tax Audit Report as reproduced above in para B. No revised Tax Audit Report has been filed. The Appellant has also not furnished any information as to what action has been taken by the appellant against the Tax Auditor for furnishing any incorrect report if any.

The appellant has furnished a number of challans for payment of PF/ESI and claimed that the Employer’s contribution is included in the amounts added u/s 36 (1)9va). The office is not in a position to verify the same. The auditor is required to verify the same and FURNISH A COMPLETE REPORT where he has mentioned that the amount of Rs.35,75,905/- falls within the purview of Section 36(1)(va0. The appellant now claim that the amount related to employer’s contribution is included in that. But no evidence has been furnished as to whether the same has been informed to the Auditor or whether any action has been taken for such incorrect reporting, if any. No such copy of communication has been furnished. Hence apparently, the CPC has added it u/s 143(1) (a) (iv). In the absence of any REVISED TAX AUDIT REPRT, such claim is not acceptable as the case is not subject to scrutiny. On specific query, the appellant has not furnished any Revised Tax Report u/r 6G(3).

Hence, the Grounds No 2,4,& 5 are DISMISSED and the addition of Rs 35,75,905/- u/s 36(1) (va) r.w.s. 143(1) (a) (iv) is confirmed.

4. Being aggrieved from the order of the Ld. CIT(A), the assessee is in appeal before the tribunal.

5. Ld. AR of the assessee submitted that contribution to ESI & Provident Fund were deposited within the due dates prescribed under the respective Acts. The contributions were paid within 15 days of the close of the month in which the salary was paid. The assessee has filed the details of monthly summary sheets and PF/ ESI challans to prove that the payment was made within time which was wrongly ignored by the Ld. CIT(A) on the basis of Audit Tax report in which inadvertently reported the total PF & ESI contribution. He also submitted that Tax Auditor acknowledged the mistake and issue a Revised Tax Audit Report.

6. Ld. CIT DR relied upon the order of the lower authorities and submitted that in the Audit Report the details were provided of the ESI/pF deposition, on which basis the order was rightly passed by the authorities.

7. We have heard the revival contention of the parties and gone through the material available on record. We find that the assessee has filed the revised tax report and challans for payments of PF/ESI to prove that payment was made within time, before the appellate authority. In the revised tax report correct details of the contribution of the ESI/pF were provided. The Ld. CIT (A) should have considered the revised Tax Audit Report and other documents submitted by the assessee at the time of passing the order. The order passed by Ld.CIT(A), without considering the revised audit report and verifying the challans is not as per law. If the assessee was deposited the contribution of the ESI/ PF of the employees within time as stated by him, then the benefit should have given to the assessee. We find that these, all facts may be verified by the AO, therefore the grounds raised by the assessee is liable to be allowed.

8. In the result, the appeal of the assessee is allowed for statistical purpose.