Delayed PF/ESI Deposits Cannot be Disallowed as a 'Prima Facie' Adjustment u/s 143(1)

Delayed PF/ESI Deposits Cannot be Disallowed as a ‘Prima Facie’ Adjustment u/s 143(1)

Facts

The Dispute: For the Assessment Years 2018-19 to 2020-21, the Assessing Officer (AO) made additions to the total income of the Assessee on account of delayed deposits of employees’ contributions to Provident Fund (PF) and Employee State Insurance (ESI).
The Mechanism: These additions were not made through a regular scrutiny assessment but as “prima facie adjustments” during the centralized processing of the return under Section 143(1).
The Context: The adjustments were carried out prior to the landmark Supreme Court ruling in Checkmate Services (P.) Ltd. v. CIT, which eventually settled the law that late deposits of employees’ contributions are not deductible.
The Challenge: The Assessee challenged the additions on the grounds that the nature of this disallowance is “debatable” and falls outside the narrow technical scope of Section 143(1).

Decision

Final Verdict: In favour of the Assessee.
Ratio Decidendi:
- Scope of Section 143(1): The Court/Tribunal held that the power to make adjustments under Section 143(1) is limited to apparent arithmetical errors or incorrect claims that are obvious from the information in the return.
- Debatable Issues: At the time the returns were processed, there were conflicting judgments from various High Courts regarding whether Section 43B (which allows payment up to the return filing date) applied to employees’ contributions.
- Invalid Adjustment: Since the issue was legally “debatable” before the Checkmate decision, it could not be termed a “prima facie” or “patent” error. Therefore, the AO exceeded their jurisdiction by using the summary processing route to make a substantive legal disallowance. The addition was directed to be deleted regardless of the eventual merit of the PF/ESI payment.

Key Takeaways

Jurisdictional Shield: This ruling is a vital defense for cases where the CPC (Centralized Processing Centre) has issued intimations disallowing PF/ESI contributions for older years. It affirms that the Department cannot use automated processing to settle complex legal disputes that require a scrutiny assessment.
Checkmate vs. 143(1): While the Supreme Court’s Checkmate decision now makes late PF/ESI deposits taxable in scrutiny, it does not retrospectively validate a procedurally flawed adjustment made under Section 143(1) for past years.
Audit Report Reliance: Tax professionals should ensure that even if the Tax Audit Report (Form 3CD) mentions dates of deposit, the CPC cannot automatically convert those dates into a disallowance unless the law on the matter is unambiguous and non-debatable at the time of processing.
Appeal Strategy: For pending intimations under Section 143(1) involving this issue, practitioners should raise the jurisdictional objection that “summary adjustments cannot substitute scrutiny proceedings” for matters of legal interpretation.

IN THE ITAT DELHI BENCH ‘B’

R. K. & Company Manpower (P.) Ltd.

DCIT^*

Challa Nagendra Prasad, Judicial Member
and Renu Jauhri, Accountant Member

IT Appeal Nos. 6600, 6601 & 6602 (Delhi) of 2025
[Assessment years 2018-19, 2019-20 and 2020-21]

APRIL 29, 2026

Ms. Swati Talwar, Adv. for the Appellant. Rajesh Kumar Dhanesta, Sr. DR for the Respondent.

ORDER

Renu Jauhri, Accountant Member.- The above captioned appeals in ITA Nos. 6600, 6601 & 6602/Del/2025 are preferred by the assessees against the order dated 20.08.2025, passed by Ld. CIT(A)/Addl./JCIT(A)-1, Surat u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for A.Ys. 2018-19, 2019-20 & 202021, respectively.

2. The assessees has raised following grounds of appeal:

ITA No. 6600/Del/2025

“1. That on the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre – CIT (A), NFAC, (“Ld. CIT(A)”) dated 20.08.2025 (hereinafter referred to as ‘impugned appellate order’) is erroneous, arbitrary, without jurisdiction, illegal and bad in law.

2. That the Ld. CIT(A) has grossly erred in law and on facts of the case in confirming the order passed by Deputy Commissioner of Income Tax, Circle 19(1), Delhi (hereinafter referred to as “Ld. AO”) u/s 254 r.w.s. 143(1) of the Income Tax Act in case of the Appellant and making addition amounting to Rs.2,38,15,146/- on account of late deposit of on account of late deposit of Bonus and employees contribution towards PF/ESI.

3. That on the facts and circumstances of the case and in law, original intimation order passed by Ld. AO u/s 143(1) of the Income Tax Act making an adjustment of Rs.2,38,15,146/- dated 23.10.2019 in this case is bad in law, without jurisdiction, illegal and therefore the said intimation order is liable to be quashed.

4. That the Ld. AO and Ld. CIT(A) erred both in law and on facts in making disallowance on account of late deposit of Bonus and PF and ESI u/s 36(1)(va) to the tune of Rs.2,38,15,146/- at the time of processing of return u/s 143(1) even though this does not fall within the ambit of prima facie adjustment as per provisions of Section 143(1)(a) of the Income Tax Act. Therefore, such disallowance is beyond the scope of Section 143(1) and the Ld. AO should not have resorted to provisions of section 143(1).

5. The Ld. AO and CIT(A) erred both in law and on facts by not appreciating the fact that disallowance pertaining to late deposit Of employee’s contribution towards PF/ESI which is made before the due date of filing the ITR u/s 139(1) constituted a debatable issue at the time of processing of return and the adjustments u/s 143(1)(a) of Income Tax Act by way of intimation u/s 143(1) of Income Tax Act, on debatable and controversial issues, is beyond the scope of Section 143(1) of Income Tax Act.

6. That the Authorities below failed to consider/appreciate the submission of appellant made at various dates in response to their notice u/s. 250 of the Act and proceeded with confirming the impugned addition without considering the documentary evidence submitted and explanation given in support of assessee’s claim

7. That the Ld. C1T(A) grossly erred in placing reliance on amended provisions of Section 36(1)(va) and Section 43B as per Finance Act, 2021 by concluding that these amended provisions apply retrospectively for sustaining disallowance under section 36(1)(va) of Rs. Rs.2,38,15,146/- in the impugned AY.

8. The appellant is contractor and/or sub-contractor, providing Facility management & manpower services mainly to various entities which are principal Employers, thus Primary liability is of Principal Employer under the respective PF & ESI Act and not of Contractor/Sub-Contractor. Thus there should no applicability’ of Sec 36(1)(va) on Contractor/Sub- Contractor.

9. Without prejudice to above grounds, disallowance made by the Ld. AO u/s 36(1)(va) r.w.s 43B for late deposit of employees contribution to ESI/pF for Rs. 2,38,15,146/- that has been deposited by the appellant before the due date for filing of return of income u/s 139(1) is allowable as business expense u/s 37 of the Income Tax Act as laid down by Hon’ble Supreme court (SC) in the case of Travancore Titanaium product ltd. 1966 AIR 1250.

10. That the Appellant denies liability towards interest charged u/s 234A, u/s 234B and u/s 234C and prays for appropriate relief. “

ITA No. 6601/Del/2025

2. That the Ld. CIT(A) has grossly erred in law and on facts of the case in confirming the order passed by Deputy Commissioner of Income Tax, Circle 19(1), Delhi (hereinafter referred to as “Ld. AO”) u/s 254 r.w.s. 143(1) of the Income Tax Act in case of the Appellant and making addition amounting to Rs.1,73,88,975/- on account of late deposit of on account of late deposit of Bonus and employees contribution towards PF/ESI.

3. That on the facts and circumstances of the case and in law, original intimation order passed by Ld. AO u/s 143(1) of the Income Tax Act making an adjustment of Rs. 1,73,88,975/- dated 27.12.2020 in this case is bad in law, without jurisdiction, illegal and therefore the said intimation order is liable to be quashed.

4. That the Ld. AO and Ld. CIT(A) erred both in law and on facts in making disallowance on account of late deposit of Bonus and PF and ESI u/s 36(1)(va) to the tune of Rs. 1,73,88,975/- at the time of processing of return u/s 143(1) even though this does not fall within the ambit of prima facie adjustment as per provisions of Section 143(1)(a) of the Income Tax Act. Therefore, such disallowance is beyond the scope of Section 143(1) and the Ld. AO should not have resorted to provisions of section 143(1).

9. Without prejudice to above grounds, disallowance made by the Ld. AO u/s 36(1)(va) r.w.s 43B for late deposit of employees contribution to ESI/pF for Rs. 1,73,88,975/- that has been deposited by the appellant before the due date for filing of return of income u/s 139(1) is allowable as business expense u/s 37 of the Income Tax Act as laid down by Hon’ble Supreme court (SC) in the case of Travancore Titanaium product ltd. 1966 AIR 1250.

10. That the Appellant denies liability towards interest charged u/s 234A, u/s 234B and u/s 234C and prays for appropriate relief. “

ITA No. 6602/Del/2025

2. That the Ld. CIT(A) has grossly erred in law and on facts of the case in confirming the order passed by Deputy Commissioner of Income Tax, Circle 19(1), Delhi (hereinafter referred to as “Ld. AO”) u/s 254 r.w.s. 143(1) of the Income Tax Act in case of the Appellant and making addition amounting to Rs.1,33,47,818/- on account of late deposit of on account of late deposit of Bonus and employees contribution towards PF/ESI.

3. That on the facts and circumstances of the case and in law, original intimation order passed by Ld. AO u/s 143(1) of the Income Tax Act making an adjustment of Rs. 1,33,47,818/- dated 18.12.2021 in this case is bad in law, without jurisdiction, illegal and therefore the said intimation order is liable to be quashed.

4. That the Ld. AO and Ld. CIT(A) erred both in law and on facts in making disallowance on account of late deposit of Bonus and PF and ESI u/s 36(1)(va) to the tune of Rs.1,33,47,818/- at the time of processing of return u/s 143(1) even though this does not fall within the ambit of prima facie adjustment as per provisions of Section 143(1)(a) of the Income Tax Act. Therefore, such disallowance is beyond the scope of Section 143(1) and the Ld. AO should not have resorted to provisions of section 143(1).

9. Without prejudice to above grounds, disallowance made by the Ld. AO u/s 36(1)(va) r.w.s 43B for late deposit of employees contribution to ESI/pF for Rs. 1,33,47,818/- that has been deposited by the appellant before the due date for filing of return of income u/s 139(1) is allowable as business expense u/s 37 of the Income Tax Act as laid down by Hon’ble Supreme court (SC) in the case of Travancore Titanaium product ltd. 1966 AIR 1250.

10. That the Appellant denies liability towards interest charged u/s 234A, u/s 234B and u/s 234C and prays for appropriate relief. “

3. As common issues are involved in all the three appeals. ITA No. 6600/Del/2025 for A.Y. 2018-19 is taken up as the lead case.

3.1 Brief facts are that the assessee company filed its return for A.Y. 2018-19 on 31.10.2018 declaring income of Rs.1,35,79,360/-. The case was processed u/s 143(1) vide intimation order dated 23.10.2019 wherein addition of Rs.2,55,73,010/- was made in respect of late deposit of employees contribution to PF/ESIC. Aggrieved the assessee filed an appeal before ld. CIT(A) which was party allowed vide order dated 31.10.2022 as under:

S.No.	Amount in Dispute before CIT (Appeals)	Allowed by CIT(Appeals)	Disallowed	Reason
1	23815146	0	23815146	Late Deposit of PF ESIC
2	1743407	1255524	487883	Payment of Bonus

Further aggrieved, the assessee preferred an appeal before the ITAT only in respect of the issue relating to late deposit of PF/ESIC amounting to Rs.2,388,15,146/- vide order dated 29.11.2023, the co-ordinate bench allowed the assessee’s appeal for statistical purposes and issued direction to the ld. AO as under:

“Before us, it is the specific contention of the assessee that due date, as per section 36(1)(va) of the Act, should be the date on which salary was actually disbursed to the employees and not the date on which salary was due. In this context, learned counsel has relied upon following judicial precedents:

Rakesh Janghu, ITA No. 2675/Del/2022, dated 09.10.2023

ii.

Prime Comfort Products Pvt. Ltd. v. ACIT, ITA No. 530/Dei/2023, dated 26.04.2023.

No doubt, the issue whether the delayed payment of employees’ contribution to PF and ESI is allowable as deduction is no more res Integra in view of the ratio laid down by the Hon’ble Supreme Court in case of Checkmate Services P. Ltd. (supra). However, it is the specific plea of the assessee before us that the due date as provided under section 36(1)(va) of the Act should be construed from the date on which salary was actually disbursed to the employees and not the date on which salary was due. In our view, the aforesaid contention of the assessee merits consideration.

We have further observed, while considering similar pleadings made by the assessee, the Coordinate Benches have restored the issue to the Assessing Officer for consideration in the light of judicial precedents. Following the judicial precedents cited before us, we restore this issue to the file of the Assessing Officer for de novo adjudication after providing due and reasonable opportunity of being heard to the assessee and further, the Assessing Officer must pass a well-reasoned order after considering the submissions of the assessee and the ratio laid down in the decisions to be cited before him. Grounds are allowed for statistical purposes.

In the result, appeals are allowed for statistical purposes.

3.2 In pursuance of decision of the co-ordinate bench, the AO issued a notice to the assessee and passed the order on 21.03.2025 holding as under:

“5.1 The assessee has not filed any explanation and documentary evidence in response to the show cause notice. In view of non-responsiveness of the assessee and in view of the detailed discussion made in the show cause notice, it is held that as per provisions of section 36(1)(va) of the Income Tax Act read with the provisions of the ESI ct, it is clear that the due date for deposit of the employee’s contribution is to be calculated from the date on which salary was due to the employee not the date on which the salary was actually disbursed. Accordingly, addition of Rs.2,38,15,146/- as made in the order u/s 143(1) is found to be correct and the same is added back to the total income of the assessee.”

[Addition of Rs.2,38,15,146/-]

3.3 Aggrieved the assessee filed appeal before ld. CIT(A). Vide order dated 20.08.2025, ld. CIT(A) dismissed the assessee appeal. Further aggrieved, the assessee is in appeal before the Tribunal.

4. Before us, ld. AR has submitted that the lower authorities have mainly relied on the decision of the Hon’ble Apex Court in the case of Checkmate Services (P.) Ltd. v. CIT (SC) which is misplaced considering the facts of the case. He has argued that the impugned addition has been made u/s 143(1) when such an adjustment is clearly outside the scope of adjustments envisaged under the section. Further ld. AR has placed reliance on multiple decisions of the co-ordinate benches wherein on similar facts and circumstances disallowance made u/s 143(1) in respect of late deposit of employees’ contribution to PF/ESI has been deleted especially in cases pertaining to the assessment years prior to the decision of the Hon’ble Supreme Court in the case of Checkmate Services (supra). Some of the decisions relied upon by the ld. DR are as under:

1)Rajesh

Kumar Garg v. ACIT [IT Appeal No. 970 (Del) of 2025, dated 22-8-2025]

Dondapati Sudhakara Rao v. DCIT [IT Appeal No. 701 (Hyd) of 2025, dated 20-8-2025]

Tinna Rubber and Infrastructure Ltd. v. DCIT [IT Appeal Nos. 816 & 817 (Del) of 2025, dated 31-7-2025]

4)Ranbir

Singh Sorout v. ITO [IT Appeal Nos. 52 to 54 (Del) of 2023, dated 20-8-2025]

5)A2Z

Infra Services Ltd. v. Dy. CIT (Delhi – Trib.)/ITA No. 970/Del/2023 order dated 16.06.2025

5. On the other hand, ld. DR has also filed his written submissions wherein reliance has been placed on the decisions of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd. (supra).

6. We have heard the rival submissions and perused the material on record as well as the relevant judicial pronouncements. Admittedly, the additions u/s 143(1) have been made in the Assessment Year prior to the decision of the Hon’ble Apex Court. We are, therefore, of the considered view that the impugned addition was outside the scope of adjustments permissible u/s 143(1) of the Act. Accordingly, respectfully following the decisions of the co-ordinate benches cited hereinbefore, we delete the addition of Rs.2,38,15,146/-u/s 36(1)(va) of the Act. The appeal of the assessee is hereby allowed.

7. As identical issues are involved in ITA Nos. 6601/Del/2025 (for A.Y. 2019-20) and ITA No. 6602/Del/2025 (for A.Y. 202021), the above decision shall apply mutatis mutandis in these appeals also.

8. In the result, all the three appeals are hereby allowed.