Disallowance for Delayed Employee Contribution Deposits Cannot Be Made Through Section 154 Rectification: ITAT [Read Order]
The assessee’s return was selected for scrutiny, and the AO had completed assessment under section 143(3) and subsequently invoked section 154 to make additions under section 43B for late deposits
Disallowance - Delayed Employee - Contribution Deposits - ITAT - taxscan
Disallowance - Delayed Employee - Contribution Deposits - ITAT - taxscan
The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) held that disallowance for delayed employee contribution deposits, including Employees’ State Insurance (ESI) and Provident Fund, could not be made through rectification under section 154 of the Income Tax Act,1961.
Climax Overseas Pvt. Ltd.,appellant-assessee, has appealed against the Commissioner of Income Tax (Appeals)[CIT(A)] order dated 29.03.2024. The assessee’s income tax return was selected for scrutiny, and the assessment was completed under section 143(3) on 29.12.2019.
Later, the Assessing Officer (AO) invoking section 154, made additions under section 43B, noting that certain liabilities, including ESI and Provident Fund contributions, were paid after the due date of filing the return under section 139, as highlighted in the audit report under section 144AB of the Act.
The report also indicated that interest and TDS payments were not accounted for in the total income. On appeal, the CIT(A) allowed part of the claim under section 37 but sustained the section 43B addition of Rs. 7,31,403 and upheld the disallowance for late employee contribution payments.
The departmental counsel had strongly defended the order of the lower authorities. However, the ground raised before us had already been decided in favour of the assessee. The coordinate Bench, , CPC vs. Shri Dinesh Kumar), in its order dated 31.03.2025, examined the applicability of the Supreme Court’s decision in Checkmate Services P. Ltd. vs. CIT and the Bombay High Court’s ruling in Writ Petition 17175 of 2024 (Infantry Security and Facilities vs. ITO).
The Bench held that the issue of PF and ESI deposits was highly debatable and that the assessee could not be penalized based on a later Supreme Court decision if it benefited the assessee.
The two member bench comprising Anubhav Sharma (Judicial Member) and S.Rifaur Rahman (Accountant Member) held that the disallowance for delayed employee contribution deposits could not be made through rectification under section 154 of the Act. The ground was upheld, and the appeal was allowed.
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