PF/ESI Disallowance through Section 143(1) Intimation Set Aside for Pre-Checkmate Years: ITAT Delhi in R. K. & Company Manpower Pvt. Ltd. Vs DCIT

Background and Context

The Delhi Bench of the ITAT in R. K. & Company Manpower Pvt. Ltd. Vs DCIT examined whether disallowance of employees’ contribution to PF/ESI under Section 36(1)(va) could validly be made as an adjustment while processing the return under Section 143(1) for assessment years preceding the Supreme Court ruling in Checkmate Services P. Ltd. Vs. Commissioner of Income Tax (2022) 448 ITR 518 (SC).

The matter covered three assessment years – 2018-19, 2019-20 and 2020-21 – and arose out of common orders passed by the appellate authority under Section 250 of the Income Tax Act 1961. Since the controversy was identical across years, the Tribunal treated ITA No. 6600/Del/2025 for A.Y. 2018-19 as the lead appeal and applied its conclusion equally to the other two years.

At the core of the dispute was whether:

an adjustment under Section 143(1)(a) could extend to disallowance of employees’ PF/ESI contribution under Section 36(1)(va); and
such an adjustment was sustainable when the assessment year in question was prior to the landmark decision in Checkmate Services P. Ltd. Vs. CIT.

Factual Matrix – A.Y. 2018-19 (Lead Year)

Return filing and 143(1) processing

For A.Y. 2018-19, the assessee-company filed its return of income on 31.10.2018 declaring income of Rs.1,35,79,360/-. The CPC processed the return under Section 143(1) and issued an intimation dated 23.10.2019. While doing so, the CPC made an adjustment and added Rs.2,55,73,010/- towards alleged delay in depositing employees’ contribution to PF/ESIC.

First appellate stage – partial relief

The assessee carried the matter in appeal before the CIT(A). By order dated 31.10.2022, the CIT(A) partly accepted the appeal. The impact of the order was as follows:

Disallowance relating to late deposit of PF/ESIC – Rs.2,38,15,146/-: sustained in full, and
Disallowance relating to bonus – Rs.17,43,407/-: Rs.12,55,524/- allowed and Rs.4,87,883/- disallowed.

The assessee then preferred a further appeal to the ITAT, limiting its challenge only to the disallowance of PF/ESIC of Rs.2,38,15,146/-.

Note: In one paragraph of the order, the figure is erroneously typed as “Rs.2,388,15,146/-”, but all operative parts consistently proceed on the amount of Rs.2,38,15,146/-.

Earlier ITAT remand on the “due date” issue

In its earlier round, vide order dated 29.11.2023, the co-ordinate Bench did not decide the allowability on merits but restored the issue to the file of the Assessing Officer for fresh examination. The reason was a specific contention raised by the assessee regarding the interpretation of “due date” under Section 36(1)(va).

The assessee had argued that:

the “due date” for deposit of employees’ contribution to PF/ESI should be reckoned from the date on which salary was actually paid,
not from the date on which salary became due under the employment arrangement.

To support this proposition, the assessee relied on, among others:

Rakesh Janghu, ITA No. 2675/Del/2022, dated 09.10.2023, and
Prime Comfort Products Pvt. Ltd. Vs. ACIT, ITA No.530/Del/2023, dated 26.04.2023.

Although the earlier Bench acknowledged that the generic issue of delayed payment of employees’ contribution to PF/ESI had been settled by the Supreme Court in Checkmate Services P. Ltd. Vs. CIT, it still considered the assessee’s plea about computation of “due date” from actual disbursement of salary as a contention that required factual and legal examination at the AO’s end. On that basis, it:

set aside the matter to the AO, and
directed de novo adjudication after due opportunity to the assessee, keeping in view the judicial precedents cited.

AO’s order after remand

Pursuant to the ITAT’s remand, the AO issued a show cause notice and subsequently passed an order dated 21.03.2025.

Intimation under Section 143(1) cannot include PF/ESI disallowance for pre-Checkmate years: ITAT Delhi