Checkmate Services Cannot Retroactively Convert a Contested PF/ESI Question Into a "Mistake Apparent from Record" Under Section 154
Background: The Assessment History of Dell International Services India Private Limited
Dell International Services India Private Limited, engaged in the business of providing IT-enabled services and related operations, filed its return of income for Assessment Year 2011-12 on 30.11.2011, declaring total income of ₹35.55 crore. The case was taken up for scrutiny assessment, which was concluded vide order dated 27.01.2016 under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961, determining the total income at ₹29.94 crore.
Subsequently, revision proceedings were initiated under Section 263, which resulted in a modified assessment order that recomputed the assessee's total income at ₹150.45 crore — primarily on account of the disallowance of deduction claimed under Section 10AA of the Income Tax Act, 1961.
The Rectification Application and the AO's Suo Motu Action
Upon noticing certain errors in the order passed under Section 143(3) read with Section 263, the assessee filed a rectification application under Section 154 on 12.02.2018, seeking correction of those specific mistakes.
During the course of examining the assessee's application, the Assessing Officer, on his own initiative, identified a separate issue altogether — that employees' contributions towards Provident Fund (PF) and Employees' State Insurance Corporation Scheme (ESIC), aggregating to ₹87,67,420, had been remitted to the Government's account after the due dates prescribed under the respective welfare statutes.
After affording the assessee an opportunity to respond, the AO passed a rectification order dated 10.06.2019 under Section 154, disallowing the sum of ₹87,67,420 under Section 36(1)(va) read with Section 2(24) of the Income Tax Act, 1961, and adding the same to the assessee's total income.
Key Observation: The PF/ESI disallowance was never part of either the original scrutiny assessment order or the modified order under
Section 263. It was introduced for the first time, suo motu, by the AO within the rectification proceedings underSection 154— proceedings that the assessee had itself initiated to address entirely different mistakes.
CIT(A)/NFAC Upholds Disallowance Relying on Checkmate Services
The assessee challenged the rectification order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. By the time the matter was heard, the Supreme Court had already delivered its landmark ruling in Checkmate Services (P.) Ltd. v. CIT, [2022] 448 ITR 518 (SC).
In that judgment, the Supreme Court conclusively held that employees' contributions to PF and ESI deposited beyond the due dates prescribed under the respective welfare statutes are not eligible for deduction — even if deposited before the due date for filing the return of income under Section 139(1).
Relying on this ruling, the CIT(A) reasoned that the controversy surrounding employees' delayed PF/ESI contributions, which had earlier divided various High Courts, had now been definitively resolved in favour of the Revenue. The CIT(A) concluded that since the issue was no longer debatable after Checkmate Services (P.) Ltd. v. CIT, [2022] 448 ITR 518 (SC), the AO's rectification action was valid and consistent with settled law. The disallowance of ₹87,67,420 was accordingly upheld.