ITAT Delhi Allows PF & ESI Deduction Where Delay Was Due to Weekend Bank Closure

1. Background of the Dispute

The Delhi Bench of the Income Tax Appellate Tribunal dealt with an appeal in the case of Metso Outotec India Pvt. Ltd. Vs DCIT (ITAT Delhi) arising from an assessment completed under Section 143(3) read with Section 144C(13) and Section 144B of the Income Tax Act 1961 for Assessment Year 2020-21.

  • The assessee filed its original return of income on 05.01.2021 declaring total income of Rs. 1,83,01,36,530/-.
  • A revised return was filed on 09.03.2021 declaring the same income of Rs. 1,83,01,36,530/-.
  • The revised return was selected for scrutiny under CASS on multiple risk parameters, including:
    • Increase in TDS/TCS claim in the revised return
    • International transactions in relation to intangible property (TP risk)
    • Mismatch between opening and closing stock in trading and manufacturing accounts
    • High-risk international transactions as per CbCR data (TP risk)
    • Higher taxable receipts reported in Schedule TDS2 compared to ITR
    • Reduction in profit owing to application of Income Computation & Disclosure Standards

Notice under Section 143(2) was issued on 29.06.2021, followed by several notices under Section 142(1) dated 31.01.2022, 21.07.2023, 17.08.2023 and 29.08.2023. The assessee responded electronically and filed all required documents.

2. Transfer Pricing Proceedings and Draft Assessment

2.1 Reference to TPO and TP Adjustment

The Assessing Officer made a reference to the Transfer Pricing Officer under Section 92CA(1) for determination of arm’s length price in respect of international transactions reported in Form 3CEB.

  • The TPO passed an order dated 30.07.2023 under Section 92CA(3).
  • A total transfer pricing adjustment of Rs. 81,28,35,399/- was proposed with respect to international transactions and specified domestic transactions.

2.2 Draft Assessment and DRP Proceedings

  • The Assessing Officer issued a draft assessment order dated 25.09.2023 under Section 144C(1).
  • The assessee filed objections before the Dispute Resolution Panel (DRP) on 23.10.2023.
  • The DRP issued its directions on 30.06.2024.
  • In conformity with the DRP’s directions, the final assessment order was passed on 26.07.2024.

The assessed income was computed at INR 2,64,74,62,789 as against the returned income of INR 1,83,01,36,530.

3. Grounds of Appeal Before ITAT

The assessee initially raised 15 grounds of appeal, challenging various aspects such as:

  • Validity of the assessment order and limitation under Section 153
  • Jurisdiction of the Assessing Officer and legality of the order under Section 143(3) read with Section 144C(13) and Section 144B
  • Legality and correctness of reference to the TPO under Section 92CA
  • Multiple transfer pricing adjustments relating to:
    • Business support services
    • Contract research & development services
    • Royalty payments
    • Management services and technical support services
  • Disallowance of employees’ contribution to Provident Fund (PF) and Employee State Insurance (ESI) under Section 36
  • Computation of tax demand and initiation of penalty under Section 270A

3.1 Withdrawal of Transfer Pricing Grounds

During the hearing, the Authorized Representative for the assessee submitted an application dated 11.05.2026 stating that:

  • Ground No. 1 was general in nature.
  • Grounds Nos. 2 and 6 to 12 (all transfer pricing-related issues) were withdrawn.
  • The withdrawal was on the basis that these transfer pricing issues stood covered under an Advanced Pricing Agreement with the Central Board of Direct Taxes dated 31st March, 2026.

As a result, the Tribunal proceeded only with the surviving grounds, of which Ground No.