Facts of the Case

The appellant, Woodland (Aero Club) Private Limited, filed its return of income for Assessment Year 2019–20 declaring income of ₹15,78,68,550. The return was processed under Section 143(1) of the Income-tax Act, 1961, wherein an adjustment of ₹4,14,22,293 was made by disallowing employees’ contributions towards Provident Fund and Employees’ State Insurance that were deposited beyond the due dates prescribed under the respective welfare statutes, though before the due date of filing the return under Section 139(1). The Commissioner (Appeals) allowed the assessee’s claim; however, the Income Tax Appellate Tribunal allowed the Revenue’s appeal relying on the Supreme Court judgment in Checkmate Services (P) Ltd.

Issues Involved

Whether adjustment disallowing delayed employees’ PF and ESI contributions could be made under Section 143(1), whether the Supreme Court judgment in Checkmate Services applies to intimation proceedings under Section 143(1), whether Section 43B overrides Section 36(1)(va) for Assessment Year 2019–20, and whether deposits made on the next working day due to a national holiday were allowable.

Petitioner’s Arguments

The assessee contended that Section 143(1) permits only arithmetical or apparent adjustments and cannot be invoked for debatable issues, especially where binding precedents existing at the time of processing allowed deduction if payment was made before the return filing due date. It was argued that the Finance Act, 2021 amendment and Explanation 5 to Section 43B were prospective and could not apply to AY 2019–20. The assessee further argued that the Supreme Court decision in Checkmate Services was rendered later and could not justify adjustments made earlier. With respect to certain payments deposited on 16.08.2018 due to the due date falling on a national holiday, reliance was placed on Section 10 of the General Clauses Act and the Delhi High Court decision in Pepsico India Holding Pvt. Ltd.

Respondent’s Arguments

The Revenue argued that the issue stood conclusively settled by the Supreme Court in Checkmate Services, which clarified that employees’ contributions are distinct from employer’s contributions and must be deposited within the statutory due dates under the relevant Acts. It was submitted that such disallowance constitutes an “incorrect claim apparent from the return” and is permissible under Section 143(1)(a). The Revenue contended that Checkmate Services applies irrespective of whether the assessment is under Section 143(1) or Section 143(3), and that Explanation 5 to Section 43B is clarificatory in nature.

Court Order / Findings

The Delhi High Court held that the Supreme Court in Checkmate Services had conclusively interpreted Sections 2(24)(x), 36(1)(va), and 43B, holding that employees’ contributions deducted from salaries are deemed income and can be allowed as deduction only if deposited within the due dates prescribed under the respective welfare statutes. The Court rejected the contention that Checkmate Services was dependent on the Finance Act, 2021 amendment, noting that the Supreme Court’s interpretation was based on the statutory scheme as it always existed. The Court further held that disallowance of delayed employees’ contributions is an incorrect claim apparent from the return and therefore permissible under Section 143(1)(a). With respect to payments deposited on the next working day due to a national holiday, the Court followed its earlier decision in Pepsico India Holding Pvt. Ltd. and allowed the deduction for those specific amounts.

Important Clarification

The Court clarified that employees’ contributions and employer’s contributions operate in distinct statutory fields, that Section 43B does not override Section 36(1)(va), and that Supreme Court judgments are declaratory and retrospective unless expressly stated otherwise. It was also clarified that where statutory due dates fall on a national holiday, Section 10 of the General Clauses Act would apply.

Final Outcome

The appeal was partly allowed. The substantial question of law regarding adjustment under Section 143(1) was decided against the assessee, upholding the disallowance of employees’ PF and ESI contributions deposited beyond statutory due dates. However, the assessee was granted relief for amounts deposited on the immediately succeeding working day where the due date fell on a national holiday. The decision was rendered partly in favour of the assessee and partly in favour of the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769680811_WOODLANDAEROCLUBPRIVATELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE491NEWDELHI.pdf

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