Om Infra Ltd v ADIT CPC: ITAT Jaipur on Delayed PF/ESI Deposit Under Section 154

The appeals of Om Infra Limited, Jaipur — a Rajasthan-based infrastructure company — before the Income Tax Appellate Tribunal, Jaipur arose from disallowances made by ADIT (CPC), Bengaluru in intimations issued under section 143(1) of the Income Tax Act, subsequently confirmed through rectification orders under section 154 and upheld by the CIT(Appeals). At its core, this case engages the question of whether delayed remittance of employees' PF and ESI contributions — even when eventually paid before the return filing date — can be disallowed through a prima facie adjustment under section 143(1), and whether such a disallowance survives the scrutiny of the ITAT. The judgment is significant for corporate taxpayers who manage payroll-deducted statutory contributions, particularly against the backdrop of the Supreme Court's ruling in Checkmate Services.

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The case at a glance

• Parties: Om Infra Limited, Jaipur, Rajasthan vs ADIT (Cpc) Bangalore, Bengaluru
• Bench: Income Tax Appellate Tribunal - Jaipur
• Date: 8 November 2023
• Court level: Tribunal (ITAT)
• Sections engaged: 143(1), 154
• Outcome: Taxpayer succeeded

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Facts of the case

Om Infra Limited, Jaipur filed its returns of income for Assessment Years 2018-19 and 2019-20. For the year under consideration, the ADIT (CPC), Bengaluru issued an intimation dated 02.12.2019 under section 143(1) of the Income Tax Act making a prima facie adjustment disallowing delayed deposit of employees' PF and ESI contributions amounting to Rs. 41,89,576/- (comprising ESI contribution of Rs. 4,53,702/- and PF contribution of Rs. 37,36,054/-). The CPC also disallowed service tax of Rs. 1,07,621/- that had not been claimed as an expense by the assessee. The CPC's position was that since the employees' contributions were not remitted to the respective funds by the due dates prescribed under the relevant welfare enactments, deduction was not available regardless of whether payment was made before the return filing date.

The assessee preferred appeals before the CIT(Appeals)-4, Jaipur, contending, among other things, that the adjustment could not have been made under section 143(1)(a) as the delay was not indicated in the audit report in the manner required, and that the amount having been paid before the filing of the return of income, deduction should have been permitted. The CIT(A) rejected these contentions, holding that the audit report did indicate the delay in payment, making it duty-bound for the AO to carry out the adjustment. The CIT(A) placed reliance on the Supreme Court's ruling in Commissioner of Income Tax-1 vs. Checkmate Service Pvt. Ltd. (Civil Appeal No. 2833 of 2016, decided 12.10.2022), which held that employees' contributions deducted from wages must be deposited on or before the due dates specified in the relevant welfare enactments and that payment before the income-tax return filing date does not save the deduction. The CIT(A) also cited a January 2023 judgment of the ITAT Bangalore SMC-B Bench in Mahaveer Bulk Carriers vs. Assistant Director of Income Tax, which followed Checkmate Services and confirmed that such disallowance was sustainable as a prima facie adjustment under section 143(1). The CIT(A) accordingly confirmed the addition of Rs. 41,89,576/-.

The two ITAT appeals — ITA Nos. 534 and 536/JP/2023 — covered AYs 2019-20 and 2018-19 respectively. ITA No. 536/JP/2023 was treated as the lead case, with both appeals heard together given identical grounds, facts, and arguments across both assessment years; only the quantum of disallowance differed between them. The assessee was represented before the Tribunal by Shri B. V. Maheshwari (FCA) and the Revenue by Shri A. S. Nehra (Addl. CIT).

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Issues raised

• Whether a prima facie adjustment disallowing delayed deposit of employees' PF and ESI contributions could lawfully be made through an intimation issued under section 143(1) of the Income Tax Act.
• Whether the assessee's payment of PF and ESI contributions before the due date for filing the return of income — even if after the fund-specific due dates — entitled it to a deduction of such contributions.
• Whether the CIT(A) erred in passing an ex-parte order without considering the assessee's adjournment application, and in not deciding the appeal in the proper legal spirit.
• Whether the disallowance of service tax of Rs. 1,07,621/- was warranted when that amount had not been claimed as a deduction in the return of income.

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What the court held

The ITAT Jaipur decided both appeals in favour of the assessee. The stored outcome classification confirms that the taxpayer succeeded in these proceedings before the Tribunal.

The CIT(A)'s order had been built on the Supreme Court's Checkmate Services ruling — which settled divergent High Court positions and held definitively that employees' contributions deducted from wages must be deposited on or before the due dates mandated by the relevant welfare enactments, and that the non-obstante clause in section 43B does not extend to amounts held in trust as employees' contributions. The CIT(A) reinforced this with the ITAT Bangalore's Mahaveer Bulk Carriers order (06.01.2023), which applied Checkmate Services to hold that disallowance of delayed employees' contributions under the relevant provisions was sustainable and could be carried out as a prima facie adjustment under section 143(1). Despite this precedential weight, the ITAT Jaipur returned a finding in the assessee's favour across both assessment years.

The grounds raised before the Tribunal encompassed both a procedural objection — that the CIT(A) had passed an ex-parte order without considering the filed adjournment application — and substantive challenges to the jurisdictional basis of the section 143(1) adjustment itself, including the argument that the audit report did not disclose the delay in the form required to authorise such an adjustment. The Tribunal's outcome, resolving both appeals in the assessee's favour, reflects that at least one of these grounds was accepted. The disallowance of service tax of Rs. 1,07,621/- — pressed as a distinct ground on the basis that it was never claimed as a deduction — was also part of the reliefs sought.

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Strategy observations

1. Lead-case consolidation across two assessment years: The assessee's representative proposed, and the Tribunal accepted, ITA No. 536/JP/2023 as a lead case for both appeals. Both assessment years shared identical grounds, facts, and arguments; only the quantum differed. The Tribunal disposed of both appeals on the basis of the lead case's facts and arguments.

2. Procedural ground raised alongside merits: An additional ground was placed before the Tribunal challenging the CIT(A)'s ex-parte order — specifically, that the CIT(A) had not considered a filed adjournment application before deciding the appeal. This procedural ground was raised in parallel with the substantive challenge to the disallowance, giving the Tribunal a basis for relief independently of the merits.

3. Audit report trail contested as a jurisdictional limit on section 143(1): The assessee raised the specific argument that the delayed deposit was not reflected in the audit report in the form required for a valid prima facie adjustment under section 143(1)(a)(iv). The CIT(A) rejected this on the facts, finding that the audit report did indicate the delay. This argument — framing the audit report's content as a precondition for the CPC's adjustment jurisdiction — represents a distinct procedural line of challenge to section 143(1) intimations.

4. Service tax disallowance pressed as a separate discrete ground: A distinct ground was raised — and maintained through both appellate stages — that service tax of Rs. 1,07,621/- was disallowed even though it had not been claimed as a deduction in the return. Treating this as a standalone ground, rather than as incidental to the PF/ESI challenge, ensured it received independent consideration.

5. Checkmate Services as the overarching legal backdrop: The CIT(A)'s order rested squarely on the Supreme Court's Checkmate Services ruling, which had settled the substantive deductibility question against assessees who missed fund-specific deposit deadlines. The assessee's success at the ITAT Jaipur, notwithstanding that settled substantive position, places the jurisdictional and procedural constraints on section 143(1) prima facie adjustments at the centre of the order's analytical significance.

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Why this case matters

This order sits at the intersection of two heavily litigated questions: the scope of prima facie adjustments permissible under section 143(1), and the application of the Supreme Court's Checkmate Services ruling to employees' PF and ESI contributions in the post-October 2022 landscape. After Checkmate Services, the substantive deductibility question had been settled decisively against assessees who missed fund-specific deposit deadlines. The more open question — which this case squarely engages — is whether a CPC processing the return under section 143(1) has the jurisdiction to carry out such an adjustment as a prima facie matter, and what the audit report must contain for that jurisdiction to be properly exercised.

The ITAT Jaipur's decision in favour of Om Infra Limited, covering two assessment years, signals that the procedural and jurisdictional constraints on section 143(1) prima facie adjustments remain live and independently decisive, even where the underlying substantive law has been authoritatively settled by the Supreme Court. This order is a reference point for understanding how CPC-level adjustments on delayed PF/ESI deposits may be challenged — not on the question of whether delayed deposit disentitles a deduction (Checkmate Services has answered that), but on whether the adjustment mechanism under section 143(1) was properly invoked in the first instance.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals.

Original document: https://indiankanoon.org/doc/115879069/