Introduction
The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in the case of Trimbak Konher Patil v. ITO (ITA Nos. 2536 & 2537/Bang/2025), delivered a significant ruling on the vexed issue of disallowance of delayed employee contributions to Provident Fund (PF) and Employees’ State Insurance (ESI) under Section 36(1)(va) read with Section 43B of the Income Tax Act, 1961. For the Assessment Years (AY) 2019-20 and 2020-21, the Tribunal held that adjustments made by the Central Processing Centre (CPC) under Section 143(1) for such delayed payments were not valid, particularly when the intimation was passed before the Supreme Court’s landmark judgment in Checkmate Services Pvt. Ltd. v. CIT (2022) 448 ITR 518 (SC). This commentary provides a deep legal analysis of the Tribunal’s reasoning, its reliance on the coordinate bench decision in Chandrakant Shamppa Kontha, and the prospective nature of the Finance Act, 2021 amendments. The ruling underscores that primacy must be given to the position of law prevailing at the time of assessment processing, especially when the issue was debatable.
Facts of the Case
The assessee, Trimbak Konher Patil, is a proprietor of “Trinetra Essential Services,” engaged in manpower supply and labour contracts. For AY 2019-20, he filed his return of income under Section 139(1) on 31.10.2019, declaring total income of ₹13,78,530. The CPC processed the return under Section 143(1) and passed an intimation on 14.07.2020 (as per the coordinate bench case referenced), disallowing ₹55,32,993 being employees’ contribution to PF (₹47,68,666) and ESI (₹7,64,327) on the ground of delayed payment under the respective Acts. The auditor had reported the delay in Form 3CD. The assessee filed a rectification application under Section 154, which the CPC rejected on 29.04.2021, retaining the addition.
Aggrieved, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], Udaipur, who dismissed the appeal by following the Supreme Court’s decision in Checkmate Services (dated 12.10.2022). The CIT(A) held that employee contributions not deposited within the due dates under the EPF/ESI Acts are not allowable as a deduction, even if paid before the due date of filing the return. The assessee then approached the ITAT.
Reasoning of the Tribunal
The ITAT allowed the appeals, delivering the longest and most detailed reasoning on three key legal pillars:
1. Temporal Application of Judicial Precedent:
The Tribunal noted that the Supreme Court’s Checkmate Services judgment was delivered on 12 October 2022, which was after the CPC had passed the intimation under Section 143(1) (14.07.2020 for AY 2019-20) and the rectification order under Section 154 (29.04.2021). Prior to that date, there were divergent High Court opinions on this issue. Critically, the Karnataka High Court in Essae Teraoka (P.) Ltd. v. DCIT (2014) 366 ITR 408 had held that deduction for employee contributions paid before the due date of filing the return under Section 139(1) is allowable, even if paid beyond the due dates under the respective Acts. Since the assessee’s case was within the jurisdiction of the Karnataka High Court, the law favourable to the assessee was operative at the time the CPC acted. The Tribunal emphasised that a subsequent Supreme Court decision does not retroactively validate an adjustment made on a debatable issue when the earlier High Court view supported the assessee.
2. Scope of Prima Facie Adjustment under Section 143(1):
The Tribunal reiterated that the power of the CPC under Section 143(1) is limited to making prima facie adjustments and arithmetical corrections. The issue of allowability of delayed employee contributions was a debatable question of law before the Supreme Court’s clarification. The CPC could not have made an adjustment that required interpretation of conflicting judicial pronouncements. The Tribunal cited the coordinate bench in Chandrakant Shamppa Kontha (ITA Nos. 2396 & 2397/Bang/2024, order dated 09.12.2025) to hold that such an adjustment on a debatable issue is illegal and bad in law. The Rectification under Section 154 could not cure this fundamental defect, as it cannot be used to introduce a new controversial interpretation.
3. Prospective Application of Finance Act, 2021 Amendments:
The Finance Act, 2021 inserted Explanation (2) to Section 36(1)(va) and amended Section 43B to explicitly provide that employee contributions not paid within the due date under the respective Acts are not allowable, even if paid before the return filing date. The Tribunal held that this amendment is prospective and applies from 1 April 2021 (AY 2021-22 onwards). For AY 2019-20 and 2020-21, the pre-amendment legal position, as interpreted by the Karnataka High Court in Essae Teraoka, applied. The Tribunal rejected the Revenue’s argument that the Supreme Court’s Checkmate Services judgment declared the law as it always was, noting that earlier divergent views existed and the amendment itself indicates legislative intent to clarify the law prospectively.
The ITAT further clarified that while Section 2(24)(x) includes employees’ contributions as income, the deduction under Section 36(1)(va) is separate from the timing provision under Section 43B. The coordinate bench had similarly distinguished Checkmate Services for assessment years prior to the amendment. Applying mutatis mutandis, the Tribunal directed the deletion of the addition of ₹55,32,993 for AY 2019-20 and followed the same reasoning for AY 2020-21.
Conclusion
The ITAT Bangalore’s order in Trimbak Konher Patil is a landmark reaffirmation that adjustments under Section 143(1) cannot be mechanically made on debatable legal issues. The Tribunal correctly applied the principle of judicial precedence temporally, giving effect to the law as it stood at the time of the assessment order. By following the Karnataka High Court’s Essae Teraoka decision and the coordinate bench’s order in Chandrakant Shamppa Kontha, the Tribunal protected the assessee from retroactive application of the Checkmate Services judgment. The decision underscores that the Finance Act, 2021 amendments are prospective, and for earlier years, the pre-amendment favourable view for assesses must be respected. This ruling provides much-needed clarity for similar pending cases and reinforces the limited scope of CPC adjustments.
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