Post-Checkmate, CPC can disallow belated employees’ PF/ESI under Section 143(1)(a); Section 10 GCA saves deposits due on national holiday — Woodland (Aero Club) Pvt. Ltd. v. ACIT (Delhi High Court, 08.09.2025)

Post-Checkmate, CPC can disallow belated employees’ PF/ESI under Section 143(1)(a); Section 10 GCA saves deposits due on national holiday

Woodland (Aero Club) Private Limited v. Assistant Commissioner Of Income Tax, Circle 49(1), New Delhi — Delhi High Court — 08 September 2025

Introduction

This Delhi High Court decision addresses two recurring controversies in income-tax processing and compliance:

  • Whether the Centralized Processing Centre (CPC) can, at the processing stage under Section 143(1)(a) of the Income-tax Act, 1961, disallow employees’ contributions to PF/ESI deposited beyond the “due date” under the relevant welfare statutes, even if paid before the due date for filing the return under Section 139(1).
  • Whether, when such statutory “due date” falls on a National Holiday (here, 15 August), payment on the immediately succeeding working day (16 August) preserves deductibility by virtue of Section 10 of the General Clauses Act, 1897.

The appellant, Woodland (Aero Club) Private Limited, a manufacturer and exporter of leather products (Woodland brand), filed its return of income for AY 2019–20. CPC proposed adjustments under Section 143(1)(a), finally disallowing Rs. 4,14,22,293 as employees’ contributions to PF/ESI/LWF deposited beyond their statutory due dates. The Commissioner (Appeals), NFAC, allowed the appeal, but the Income Tax Appellate Tribunal (ITAT) reversed it, relying upon the Supreme Court’s decision in Checkmate Services (P) Ltd. v. CIT [(2023) 6 SCC 451]. The High Court initially disposed the appeal only on the “holiday” limb following Pepsico India Holdings, but the Supreme Court later remanded the matter to enable arguments on all issues. This final judgment affirms CPC’s power to make the disallowance under Section 143(1)(a), and simultaneously preserves deductibility where the due date fell on a National Holiday and payment was made on the next day.

Summary of the Judgment

  • The Court upheld ITAT’s order sustaining CPC’s/Assessing Officer’s disallowance of employees’ contributions under Section 36(1)(va), paid after the due dates under the EPF/ESI laws, even though they were paid before the Section 139(1) filing deadline. It held that Checkmate Services conclusively clarifies that Section 43B’s “before-return” relaxation does not apply to employees’ contributions, and that the distinction between employer’s and employees’ contributions is substantive.
  • On the scope of Section 143(1)(a), the Court held that the CPC could make such an adjustment because the incorrect claim was apparent from the return and the tax audit report (Form 3CD) which disclosed deposit dates; the adjustment fits within Section 143(1)(a)(ii)/(iv).
  • The Court rejected the assessee’s plea that the 2021 insertion of Explanation 5 to Section 43B (stating Section 43B never applied to employee contributions) is prospective-only, holding that Checkmate Services resolved the point by interpreting the pre-existing statutory scheme; Explanation 5 is clarificatory.
  • On the second question, following Pr. CIT v. Pepsico India Holdings Pvt. Ltd. (Delhi HC, 12.01.2023), the Court held that where the statutory due date fell on a National Holiday (15 August 2018), a deposit made on the next day (16 August 2018) is allowable by virtue of Section 10 of the General Clauses Act. This limb was decided in favour of the assessee.

Detailed Analysis

Statutory Framework and the Contested Interplay

  • Section 2(24)(x): Deems as “income” any sum received by an employer from employees as their contribution to PF/ESI/other welfare funds.
  • Section 36(1)(va): Allows deduction of such employees’ contributions only if credited to the employees’ fund account “on or before the due date,” as defined in the Explanation (i.e., due date under the relevant labour enactments/rules).
  • Section 43B: With a non obstante clause, allows certain deductions on actual payment basis and, by proviso, permits payments up to the Section 139(1) due date for claiming deduction—this benefits “sums payable by the assessee as an employer by way of contribution” (employer’s contribution), not the employees’ contribution received from employees.
  • Explanation 5 to Section 43B (Finance Act, 2021, effective 01.04.2021): “For removal of doubts,” clarifies that Section 43B never applied to employees’ contributions covered by Section 2(24)(x) and 36(1)(va).
  • Section 143(1)(a): Permits CPC adjustments for “arithmetical errors,” “incorrect claim apparent from any information in the return,” and “disallowance of expenditure indicated in the audit report but not taken into account,” amongst others.

Precedents Cited and How They Influenced the Decision

  • Checkmate Services (P) Ltd. v. CIT [(2023) 6 SCC 451]: The fulcrum. The Supreme Court drew a sharp line between employer’s contribution (Section 36(1)(iv)) and employees’ contribution (Section 36(1)(va) read with Section 2(24)(x)). It held that Section 43B’s payment-by-return-date relaxation does not apply to employees’ contributions. The deposit must occur “on or before the due date” under the welfare statute; else, the amount—deemed income—remains disallowable. The Delhi High Court treats Checkmate as interpretation of the existing scheme, not dependent on the 2021 amendment.
  • Gujarat State Road Transport Corporation (Gujarat HC, 2014): Long before the 2021 amendment, it held employees’ contributions deposited after the respective statutory due dates are not deductible, irrespective of payment before the Section 139(1) due date. Checkmate approved this approach and disapproved contrary High Court rulings.
  • CIT v. Alom Extrusions Ltd. [(2009) 319 ITR 306 (SC)]: Concerned employer’s contribution and the curative deletion of the second proviso to Section 43B; Checkmate distinguished Alom, noting that Alom neither considered Section 2(24)(x) nor Section 36(1)(va) and dealt with a different species of contribution (employer’s).
  • Ajmera Housing Corpn. v. CIT [(2010) 8 SCC 739], Commissioner of Customs v. Dilip Kumar & Co. [(2018) 9 SCC 1], State Of Jharkhand v. Ambay Cements [(2005) 1 SCC 368], CIT v. Ace Multi Axes Systems Ltd. [(2018) 2 SCC 158]: Cited to reinforce strict interpretation in tax; conditions for deductions/exemptions must be strictly complied with.
  • CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [(2008) 14 SCC 208] and CIT v. Amitabh Bachchan Corporation Ltd. (Bombay HC): Assessee invoked these to limit 143(1)(a) adjustments to non-debatable issues. The Court explained that the present adjustment falls within the expanded statutory text of 143(1)(a), given the facts are evident from the return/audit report and the law is settled by Checkmate.
  • CIT v. Vinay Cement Ltd. and other High Court rulings favoring “before-return” payments: The Court viewed these as overtaken by Checkmate’s authoritative interpretation.
  • CIT v. Vatika Township (P) Ltd. [(2014) 367 ITR 466 (SC)] and Sedco Forex International [(2017) 399 ITR 1 (SC)]: Cited by assessee to argue prospectivity of the 2021 Explanation; the High Court found them inapplicable because the ratio here springs from Checkmate’s interpretation of the pre-amendment scheme; Explanation 5 is viewed as clarificatory.
  • Pr. CIT v. Pepsico India Holdings Pvt. Ltd. (Delhi HC, 12.01.2023): Applied Section 10 of the General Clauses Act to allow deduction where the statutory due date fell on a National Holiday and deposit was made the next day. Followed here for the “holiday” limb.
  • PR Packaging Service v. CIT (ITAT Mumbai, 2022): Held Checkmate inapplicable at 143(1)(a) stage; the Delhi High Court expressly disagrees, emphasizing binding nature of Supreme Court precedent and the applicability of Section 143(1)(a)(ii)/(iv).
  • BPS Infrastructure v. ITO [(2025) 473 ITR 357 (Chhattisgarh HC)]: Cited by Revenue; supports the broad permit for CPC adjustments in the post-Checkmate landscape.
  • Manoj Parihar v. State of J&K [(2022) 14 SCC 72], Kanishk Sinha v. State of West Bengal [2025 SCC OnLine SC 443]: Reiterated by Revenue to underscore that Supreme Court decisions ordinarily have retrospective effect as declarations of what the law has always been.

The Court’s Legal Reasoning

  • Substantive distinction: The Court reiterates Checkmate’s central holding: employees’ contributions are employees’ monies, deemed as employer’s income under Section 2(24)(x) and held in trust until deposited, and are deductible only if deposited by the due date under the respective welfare statute. Employer’s contribution, by contrast, is the employer’s statutory liability and can benefit from Section 43B’s proviso (payment by the Section 139(1) due date).
  • Explanation 5 to Section 43B: The Court reasons that Explanation 5 (effective 01.04.2021) merely clarifies that Section 43B never applied to employees’ contributions. It notes that Gujarat SRTC (2014) predated the amendment but had already adopted the position later affirmed by Checkmate. Hence, the assessee’s plea for prospectivity fails.
  • Scope of Section 143(1)(a): The Court holds that once the law on deductibility of employees’ contributions is clarified by Checkmate, and the tax audit report discloses deposit dates, an “incorrect claim apparent from any information in the return” (Section 143(1)(a)(ii)), or a “disallowance of expenditure indicated in the audit report but not taken into account” (Section 143(1)(a)(iv)), is squarely attracted. The CPC is not adjudicating a debatable issue; it is giving effect to a legal position on the face of undisputed facts. The Court also rejects a narrow reading of 143(1)(a) that would create unjustified disparities between processed and scrutinized cases.
  • Temporal argument rejected: The assessee’s contention that, at the time of intimation (28.05.2020), Checkmate had not yet been delivered is rejected because the underlying legal view existed in binding fashion at least via Gujarat SRTC (2014), later conclusively affirmed in Checkmate. The AO’s action was therefore within jurisdiction.
  • “Sub silentio” argument: The plea that Checkmate is sub silentio about retrospectivity or the 2021 Explanation is found misplaced; Checkmate does not rest on Explanation 5. Its ratio is anchored in the text and structure of Sections 2(24)(x), 36(1)(va), and 43B.
  • National Holiday relief: On the second question, the Court applies its coordinate Bench’s view in Pepsico India Holdings—if the statutory due date falls on a National Holiday, Section 10 of the General Clauses Act permits the act to be done on the next working day. The deduction for the amounts deposited on 16.08.2018 (following 15.08.2018) is therefore allowed.

Impact and Implications

  • Processing-stage disallowance: Taxpayers can now expect CPC to routinely disallow, under Section 143(1)(a), employees’ contributions to PF/ESI deposited beyond the statutory due date, where the delay is apparent from Form 3CD/return data. The need to await scrutiny under Section 143(3) is foreclosed.
  • No “Section 139(1) cushion” for employee share: The employer cannot cure a delayed employee contribution by paying before the return filing due date. The disallowance is final (subject to statutory “holiday” relief or other legally cognizable impediments).
  • Compliance recalibration: Payroll and tax teams must design controls to ensure that employees’ contributions are deposited within the specific due dates under the EPF/ESI laws. Where a due date falls on a declared National Holiday or similar closure, prompt deposit on the immediately following day, with evidence of attempted payment and bank/portal closure, becomes critical.
  • Litigation pipeline: Pending appeals premised on the “before return date” theory or on the inapplicability of Checkmate at the 143(1)(a) stage will likely fail within Delhi’s jurisdiction. The judgment also provides persuasive value elsewhere, in line with Chhattisgarh High Court.
  • Prospectivity objections weakened: The Court’s characterisation of Explanation 5 to Section 43B as clarificatory, not enlarging, aligns with Checkmate and reduces the efficacy of prospectivity arguments for pre-2021 years.
  • Holiday jurisprudence: The affirmation of the Section 10 GCA principle for National Holidays (as in Pepsico) provides a narrow, fact-specific safe harbour. However, taxpayers should not bank on this to address ordinary delays; it applies when statutory due dates coincide with a closure day.

Complex Concepts Simplified

Employees’ contribution vs Employer’s contribution — Why the difference matters

  • Employees’ contribution: Money deducted from employees’ salaries; treated as “income” of the employer by deeming fiction (Section 2(24)(x)) and held in trust. Deductible only if deposited into the fund on or before the fund’s statutory due date (Section 36(1)(va)).
  • Employer’s contribution: The employer’s own statutory liability (Section 36(1)(iv)); can be allowed under Section 43B if paid by the return filing due date, courtesy of the proviso to Section 43B.
  • Bottom line: The “pay-by-return-date” relaxation under Section 43B helps only employer’s contributions, not employees’ contributions.

What qualifies as an “incorrect claim apparent” under Section 143(1)(a)

  • An adjustment can be made at CPC where the error emerges directly from the return, its annexures, or the audit report.
  • Here, the due dates under the PF/ESI laws are fixed; the audit report discloses actual deposit dates. If those dates exceed the statutory due date, the disallowance follows from Checkmate’s interpretation of the law—making it an “incorrect claim apparent.”

Retrospectivity: Statutes vs Judicial Decisions

  • Statutes: Generally prospective unless the legislature expresses otherwise or the provision is clarificatory/remedial.
  • Judicial decisions: Ordinarily declaratory of what the law always was; thus, applied retrospectively unless the Court specifies prospective application. The High Court treats Checkmate as such a declaratory ruling.

“Sub silentio” in judicial precedent

  • “Sub silentio” decisions are those that omit a point and thus may carry limited precedential value on that omitted point.
  • The Court rejects the invocation of this doctrine: Checkmate’s ratio is grounded in the text of Sections 2(24)(x), 36(1)(va), and 43B; it does not depend upon the 2021 Explanation.

Section 10 of the General Clauses Act, 1897

  • Where an act is directed to be done in a prescribed time and the last day falls when the office is closed, doing the act on the next working day is permitted.
  • Delhi High Court applies this to statutory due dates falling on National Holidays for PF deposits (as in Pepsico and now reaffirmed), allowing the next working day deposit to count as timely.

Practical Takeaways and Compliance Pointers

  • Deposit employees’ PF/ESI contributions on or before the statutory due date under the relevant Acts. Do not rely on the return due date.
  • Automate reminders and approvals to ensure deposits are made well before the cut-off, accounting for weekends/holidays and electronic banking cut-offs.
  • If the due date falls on a National Holiday (or a day when the relevant “office” is closed), document the closure and ensure deposit on the immediately succeeding working day. Retain evidence (payment instructions, bank portal logs).
  • Expect CPC to disallow delayed employee contributions at the processing stage under Section 143(1)(a), based on Form 3CD disclosures.
  • Review tax audit reports carefully: if any delayed employee contributions are indicated, consider the likely disallowance and its impact on tax provisioning and litigation strategy.

Conclusion

This judgment cements two practical rules. First, after Checkmate Services, the CPC is empowered, at the Section 143(1)(a) processing stage, to disallow employees’ PF/ESI contributions deposited beyond the statutory due dates when that delay is apparent from the return and audit report. The “before-return” relaxation in Section 43B continues to benefit only employer’s contributions; Explanation 5 to Section 43B is viewed as clarificatory of this long-standing position. Second, the Court reaffirms that Section 10 of the General Clauses Act saves a deposit made on the next working day where the statutory due date falls on a National Holiday.

For employers, the message is unambiguous: treat employees’ contributions as sacrosanct trust monies and ensure deposit by the precise due dates laid down in the welfare enactments. While “holiday” relief offers a narrow safety valve, it is no substitute for robust compliance discipline. Procedurally, the decision streamlines CPC’s role and reduces scope for debate at the processing stage, aligning processing outcomes with the Supreme Court’s authoritative interpretation in Checkmate and promoting uniformity across assessment modalities.

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