Background
The case involved a partnership firm engaged in the manufacture and export of leather products under the brand Woodland. For AY 2019–20, the firm filed its return declaring income of ?15.78 crore. While processing under Section 143(1), the Centralized Processing Centre (CPC) made an adjustment of ?4.14 crore, disallowing delayed deposits of employees’ contributions to PF/ESI/Labour Welfare Fund.
The assessee argued that although the deposits were made after the due dates prescribed under the PF/ESI laws, they were still deposited before the due date for filing ITR under Section 139(1) and thus eligible for deduction.
Key Issues Raised
Scope of Section 143(1):
Could the AO disallow PF/ESI contributions at the stage of intimation, when the issue was debatable?
The assessee cited Rajesh Jhaveri Stock Brokers (SC, 2008) and Amitabh Bachchan Corporation (Bom HC) to argue that Section 143(1) permits only apparent corrections, not adjudication of contested issues.
Applicability of Checkmate Services (SC, 2022):
The ITAT had dismissed the assessee’s appeal based on this ruling, which held that employees’ contributions must be deposited within statutory due dates, and Section 43B relief does not extend to Section 36(1)(va).
The assessee contended that Checkmate should not apply retrospectively to AY 2019–20 and relied on Vatika Township (SC, 2014) to argue that amendments are prospective unless expressly stated.
National Holiday Exception:
In one instance, the due date (15.08.2018) fell on Independence Day. Contribution was deposited on 16.08.2018.
The assessee argued, citing Section 10 of the General Clauses Act and Pepsico India Holdings (Del HC, 2023), that such payment should be treated as valid.
Court’s Analysis
On 143(1) Adjustment:
The Court observed that dates of deposit were clearly disclosed in the tax audit report.
Since delay was apparent from records, the adjustment was permissible under Section 143(1)(a)(ii) as an “incorrect claim apparent from the return.”
The Court held that Checkmate Services clarified substantive law and applies even to processing under Section 143(1).
On Explanation 5 to Section 43B (Finance Act, 2021):
The Court held the Explanation is clarificatory, not prospective.
The distinction between employers’ contributions (Section 36(1)(iv)) and employees’ contributions (Section 36(1)(va)) was emphasized, the latter being treated as trust money.
On National Holiday Payments:
The Court followed Pepsico India Holdings to hold that when the due date falls on a national holiday, deposit made on the next working day is valid.
Thus, PF/ESI deposits made on 16.08.2018 (after 15.08.2018 holiday) were allowed as deductions.
Outcome
Disallowance of ?4.14 crore upheld under Section 36(1)(va), as deposits were late beyond statutory due dates.
Holiday-linked contributions allowed: ?44.28 lakh (PF) and ?72,131 (ESI) were deductible since due date fell on a national holiday.
Final Result: Appeal partly allowed—major disallowance sustained, but relief granted for contributions falling due on Independence Day.\
Income tax Case Law Woodland (Aero Club) Private Limited Versus Assistant Commissioner of Income Tax
Citation-2025 TAXONATION 1328 (DELHI)(Click here to read full case law)
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