Bharat Bhushan vs. DCIT, Circle 1(1), Gurgaon

ITA No. 899/DEL/2022: A Landmark Ruling on Timeliness and Allowances of Employee Contributions

The Income Tax Appellate Tribunal (Delhi Bench) presided over an important case Bharat Bhushan vs. DCIT, Circle 1(1), Gurgaon, for the assessment year 2018-19. The primary legal issue pivoted on the allowance of the employee’s contributions to Provident Fund (PF) and Employee State Insurance (ESI) under Section 36(1)(va) of the Income Tax Act, 1961.

The crux of the contention revolves around whether the employer’s late deposit of employees’ contributions to PF and ESI should be allowed as deductions if paid before the due date of filing the return of income under Section 139(1) despite being delayed under the respective Acts’ timelines.

Background and Arguments

The appellant, Bharat Bhushan, faced disallowances by the assessing officer (AO) and the CIT (Appeals) based on the timeliness of the contribution deposits. Amendments brought by the Finance Act, 2021, to Sections 36(1)(va) and 43B of the IT Act stirred the debate by clarifying the ‘due date’ for the contribution towards employees’ welfare funds.

The Department represented by the Senior DR Abhishek Kumar, supported the disallowance citing the amendments in the Finance Act, 2021, arguing they are retroactive, thus applying to the case at hand. Conversely, the appellant pleaded the amendments are prospective and highlighted the judgments favouring the deduction if contributions are paid before filing the return.

Final Judgment and Implications

The Tribunal, guided by precedents including the supreme court ruling in the case of M.M. Aqua Technologies Ltd. and various High Courts’ conclaves, favored the appellant. It was adjudged that as long as the contributions are deposited before the due date of filing the return of income under Section 139(1) of the Act, disallowances are not warranted. This interpretation aligns with the intend to ensure compliance without penalizing the employers who fulfill their obligations within the Income Tax return filing timeframe.

The ruling underscores a significant leaning towards a broader interpretation, encouraging compliance while offering a buffer against the strict timelines defined by individual Acts governing PF and ESI contributions. This judgment not only elucidates the application of Sections 36(1)(va) and 43B post the Finance Act, 2021 amendments but also sets a precedent for similar disputes, promoting a balanced approach between statutory compliance and practicalities of business operations.

Conclusion

In conclusion, ITA No. 899/DEL/2022 marks a pivotal shift in how late deposits of employees’ welfare contributions are viewed in light of tax deductions. By allowing the appeal and setting aside the disallowance, the Tribunal has forwarded the notion of practical compliance overcoming procedural defaults, fostering a fair and conducive environment for both employers and employees.

Bharat Bhushan vs. DCIT, Circle 1(1), Gurgaon