Case Number: ITA 1696/DEL/2021
Appellant: Pearl Apparels Inc., Delhi
Respondent: ITO, Ward-28(4), Delhi
Assessment Year: 2018-19
Case Filed On: 2021-11-18
Order Type: Final Tribunal Order
Date of Order: 2022-02-28
Pronounced On: 2022-02-28
Pearl Apparels Inc., the appellant, contested the disallowance of employee contributions to ESI and EPF by the Income Tax Officer (ITO), Ward-28(4), Delhi. The central issue was whether these contributions, if paid after the due date prescribed under the relevant statutes but before the filing of the income tax return, could be allowed as deductions under section 36(1)(va) of the Income Tax Act, 1961.
The case was heard by the ITAT Delhi Bench, with Sh. Saktijit Dey, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member, presiding. The appellant was represented by Shri Sourabh Rohtagi, CA, while the respondent was represented by Shri Umesh Takyar, Sr. DR. The hearing took place on 21.02.2022, and the order was pronounced on 28.02.2022.
The appellant argued that the employee contributions were paid before the due date of filing the return under section 139(1) of the Income Tax Act and, therefore, should be allowed as deductions. The appellant cited various judicial precedents supporting the view that such contributions, if deposited before the due date for filing the return, should not be disallowed.
The respondent, on the other hand, maintained that the contributions were paid beyond the due dates prescribed under the ESI and PF Acts and, as such, were not eligible for deduction under section 36(1)(va).
The Tribunal reviewed the relevant provisions of the Income Tax Act, 1961, including sections 2(24)(x), 36(1)(va), and 43B. It also considered the amendments introduced by the Finance Act, 2021, and the legislative intent behind these amendments.
The Tribunal referred to several judicial precedents, including:
The Tribunal also examined the decisions of various High Courts, including the Delhi High Court’s ruling in CIT vs. Bharat Hotels Ltd. (410 ITR 417) and the Gujarat High Court’s decision in the case of State Road Transport Corporation (366 ITR 170).
The Tribunal noted that the Finance Act, 2021, clarified that the provisions of section 43B do not apply to employee contributions received by the employer, which must be deposited by the due dates prescribed under the relevant laws. The amendment aimed to resolve the controversy and ensure that employee contributions are deposited timely to prevent misuse by employers.
Based on the totality of the facts and judicial precedents, the Tribunal held that employee contributions to ESI and EPF, if paid before the due date of filing the income tax return under section 139(1), are allowable as deductions. The Tribunal allowed the appeal of Pearl Apparels Inc. for statistical purposes and directed the Assessing Officer to consider the evidences and recompute the deductions accordingly.
The Tribunal’s order emphasized that the legislative amendments and judicial interpretations consistently support the allowability of such contributions if deposited before the return filing due date.
Order Pronounced in the Open Court on 28th February 2022
(Saktijit Dey)
Judicial Member
(Dr. B. R. R. Kumar)
Accountant Member
Copy forwarded to:
ASSISTANT REGISTRAR
ITAT, NEW DELHI
Pearl Apparels Inc. vs. ITO, Delhi: Dispute Over Employee Contribution Disallowance
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