This article examines the case of ITA 1476/DEL/2021, where Shri Krishna Manpower, a company based in Gurgaon, appealed against the Income Tax Officer (ITO), Ward-4(2), Gurgaon. The appeal concerns the disallowance of employee contributions to the Employees’ State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018-19. The case was heard and decided by the Delhi Bench “H” of the Income Tax Appellate Tribunal (ITAT) on September 13, 2022.
Shri Krishna Manpower filed its income tax return for the assessment year 2018-19. During the processing of the return under Section 143(1) of the Income Tax Act, 1961, the Centralized Processing Centre (CPC) in Bangalore disallowed the contributions made by the company to ESI and PF, citing delays in deposits. The Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), upheld the disallowance, leading the company to file an appeal with the ITAT.
The appellant contested the disallowance on several grounds:
During the hearing, no representative appeared for the appellant, and no adjournment application was filed. Notices sent to the appellant’s address were returned unserved, marked as “House locked.” The case was disposed of based on the submissions of the Department Representative (DR).
The Department Representative, Sh. Rajesh Kumar (CIT-DR) and Ms. Rajeshwari R. (JCIT-Sr.DR), supported the disallowance, arguing that the amendments introduced by the Finance Act, 2021, to Sections 36(1)(va) and 43B were clarificatory in nature and had retrospective applicability. They maintained that the CIT(A) was correct in sustaining the disallowance.
The Tribunal, comprising Judicial Member Sh. Challa Nagendra Prasad and Accountant Member Dr. B. R. R. Kumar, reviewed the facts and arguments. They noted that the issue of disallowance of employee contributions to ESI and PF was highly debatable and should not have been adjusted while processing the return under Section 143(1). The Tribunal referenced the jurisdictional High Court’s decision in CIT Vs. AIMIL Ltd. (321 ITR 508), which held that contributions made before the due date for filing the return of income should be allowed.
The Tribunal also cited the Supreme Court’s decision in CIT Vs. Alom Extrusions Limited (319 ITR 306), which supported the appellant’s position. Additionally, the Supreme Court’s ruling in M.M. Aqua Technologies Ltd. Vs. CIT stated that retrospective provisions in tax laws for the removal of doubts should not be presumed to be retrospective if they alter the existing law.
The Tribunal concluded that the amendments brought by the Finance Act, 2021, to Sections 36 and 43B, were not applicable retrospectively. They directed the Assessing Officer (AO) or CPC to delete the disallowance of employee contributions to ESI and PF as the contributions were made before the due date for filing the return of income. The appeal was allowed.
This case highlights the complexities surrounding the disallowance of employee contributions to ESI and PF, especially concerning retrospective amendments. The Tribunal’s decision underscores the importance of adhering to judicial precedents and ensuring fair adjudication based on existing laws at the time of the transaction.
Order Pronouncement
The order was pronounced in the open court on September 13, 2022, by the Tribunal members.
(B. R. R. Kumar)
Accountant Member
(C. N. Prasad)
Judicial Member
Dated: September 13, 2022
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Shri Krishna Manpower vs ITO: Disallowance of Employee Contributions – ITA 1476/DEL/2021
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