The case of Asian Wire Forming & Springs, Faridabad, vs. ACIT Circle-1, Faridabad (ITA 1229/DEL/2021) involves a critical examination of the allowability of employee contributions to ESIC and EPF under Section 36(1)(va) of the Income Tax Act, 1961. The primary issue was whether contributions made after the due date prescribed by the respective Acts but before the filing of the income tax return could be eligible for deduction.
In the assessment year 2018-19, Asian Wire Forming & Springs faced disallowances under Section 36(1)(va) for delayed payments of employee contributions to ESIC and EPF. The Revenue argued that these contributions were not eligible for deduction as they were deposited beyond the due dates prescribed under the respective Acts, although before the due date for filing the income tax return.
The appellant argued that the contributions were made before the due date of filing the income tax return and hence should be allowed as deductions, citing precedents and various tribunal decisions supporting this view. The Revenue, however, relied on strict interpretations of Section 36(1)(va), supported by certain High Court judgments, to argue that any delay beyond the prescribed due dates should result in disallowance.
The Tribunal examined the arguments, relevant sections of the Income Tax Act, amendments made by the Finance Act, 2021, and various judicial pronouncements. It noted the conflicting judgments from different High Courts and the need for judicial discipline and consistency.
Ultimately, the Tribunal ruled in favor of the appellant, allowing the deductions for the contributions made before the due date of filing the income tax return, aligning with the view that the primary legislative intent was to ensure actual payment and compliance rather than strict adherence to due dates, provided the contributions were made before the return filing date.
The judgment of the Tribunal in Asian Wire Forming & Springs vs. ACIT Circle-1, Faridabad underscores the nuanced interpretation of tax provisions regarding employee welfare contributions. It reflects a broader judicial trend of prioritizing actual compliance over technical defaults, offering significant relief to taxpayers on similar issues.
This case highlights the evolving judicial approach towards the allowability of ESIC and EPF contributions under Section 36(1)(va), marking a crucial precedent for future disputes in this area.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘G’, NEW DELHI
Before Sh. Saktijit Dey, Judicial Member and Dr. B. R. R. Kumar, Accountant Member (Through Video Conferencing)
Case No: ITA 1229/DEL/2021
Appellant: Asian Wire Forming & Springs, Faridabad
Respondent: ACIT Circle-1, Faridabad
Assessment Year: 2018-19
Assessee by: None
Revenue by: Shri Umesh Takyar, Sr. DR
Date of Hearing: 21.02.2022
Date of Pronouncement: 28.02.2022
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
All these appeals deal with the issue of allowability of contributions received from employees towards ESIC and EPF. The solitary ground is directed against the disallowance under Section 36(1)(va) of the Income Tax Act, 1961.
Brief facts as noted from the impugned orders are that disallowances under Section 36(1)(va) were made by the DCIT/ACIT/ITD, CPC, Bangalore on account of delay in depositing the employee’s contribution to ESIC and EPF. As per the Revenue, the tax audit report part of the income tax return filed by the assessee revealed that the amounts were paid beyond the due date as prescribed under the ESIC & PF Act under the IT Act. However, there was no dispute that the amounts were deposited before the due date of filing of return for the respective Assessment Years.
The CIT(A) held that the amounts were not paid before the due date and hence were not eligible for deduction under Section 36(1)(va). Aggrieved, appeals were filed before the Tribunal.
We have heard the arguments of the parties concerned and representatives of the Department. We have gone through the amendments in the Income Tax Act inserted by Finance Act 2021, memorandum, orders passed by various benches of the Tribunal, and judgments of High Courts. The Co-ordinate Benches of the Tribunal have taken the view that the employee’s contribution to PF and ESI, if paid before the due date of filing the Income Tax Return under Section 139(1), is an allowable deduction and no disallowance can be made.
Examples include:
The Tribunal further examined various High Court judgments, noting that the employers’ contribution if paid before the due date of filing the return of income is allowable as a deduction.
In the result, the appeals of the assessee are allowed, and the appeals of the Revenue are dismissed.
Order Pronounced in the Open Court on 28/02/2022.
Sd/-
(Saktijit Dey)
Judicial Member
Sd/-
(Dr. B. R. R. Kumar)
Accountant Member
Dated: 28/02/2022
Subodh Kumar, Sr. PS
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
Asian Wire Forming & Springs vs. ACIT: Allowability of ESIC & EPF Contributions
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