This article examines the Income Tax Appellate Tribunal’s ruling on ITA No. 1155/DEL/2021, where Dilbag Singh Kahlon, New Delhi, contested the disallowance related to the delayed deposit of Employees’ Provident Fund (PF) and Employees’ State Insurance (ESI) contributions for the assessment year 2018-19.
The appellant contested the order from the National Faceless Appeal Centre (NFAC), which had disallowed deductions for PF and ESI contributions due to alleged delays in deposits. The focus was on whether the amendments made by the Finance Act 2021 should apply retrospectively, affecting the assessment year 2018-19.
The appellant argued that contributions, although delayed, were deposited before the filing of the income tax return, and should therefore be allowed as deductions. The legal debate centered on the application of amendments to Section 36(1)(va) and Section 43B of the Income Tax Act by the Finance Act 2021, and whether they apply retrospectively or prospectively.
The Tribunal, headed by Judicial Member Shri Kul Bharat and Accountant Member Shri Pradip Kumar Kedia, ruled that the amendments are prospective and do not apply to the assessment year in question. The decision was supported by various precedents, including the Delhi High Court’s ruling in PCIT vs. Pro Interactive Service (India) Pvt. Ltd., which underscored that delayed payments of PF and ESI could still be claimed as deductions if made before the tax return filing deadline.
The Tribunal thus set aside the NFAC’s disallowance, allowing the appeal of Dilbag Singh Kahlon and emphasizing the prospective application of legislative changes.
This case highlights the importance of understanding the temporal scope of legislative amendments in tax law. It reassures taxpayers about the fairness of tax assessments relative to the timing of statutory payments and provides clarity on the treatment of contributions towards PF and ESI.
Order pronounced in the open court on May 18, 2022, firmly establishing the boundaries of retrospective and prospective application of tax law amendments, safeguarding taxpayer rights against retrospective fiscal liabilities.
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