Dhruv Industries Limited, New Delhi, filed an appeal against the disallowance of employee contributions to the Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF) made by the Assessing Officer (AO) Circle 7(1), New Delhi, for the assessment year 2018-19. The disallowance was made under Section 36(1)(va) of the Income Tax Act, 1961, due to the delayed deposit of these contributions.
The primary issue in this case was whether the delayed payment of employee contributions to ESI and EPF, if made before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961, should be disallowed under Section 36(1)(va).
The Assessing Officer disallowed the employee contributions to ESI and EPF on the ground that they were not deposited within the due dates prescribed under the relevant Acts. However, the contributions were deposited before the due date for filing the return of income under Section 139(1) for the assessment year 2018-19.
The appellant contended that the contributions were deposited before the due date for filing the return of income under Section 139(1), and therefore, they should be allowed as deductions under Section 43B of the Income Tax Act, 1961. The appellant relied on various judgments of different High Courts and the Supreme Court, which have held that if the contributions are deposited before the due date for filing the return, they should be allowed as deductions.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’, comprising Sh. Saktijit Dey, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member, heard the case through video conferencing.
The Tribunal considered several judgments and amendments to the Income Tax Act, 1961, including:
The Tribunal noted that the Hon’ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. (213 CTR 268) and subsequent judgments of various High Courts have held that if employee contributions to ESI and EPF are deposited before the due date for filing the return of income under Section 139(1), such contributions should be allowed as deductions.
The Tribunal also observed that the amendments introduced by the Finance Act, 2021, specifically clarified that Section 43B does not apply to employee contributions to ESI and EPF. However, the amendments would apply prospectively from the assessment year 2021-22 onwards.
Based on the above analysis, the Tribunal held that no disallowance is called for in respect of the delayed payment of employee contributions to ESI and EPF if they are deposited before the due date for filing the return of income under Section 139(1). The Tribunal allowed the appeal filed by Dhruv Industries Limited and directed the Assessing Officer to allow the deduction of the employee contributions to ESI and EPF for the assessment year 2018-19.
In the Income Tax Appellate Tribunal, Delhi Bench ‘G’, New Delhi, the final judgment was pronounced as follows:
All these appeals deal with the issue of allowability of contribution received from Employees towards ESI and EPF. The solitary ground is directed against the disallowance of Rs. XXXX u/s 36(1)(va) of the Income Tax Act, 1961. The Tribunal has examined various judgments and amendments and concluded that no disallowance is called for belated payment of the employee’s contribution to the respective ESI and EPF fund in the case of assessee who have deposited the same before the due date of filing of Income Tax Return. 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.
(Saktijit Dey), Judicial Member
(Dr. B. R. R. Kumar), Accountant Member
Dated: 28/02/2022
Subodh Kumar, Sr. PS
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