Case Number: ITA 805/DEL/2021
Appellant: ACT Industries Pvt Ltd, New Delhi
Respondent: DCIT CPC, Bangalore
Assessment Year: 2018-19
Case Filed On: June 29, 2021
Order Type: Final Tribunal Order
Date of Order: February 28, 2022
Pronounced On: February 28, 2022
Result: The tribunal ruled in favor of the appellant, allowing deductions for contributions made before the due date of filing the return.
This article discusses the case between ACT Industries Pvt Ltd and the Deputy Commissioner of Income Tax, Central Processing Centre (DCIT CPC), Bangalore. The central issue was the disallowance of the employee’s contribution to the Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF) under Section 36(1)(va) of the Income Tax Act, 1961. The tribunal’s decision, pronounced on February 28, 2022, provided significant clarification on the applicability of deductions for these contributions.
The appellant, ACT Industries Pvt Ltd, filed an appeal against the order of the DCIT CPC, Bangalore, which disallowed the deduction of employee contributions to ESI and EPF for the assessment year 2018-19. The disallowance was made on the grounds that the contributions were not deposited within the due dates specified under the respective Acts.
The appellant argued that although the contributions were deposited beyond the due dates specified under the ESI and EPF Acts, they were made before the due date of filing the income tax return under Section 139(1) of the Income Tax Act. Therefore, the appellant contended that the contributions should be allowed as deductions.
On the other hand, the revenue, represented by the DCIT CPC, argued that the deductions were rightly disallowed because the contributions were not deposited within the due dates specified under the respective Acts. The revenue relied on the provisions of Section 36(1)(va) and the Explanation thereto, which stipulate that deductions for employee contributions are allowed only if they are deposited by the due dates under the respective Acts.
The tribunal, comprising Sh. Saktijit Dey (Judicial Member) and Dr. B. R. R. Kumar (Accountant Member), examined the arguments and various judicial precedents on the matter. The tribunal observed that there were conflicting decisions from different High Courts regarding the applicability of Section 43B to employee contributions.
The tribunal referred to several judgments, including those of the Hon’ble Supreme Court and various High Courts, which held that if the employee contributions are deposited before the due date of filing the income tax return under Section 139(1), the deductions should be allowed. Specifically, the tribunal considered the decisions in the cases of CIT vs. Vinay Cement Ltd., CIT vs. AIMIL Ltd., and the recent amendments introduced by the Finance Act, 2021.
The Finance Act, 2021, introduced clarifications that the provisions of Section 43B would not apply to employee contributions and that such contributions should be deposited by the due dates specified under the respective Acts. However, these amendments were applicable prospectively from April 1, 2021, and the tribunal noted that for the assessment years prior to this amendment, the judicial precedents allowed deductions if the contributions were deposited before the due date of filing the return.
In conclusion, the tribunal ruled in favor of the appellant, ACT Industries Pvt Ltd. The tribunal held that the employee contributions to ESI and EPF, if deposited before the due date of filing the income tax return under Section 139(1), should be allowed as deductions. Consequently, the disallowance made by the DCIT CPC, Bangalore, was set aside.
This decision provides significant relief to taxpayers and clarifies the interpretation of the provisions related to employee contributions under the Income Tax Act, 1961. It reinforces the principle that contributions deposited before the due date of filing the return are eligible for deductions, thereby aligning with the legislative intent and judicial precedents.
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