In a significant judgement by the Income Tax Appellate Tribunal Delhi ‘G’ Bench comprising of Judicial Member Shri Challa Nagendra Prasad and Accountant Member Shri Pradip Kumar Kedia, the appeal filed by Seagull Laboratories P.Ltd against the ACIT, Circle-23(2), New Delhi concerning the assessment year 2019-20 was allowed. This judgement underscores the tribunal’s stance over disallowance under Section 36(1)(va) of the Income Tax Act, 1961 regarding employees’ contribution to ESI and PF.
Seagull Laboratories P.Ltd, faced disallowance under Section 36(1)(va) for delayed payment of employees’ contribution to Provident Fund (PF) and Employee State Insurance (ESI). The central contention revolved around whether contributions paid after the due dates prescribed under respective Acts but before the due date of filing returns as per Section 139(1) of the Act qualified for deduction.
During the hearing, it was contended by the appellant that all such contributions were indeed deposited before the due date for filing the return of income. Reliance was placed on judgements such as CIT Vs. AIMIL Ltd. 321 ITR 508 and the Supreme Court decision in the case of M.M. Aqua Technologies Ltd., highlighting that such payments, if made before the due date of return filing, were eligible for deductions. Conversely, the respondent supported the sustained disallowance citing the nature and intent of amendments brought by the Finance Act, 2021.
The tribunal, after due consideration, held that such contributions, if deposited before the due date for filing the return of income, are eligible for deductions against the disallowances made. The bench iterated the retrospective applicability of the amendments in the Finance Act, 2021 does not alter the law’s stance as previously interpreted and upheld by judicial precedents.
This judgement is pivotal for both tax practitioners and corporations as it clarifies the tribunal’s position on employee contributions to welfare funds. It reasserts the judiciary’s inclination towards a liberal interpretation aimed at safeguarding employees’ welfare contributions, emphasizing compliance before the filing of returns over strict adherence to payment schedules as stipulated by the respective Acts.
The allowance of Seagull Laboratories P. Ltd’s appeal by the ITAT reinforces the principle that timely compliance in terms of tax return filing suffices for claiming deductions on employees’ contributions to welfare funds, thus offering a respite to employers who make such contributions within the permissible timeframe.
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