ITA No.1217/Del/2022: Sona Fashions Inc. vs. ITO – Delayed PF & ESI Contributions Allowed

ITA No.1217/Del/2022: Judgement Summary for Sona Fashions Inc. vs. Income Tax Officer, Ward-29(5), New Delhi

In a significant judgement by the Income Tax Appellate Tribunal Delhi Bench ‘SMC’, the appeal filed by Sona Fashions Inc. against the order dated 30.03.2022 of the National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19 was allowed.

Background of the Case: The core subject of this appeal was the dispute regarding the disallowance of Rs.10,31,122, which represented delayed payments of employees’ contributions to the Provident Fund (PF) and Employees’ State Insurance (ESI) claimed for the assessment year 2018-19 under section 36(1)(va) of the Income-tax Act, 1961.

Representatives for both the appellant and the respondent presented their arguments. After considering the rival submissions and materials on record, it was noted that the assessee had remitted the employee contributions to PF and ESI before the due date for filing the return of income under section 139(1) of the Act. However, these payments were made beyond the prescribed time limit under the relevant statutes, leading to disallowance under the earlier order.

Decision: The Tribunal, after thorough examination, referenced various precedents and judicial findings, especially focusing on the distinction between employer and employee contributions towards welfare funds. It was observed that there had been a shift in the interpretation and application of related provisions, stressing on the actual date of deposit before the due date of filing of the income tax return as crucial for allowance.

The Tribunal ultimately found merit in the appellant’s arguments, relying on coordinated bench decisions and amendments in the Finance Act, 2021, which clarified the treatment of employee contributions to funds.

The final judgement allowed the appeal, stating that the disallowance of Rs.10,31,122 was not justified, given that the contributions were indeed paid before the due date of filing of the income tax return. This landmark decision sheds light on the treatment of delayed contributions of employees to PF and ESI, emphasizing the importance of depositing such contributions before the due date of tax return filing to avoid disallowances.

This case establishes a precedent for similar disputes, contributing significantly to the evolving tax jurisprudence related to employee welfare contributions, and ensuring fair treatment for assessees complying with deposit timelines as per the Income-tax Act provisions.

ITA No.1217/Del/2022: Sona Fashions Inc. vs. ITO – Delayed PF & ESI Contributions Allowed