This article delves into the details of ITA No. 1888/DEL/2020, involving Waverley Paints Pvt Ltd, New Delhi, and DCIT CPC, Bangalore. The case concerns the Assessment Year (AY) 2018-19, was filed on November 20, 2020, and the final order was pronounced on November 16, 2021. The core issue revolves around the belated deposit of employee contributions to Provident Fund (PF) and Employee State Insurance (ESI).
Waverley Paints Pvt Ltd is a private limited company engaged in the manufacturing of paints. The company filed its return of income electronically on September 26, 2018, declaring a taxable income of Rs. 13,67,660. The Central Processing Center (CPC), Bangalore, processed the return under Section 143(1)(a) of the Income Tax Act, 1961, and proposed an adjustment of Rs. 2,52,217 on account of the belated payment of employee contributions to PF and ESI.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the payments were made before the due date of filing the return of income. However, due to non-appearance, the CIT(A) upheld the action of the Assessing Officer (AO), relying on various decisions, including the Delhi High Court’s decision in the case of CIT vs. Bharat Hotels Ltd., which held that failure to deposit employee contributions to PF and ESI before the due dates specified under the respective statutes warranted disallowance.
The Income Tax Appellate Tribunal (ITAT), comprising Shri R.K. Panda, Accountant Member, reviewed the case. The tribunal considered the only question raised by the assessee: the allowability of employee contributions to PF and ESI if deposited after the due date prescribed under the relevant Acts but before the due date of filing the return of income under Section 139(1) of the Income Tax Act.
The tribunal noted that the Delhi High Court in the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd. held that the legislative intent was to ensure that the amount paid is allowed as an expenditure only when payment is actually made. The court further held that the intent was not to treat belated payment of Employee’s Provident Fund (EPF) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under the Act.
Following this decision, the tribunal referenced the coordinate Bench’s decision in the case of CIT vs. Dee Development Engineers Ltd., which held that no disallowance under Section 36(1)(va) read with Section 2(24)(x) could be made if the employee contributions to PF and ESI were deposited after the due date prescribed under the relevant Acts but before the due date of filing the return of income.
The ITAT concluded that since the assessee had deposited the employee contributions to PF and ESI before the due date of filing the return of income, no disallowance under Section 36(1)(va) read with Section 2(24)(x) could be made. The tribunal set aside the CIT(A)’s order and allowed the grounds raised by the assessee.
The ITAT’s decision underscores the importance of legislative intent in determining the allowability of expenditures related to employee contributions to PF and ESI. The tribunal’s ruling in favor of Waverley Paints Pvt Ltd highlights the need for proper interpretation of statutory provisions concerning the timing of payments and the filing of returns.
The final order, pronounced on November 16, 2021, reads:
In the result, the appeal filed by the assessee is allowed.
Signed by:
R.K. Panda, Accountant Member
This judgment emphasizes the requirement for substantial evidence and proper legal interpretation when addressing issues related to employee contributions and statutory deadlines.
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