This article delves into the decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of ITA No. 1851/DEL/2020, involving Trutuff Facility Management Private Limited and the DCIT CPC, Bangalore. The primary issue at hand was the deductibility of employee contributions to provident fund (PF) and employee state insurance (ESI) when paid before the tax return filing deadline.
Trutuff Facility Management Private Limited, based in New Delhi, faced a dispute regarding the timeliness and deductibility of employee contributions for the assessment year 2018-19. The company filed the case on November 11, 2020, challenging the disallowance made by the DCIT CPC, Bangalore, concerning these contributions.
The case was heard by the Delhi Bench ‘H’ of the Income Tax Appellate Tribunal, with Dr. B. R. R. Kumar, Accountant Member, and Sh. Anubhav Sharma, Judicial Member, presiding. The tribunal’s order, pronounced on August 1, 2022, addressed the deductibility of employee contributions to welfare funds, a topic that has seen varied interpretations across different judicial forums.
The tribunal issued a common order for multiple cases dealing with similar issues. These cases included:
All these cases revolved around the issue of timely payment of ESI and PF contributions.
The tribunal noted that the payments were made before the filing of the tax return, a fact not disputed by the parties. The details of the payments were thoroughly examined and found to be recorded correctly.
The tribunal referred to several precedents where it was held that employee contributions to PF and ESI, if paid before the due date of filing the income tax return under section 139(1), are allowable deductions. Key cases cited included:
These cases affirmed that as long as the contributions were made before the tax return filing deadline, they should not be disallowed.
The tribunal also discussed the amendments made by the Finance Act, 2021, which clarified that the provisions of section 43B do not apply to employee contributions under section 36(1)(va). This amendment aimed to resolve any ambiguity regarding the applicability of these sections and reinforce the necessity of timely payments.
Despite conflicting judgments from various high courts, the tribunal leaned on the judgment of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd., which supported the deduction of contributions paid before the tax return filing date. The tribunal noted that the judgments from high courts such as the Gujarat High Court and Kerala High Court, which ruled against such deductions, were not in alignment with the intent of the law post-amendment.
In conclusion, the tribunal allowed the appeals of Trutuff Facility Management Private Limited, holding that no disallowance is warranted for the delayed payment of employee contributions to ESI and PF funds if they are deposited before the due date of filing the income tax return.
This judgment reinforces the principle that timely compliance with statutory payment deadlines is crucial for claiming deductions. It provides clarity to businesses on the treatment of employee contributions and underscores the importance of adhering to the prescribed timelines to avoid disallowances.
The ITAT Delhi’s decision in ITA No. 1851/DEL/2020 sets a significant precedent for similar cases involving the deductibility of employee contributions. It highlights the need for businesses to ensure timely deposits to benefit from allowable deductions, thereby promoting better compliance with statutory requirements. The judgment serves as a critical reference for future disputes and provides a comprehensive understanding of the legal landscape surrounding employee contributions to welfare funds.
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