Background

The appellant, Fabcare Garments And Textile Machinery Private Ltd., contested the orders passed by the appellate authority concerning the disallowance of employees’ contributions towards PF/ESI for the assessment year 2019-20. The disallowance was based on the delay in deposits as per the respective statutory acts.

Arguments Presented

The appellant argued that although there were delays in depositing the contributions towards PF/ESIC, all contributions were indeed deposited before the filing of the income tax return. To support this argument, references were made to judicial pronouncements favoring the appellant’s position.

The respondent, on the other hand, supported the disallowance by relying on previous decisions and emphasized the amendments brought by the Finance Act, 2021, arguing it applied retrospectively and justified the disallowance.

Judgment

The Tribunal, after reviewing the submissions and pertinent legal provisions, concluded that the issue was covered in favor of the appellant by several judicial decisions, including those of the Hon’ble High Courts. It was noted that the Finance Act 2021’s amendment regarding the non-applicability of Section 43B to employees’ contributions toward PF/ESI deposited before the due date of filing the return of income applies prospectively from AY 2021-22 and does not impact the year in question.

Therefore, the Tribunal ruled in favor of Fabcare Garments And Textile Machinery Private Ltd., allowing the appeal. It was held that the appellant was justified in deducting the employees’ contributions towards PF/ESI as the amounts were deposited before filing the income tax return.

Conclusion

The decision in ITA 728/DEL/2022 serves as a significant benchmark for similar disputes regarding the disallowance of employees’ contributions towards PF/ESI due to delays in deposits. It underscores the importance of following judicial precedents and highlights the prospective application of legislative amendments.