Introduction

In an intriguing turn of events at the Income Tax Appellate Tribunal, Delhi Bench ‘G,’ the case of Prime Services, Delhi versus ACIT, Circle-43(1), New Delhi, pertaining to the assessment year 2018-19, presented a unique scenario for the members of the bench – Judicial Member Shri Kul Bharat and Accountant Member Shri Pradip Kumar Kedia. This article aims to shed light on the detailed proceedings of ITA No. 751/DEL/2022, the crux of the dispute, the legal positions adopted by both parties, and, significantly, the tribunal’s judgment in favor of the appellant, allowing the appeal.

The case centralizes around the delayed deposit of employees’ contributions towards Provident Fund (PF) and Employee State Insurance (ESI), which has been a contentious issue and attracted varying interpretations from different judicial authorities.

The Case Background

Prime Services, a firm operating out of Delhi, found itself embroiled in a dispute with the Assistant Commissioner of Income Tax (ACIT), Circle-43(1), New Delhi, over disallowance of employee’s contribution to PF/ESI due to alleged delay in depositing these contributions according to respective acts. The disallowance was made for the assessment year 2018-19, thereby increasing the taxable income of Prime Services.

The appellant contended that although there was a delay in depositing the employees’ contributions, all amounts were deposited before the due date of filing the return of income, appealing for the disallowance to be nullified.

Contentions and Judicial Precedents

The appellant, represented by their learned counsel, ardently argued that according to several judicial precedents, including the landmark case of CIT vs. Alom Extrusions Ltd., the delay in depositing the employees’ contribution towards PF/ESI, if deposited before the due date of the filing of the income tax return, should not lead to disallowance. They also highlighted amendments in the Income Tax Act by the Finance Act, 2021, which further clarified the legislative intent to condone such defaults before the amendment came into effect on April 1, 2021.

The Tribunal’s Verdict

After a thorough examination of the submissions, case laws, amendments, and the facts on record, the tribunal, in a well-articulated order, allowed the appeal filed by Prime Services. The bench emphasized the series of judicial decisions that have evolved over time, leaning towards a more lenient interpretation concerning the delay in depositing employees’ contributions towards PF/ESI, provided these payments are made before the due date of the filing of the income tax return.

The tribunal specifically referenced the decision in the case of CIT vs. AIMIL Limited, among others, which closely mirrors the facts of the present case. Moreover, the implication of amendments brought by the Finance Act, 2021, was discussed, which clearly indicated a legislative intention to not penalize assessees for such delays, reinforcing the tribunal’s decision to allow the appeal.

Conclusion

This landmark judgment not only brings relief to Prime Services but also sets a precedent for numerous similar cases where the bone of contention is the disallowance of employees’ contribution to PF/ESI due to delay in deposit. It reinforces the importance of adhering to legislative changes and judicial interpretations, providing a semblance of clarity to both, taxpayers and tax authorities, regarding compliance and procedural aspects pertaining to such contributions.

The case of Prime Services vs. ACIT, Circle-43(1), Delhi stands as a testament to the evolving nature of tax law, embodying the judiciary’s understanding and interpretation of legislative intent, thereby ensuring that justice prevails.