ITA 763/DEL/2022: Onkar Infotech Private Limited vs. JCIT Special Range-7, Delhi – Judgment Summary and Analysis

Introduction

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in the case of Onkar Infotech Private Limited vs. JCIT Special Range-7, Delhi, for Assessment Year 2018-19, delivered a notable judgment addressing the concerns over the correctness of disallowance of employees’ contribution to Provident Fund (PF)/Employee’s State Insurance (ESI) under sections 2(24)(x) and 36(1)(va) of the Income Tax Act, 1961. This case, bearing the ITA No. 763/DEL/2022, was decided in favor of the appellant, Onkar Infotech Private Limited, highlighting significant precedents and legislative interpretations pertinent to the timing of deposits for PF/ESI contributions.

Background

The appellant, Onkar Infotech Private Limited, contested the order passed by the JCIT Special Range-7, Delhi, concerning the disallowance of employees’ contribution to PF/ESI. The main contention revolved around the delay in depositing these contributions and whether such delay impacts the deductibility of these expenses. The bench constituted of Shri C.N. Prasad, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member, deliberated on this matter.

Issues Addressed

The primary issues considered by the tribunal were:

1. The correctness of disallowance made under sections 2(24)(x) and 36(1)(va) towards employees’ contribution to PF/ESI due to delay in deposit.
2. The applicability of judicial precedents and legislative amendments pertaining to the timing of deposit of such contributions.

Judgment Summary

The tribunal meticulously analyzed the submissions, relevant sections of the Income Tax Act, 1961, and various judicial precedents. It was observed that the legislative intent behind these provisions was to ensure tax deductions for actual payments made towards employees’ welfare schemes like PF/ESI, without aiming to penalize employers for slight delays inconveniencing the deposit requirements prescribed under the respective Acts.

Highlighting the judgment by the Honorable Jurisdictional High Court of Delhi in the case of PCIT vs. Pro Interactive Services (India) Pvt. Ltd., ITA No.983/2018, the bench noted that the issues were predominantly covered against the revenue department, thereby, no substantial question of law arose for consideration in the appeal in context.

The Tribunal further referenced the amendment brought by the Finance Act, 2021, clarifying that it applies prospectively from the Assessment Year 2021-22, thus, not affecting the current case concerning Assessment Year 2018-19.

Conclusion and Implications

The bench concluded that the disallowance made by the AO due to the late deposit of employees’ contribution to PF/ESI, albeit before the filing of the return of income, was not justified. Therefore, all appeals filed by the appellant were allowed. This judgment reiterates the significance of adhering to the legislative intent of promoting compliance without harsh penalties for minor transgressions in deposit timelines.

This detailed judgment serves as an essential reference for both taxpayers and tax practitioners, underscoring the importance of timely compliance while also providing relief in scenarios where delays do not significantly undercut the legislative objectives behind such fiscal statutes.