Brij Polymers Pvt. Ltd. vs. ITO Ward 5(2), Delhi: ITA No. 771/DEL/2022

Delhi Bench ‘G’ of the Income Tax Appellate Tribunal delivered a critical judgment in the case of Brij Polymers Pvt. Ltd. vs. ITO Ward 5(2), Delhi concerning assessment year 2019-20. The appeal, marked under ITA No. 771/DEL/2022, was pronounced on May 19, 2022, and dealt with the contentious issue of the disallowance of employee contributions to PF/ESI due to late deposits as per the respective Acts.

Background of the Case

Brij Polymers Pvt. Ltd., the appellant, challenged the orders passed by the lower appellate authority concerning the disallowance of employees’ contributions to provident funds and ESI funds due to delays in depositing the contributions within the prescribed period as per statutory provisions. The core issue revolved around whether such contributions paid before the due date of filing the return of income but after the due date as per respective acts should be allowed as a deduction.

Arguments Presented

The appellant argued that the disallowance was unjust as all contributions received from employees had been deposited with the relevant authorities before filing the return of income. They relied on various judicial pronouncements favoring the assessee in similar situations, including the landmark cases of Azamgarh Steel & Power vs. CPC and CIT vs. AIMIL Ltd..

On the other hand, the department supported the disallowance, referring to the amendment brought by the Finance Act 2021, suggesting a different interpretation of the provisions related to such contributions.

Judgment and Reasoning

The ITAT bench, comprising Shri Pradip Kumar Kedia and Shri Kul Bharat, adjudicated the appeal in favor of the appellant. It was concluded that the issue was squarely covered by the precedents cited by the appellant, where delays in depositing employees’ contributions towards PF/ESI, if deposited before the filing of the return of income, should not result in disallowance.

The bench also addressed the amendment brought by the Finance Act 2021, clarifying that its provisions would apply prospectively and hence, not applicable to the assessment year in question. The tribunal underscored the importance of legislative intent, which aims to ensure that only actual payments are allowed as deductions, rather than treating belated payments as deemed income.

Conclusion

The tribunal’s decision to allow the appeal provides significant relief to the assessee and sets a precedent for similar cases. It underscores the principle of substance over form and affirms the judicial approach towards a more lenient interpretation of procedural lapses, provided the substantive compliance is met. This judgment is a testament to the evolving understanding of tax laws, aiming to strike a balance between strict adherence to statutory provisions and practical realities faced by taxpayers.

Order pronounced in the open court on May 19, 2022.