Access to Provident Fund (PF) and Employee’s State Insurance Corporation (ESIC) Contributions: A Detailed Analysis of IFFCO Kisan Sanchar Ltd vs ACIT, Circle-12(1), New Delhi for Assessment Year 2019-20
Introduction
In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’, delivered a groundbreaking judgment in favor of IFFCO Kisan Sanchar Ltd, Delhi against the Assistant Commissioner of Income Tax (ACIT), Circle-12(1), New Delhi for the assessment year 2019-20. The case, bearing case number ITA 1249/DEL/2022, revolved around the disallowance of employees’ contributions to Provident Fund (PF) and Employees’ State Insurance Corporation (ESIC) under sections 2(24)(x) read with section 36(1)(va) of the Income Tax Act, 1961.
The Case Background
IFFCO Kisan Sanchar Ltd, aggrieved by the order passed by the ACIT, contested the disallowance of PF/ESIC contributions for being deposited beyond the due dates prescribed under the respective acts but before the due date of filing the return of income under section 139(1). The appeal was consolidated with multiple cases exhibiting similar issues challenging the prevailing interpretations of the statutory provisions.
Ruling of the Tribunal
The Tribunal, after meticulous examination and considering various judicial precedents, notably the decision by the Hon’ble Jurisdictional High Court of Delhi in the case of PCIT vs Pro Interactive Service (India) Pvt. Ltd., ruled that the appeal stands allowed. It was conclusively held that if the contributions towards PF and ESIC by the employer are deposited before the due date of filing the return of income as per section 139(1), such contributions cannot be disallowed under the income tax provisions. This ruling asserts the principle that the intent of the legislature was to ensure that only actual payments made can be allowed as expenditure and not penalize employers with deemed income inclusion for minor delays in deposit provided the amounts are paid before the tax filing deadline.
Implications of the Judgment
This verdict clarifies the taxation stance on the timeliness of PF/ESIC contributions, bringing much-needed relief to employers who may face genuine delays. By setting a precedent, it also provides judicial guidance on the interpretation of related income tax provisions.
Conclusion
The case of IFFCO Kisan Sanchar Ltd vs ACIT is a landmark judgment that not only rectifies the challenges faced by employers over the interpretation of provident fund and ESIC contributions under the Income Tax Act but also ensures that compliant businesses are not unjustly penalized for procedural delays. It reiterates the judiciary’s role in upholding the principles of equity and reasonableness in tax administration.
