Income Tax Appellate Tribunal Judgment Analyzed: Sandeep Tondon vs. ACIT, Circle-43(1), Delhi ITA No. 1557/DEL/2022
Introduction
The recent judgment delivered by the Income Tax Appellate Tribunal (ITAT) in the case of Sandeep Tondon versus the Assistant Commissioner of Income Tax, Circle-43(1), Delhi, marked as ITA No. 1557/DEL/2022, for the assessment year 2018-19, has provoked significant interest in the domain of tax litigation. This case revolves around the crucial issue of the delayed deposit of employees’ contributions towards Provident Fund (PF) and Employee State Insurance (ESI) by employers and its deductibility under the Income Tax Act, 1961. The judgment, which resulted in the appeal being allowed, offers profound insights into the interpretation and application of related laws.
Background
The appellant, Sandeep Tondon, challenged the disallowances made by the assessing officer (AO) concerning the late deposit of employee contributions to PF/ESI. According to the AO, such late deposits do not qualify for deduction under Section 36(1)(va) of the Income Tax Act, 1961. The case’s central contention was whether the deposits made by the appellant before the due date of filing the return of income, but after the due date as per the PF/ESI Acts, were allowable deductions.
Arguments and Judgment
The appellant argued for the allowance of the deductions, citing various judicial precedents that supported the contention that if the deposit is made before the filing of the income tax return, it should be allowed as a deduction. The revenue, on the other hand, placed reliance on contrary decisions and emphasized the amendments brought by the Finance Act, 2021, arguing that they clarify that such deductions are not allowable.
After examining the submissions from both sides and considering relevant legal precedents, the ITAT allowed the appeal. It was held that the contributions towards PF/ESI made before the due date for filing the income tax return are allowable as deductions. The Tribunal particularly noted that the amendments introduced by the Finance Act, 2021, are prospective and applicable from the Assessment Year 2021-22 onwards and, thus, do not affect the deductions claimed for the Assessment Year 2018-19.
Implications of the Judgment
This judgment is significant for several reasons. It reaffirms the position that for the purposes of deductions under Section 36(1)(va) of the Income Tax Act, what matters is the date of deposit before the filing of the income tax return, not the due date as per the PF/ESI Acts. This interpretation provides relief to employers who may have delayed deposits but ensured compliance before filing their returns.
Furthermore, the Tribunal’s observation regarding the prospective application of the amendments brought by the Finance Act, 2021, clarifies the legal stance for assessment years prior to 2021-22. This decision is likely to have a substantial impact on similar cases where deductions for employee contributions have been disallowed due to late payments.
Conclusion
The ITAT’s decision in ITA No. 1557/DEL/2022 is a landmark verdict that sheds light on the contentious issue of delayed deposit of employees’ contributions towards PF/ESI and its deductibility under the Income Tax Act. By allowing the appeal, the Tribunal has provided much-needed jurisprudential clarity on this matter, which will undoubtedly influence future tax assessments and litigation in similar cases.
