Analysis of the ITA No. 1055/DEL/2022 Case: Dewan Fourwheels P.Ltd vs DCIT – A Judgement Favoring Timely PF and ESI Contributions

ITA No. 1055/DEL/2022: Dewan Fourwheels P.Ltd vs DCIT

Introduction

The Income Tax Appellate Tribunal ‘Delhi Bench G’ delivered a significant judgement on ITA No. 1055/DEL/2022 concerning Dewan Fourwheels P.Ltd, Narnaul and DCIT, Circle, Rewari. The case revolved around the disallowance under Section 36(1)(va) of the Income Tax Act, 1961, concerning employees’ contributions to ESI and PF for the assessment year 2018-19.

Background

Dewan Fourwheels P.Ltd contested the decision by the DCIT, Circle, Rewari, regarding the disallowance of employees’ contribution to PF and ESI. The core issue was whether the said contributions deposited after the due dates under respective acts but before the due date of filing the income tax return could be allowed as a deductible expense.

Judgement Summary

The tribunal, led by Judicial Member Shri Challa Nagendra Prasad and Accountant Member Shri Pradip Kumar Kedia, allowed the appeal favoring Dewan Fourwheels P.Ltd. The judgment clarified that under the context of the Income Tax Act, contributions to ESI and PF, when deposited before the filing of the return, are deductible. This outcome aligns with the precedents set by higher judiciaries emphasizing the separation of employer and employee contributions within the context of Sections 36(1)(va) and 43B of the Act.

Significance of the Ruling

This ruling is pivotal for businesses grappling with the disallowance of PF and ESI contributions due to late deposits subject to statutory deadlines. The tribunal’s decision underscores the importance of adhering to the due dates set for filing returns rather than the deposit dates specified by respective statutes. It further elaborates on the retrospection of the Finance Act, 2021 amendments, advocating for the non-applicability of Section 43B to employee contributions.

Implications for Employers

Employers should note the tribunal’s distinction between the employer and employee contributions to welfare funds. This ruling provides a leeway for employers to deposit employees’ contributions to PF and ESI funds up till the due date for filing income tax returns without facing disallowances.

Conclusion

The ITA No. 1055/DEL/2022 judgment presents a significant relief to employers, affirming that timely compliance with tax filing deadlines ensures deductibility of employees’ contributions to ESI and PF. It reinforces the legislative intent behind Section 36(1)(va) of the Income Tax Act, aiming at facilitating employers in managing their contributions towards employee welfare schemes effectively.

Analysis of the ITA No. 1055/DEL/2022 Case: Dewan Fourwheels P.Ltd vs DCIT – A Judgement Favoring Timely PF and ESI Contributions