The Income Tax Appellate Tribunal’s decision in ITA No. 1082/DEL/2021 addressed the contentious issue of the timing of employee contributions to statutory funds like Employee State Insurance (ESI) and Employee Provident Fund (EPF) and their tax deductibility under the Income Tax Act, 1961. This case, involving Nikhil Sharma and the Deputy Commissioner of Income Tax, CPC, Bangalore, centers around whether contributions made after the due dates but before the filing of income tax returns can be allowed as deductions under Section 36(1)(va) of the Act.
Nikhil Sharma, a businessman from Haryana, faced disallowance by the tax department for employee contributions to ESI and EPF that were not deposited within the prescribed time frame but were made before the due date of income tax return filing for the assessment year 2019-20. This led to an appeal before the ITAT Delhi.
The tribunal’s deliberation focused on the interpretation of Section 36(1)(va) juxtaposed with Section 43B of the Income Tax Act, which mandates certain deductions only on actual payment. The pivotal question was whether delayed deposits of employee contributions, albeit deposited before the return filing deadline, could still qualify for deductions.
The tribunal noted that the legislative amendments and judicial precedents have historically treated employer and employee contributions differently. It highlighted several key judgments, including those from the Hon’ble Supreme Court, which supported the assessee’s position that if such contributions are made before the filing of the income tax return, they should be allowed as deductions.
The tribunal’s decision in ITA No. 1082/DEL/2021 sets a significant precedent for businesses and payroll management practices, emphasizing compliance with statutory timelines while also recognizing the practicalities of business operations. This case not only clarifies the tax treatment of delayed employee contributions to ESI and EPF but also reassures taxpayers about the acceptance of such contributions if made before the tax filing deadline.
This case may influence future legislative clarifications regarding the treatment of employee contributions to welfare funds. It underscores the need for timely compliance while also providing a safety net through the provision of making payments before tax return filings, thereby balancing the interests of employees, employers, and tax authorities.
Analyzing the Allowability of Delayed Employee Contributions Under ITA No. 1082/DEL/2021
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