Aztek Private Limited vs. ACIT: A Victory for Timely Employee Contribution Deposits – ITA 1497/DEL/2022

Background and Proceedings

Aztek Private Limited, the appellant, filed the appeal challenging the order passed by the appellate authority regarding the disallowance made under sections 36(1)(va) and 37 of the Income Tax Act, 1961. The primary grounds of appeal revolved around the disallowance of Rs. 4,64,615 for delayed deposit of employees’ contribution of EPF and ESI, though it was paid before the due date of filing of the return, and an addition of Rs. 2,396 under section 37 for interest on delayed deposit of TDS. The case presented several legal nuances concerning the interpretation of the Income Tax Act, specifically the sections mentioned above.

The appellant argued that despite the delay in depositing the PF/ESI contributions, all contributions received from its employees were deposited with the appropriate authorities before filing the return of income. The appellant’s representation leaned heavily on precedent judgments, including Azamgarh Steel & Power vs. CPC in ITA No.1626/Del/2020 and CIT vs. AIMIL Ltd. [2010] 188 Taxman 265 (Delhi), asserting that no disallowance should be made if the contributions were deposited before the filing of the income tax return.

Conversely, the Departmental Representative (DR) supported the lower authorities’ decision, aligning with the order in Vedvan Consultants Pvt. Ltd. vs. DCIT in ITA No.1312/Del/2020, and discussed the implications of the Finance Act 2021 amendments to the case.

Judgement and Implications

The Tribunal’s order highlighted the critical analysis of the legal provisions, judicial precedents, and the facts of the case. The bench agreed with the appellant’s perspective, stressing that the contributions had been deposited within the allowable time per section 43B, hence not warranting disallowance. The Tribunal further noted that the amendments brought by the Finance Act 2021, clarifying the non-applicability of Section 43B to the sums received from employees towards PF/ESI, were prospectively applied from the assessment year 2021-22 onwards and hence did not affect the case at hand.

This decision is pivotal for numerous reasons. Firstly, it reaffirms the legal standpoint that delays in depositing employees’ contributions to PF/ESI, if deposited before the filing of the income tax return, should not attract disallowance under section 36(1)(va) of the Income Tax Act. Secondly, it clarifies the application of recent legislative amendments, providing a clear interpretation for future references. Lastly, the verdict serves as a precedent for similar disputes, emphasizing the importance of adherence to procedural compliances within the prescribed timelines.

Conclusion

The case of Aztek Private Limited vs. ACIT, allowed in favor of the appellant, underscores the intricate balance between strict legal compliance and realistic procedural timelines while dealing with employees’ contributions to welfare funds. It highlights the Tribunal’s role in interpreting tax laws in a manner that aligns with legislative intent and procedural fairness. Future appellants and respondents alike will find this case to be a reference point in navigating similar legal waters.