This article delves into the Income Tax Appellate Tribunal’s decision for ITA No. 1150/DEL/2021 concerning Tushar Chauhan from Faridabad and the Deputy Commissioner of Income Tax, CPC, Bengaluru. It addresses the key legal issues surrounding the delayed payments of Employees’ Provident Fund (PF) and Employees’ State Insurance (ESI) and their impact on tax deductions.
Tushar Chauhan, the appellant, contested the order dated August 30, 2021, from the National Faceless Appeal Centre (NFAC) for the assessment year 2018-19. The primary contention was the disallowance of a deduction amounting to Rs. 5,48,082, attributed to the delayed deposit of employees’ contributions to PF and ESI.
The initial return of income filed by Chauhan on October 18, 2018, declared a total income of Rs. 41,06,320. Subsequently, the Centralized Processing Centre (CPC) disallowed certain deductions during processing, specifically concerning the timeliness of the PF and ESI contributions.
Chauhan appealed the CPC’s decision to the Commissioner (Appeals). The appeal brought to light the amendment to section 36(1)(va) and section 43B by the Finance Act 2021, effective from April 1, 2021. The Commissioner (Appeals) upheld the disallowance, interpreting the amendment as clarificatory and applicable retrospectively, thereby justifying the denial of deductions for payments not made by the statutory due date.
In response, Chauhan’s counsel argued that these amendments should apply prospectively, not affecting the case at hand for the 2018-19 assessment year. They cited the Coordinate Bench’s decision in Mr. Vansh Jain vs DCIT, which supported the view that such legislative changes should not impact earlier assessment years.
The Tribunal, led by Judicial Member Shri Saktijit Dey, reviewed the submissions and legal precedents. It was noted that if the contributions to PF and ESI were paid before the due date of the income tax return under section 139(1) of the Act, they should be allowed as deductions. The Tribunal recognized that the legislative amendments introduced by the Finance Act 2021 were intended to be prospective and should not affect the assessments for years prior to 2021-22.
Conclusively, the Tribunal sided with the appellant, allowing the appeal and directing the deletion of the disallowance. This decision reinforces the principle that amendments with prospective effect cannot be applied retrospectively unless explicitly stated by the legislature.
This case sets a significant precedent for how amendments to tax laws should be interpreted in terms of their applicability to past assessment years. It provides a detailed analysis of the judicial reasoning behind safeguarding taxpayers’ rights against retroactive legislative changes.
The detailed examination of judicial rationale and citations from relevant case law in this Tribunal decision underscores the complexity of tax litigation and the importance of a clear understanding of legislative intent and procedural fairness in tax assessments.
The final order was pronounced in the open court on January 21, 2022, by Saktijit Dey, confirming the legal standpoint that favors the taxpayer in cases of ambiguity regarding the retrospective application of tax law amendments.
Case Analysis: Tushar Chauhan vs. DCIT, CPC, Bengaluru on Delayed PF and ESI Payments for AY 2018-19
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