Case Number: ITA 1021/DEL/2021
Appellant: Dhruv Industries Limited, New Delhi
Respondent: AO Circle 7(1), New Delhi
Assessment Year: 2019-20
Case Filed On: August 26, 2021
Order Type: Final Tribunal Order
Date of Order: February 28, 2022
Pronounced On: February 28, 2022
In this case, Dhruv Industries Limited filed an appeal against the order of the Assessing Officer (AO) Circle 7(1), New Delhi, concerning the disallowance of contributions to the Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF) under Section 36(1)(va) of the Income Tax Act, 1961. The disallowance was made on the grounds that the contributions were deposited beyond the due date prescribed under the respective Acts.
The appellant, Dhruv Industries Limited, is a company engaged in manufacturing activities. During the assessment year 2019-20, the company deposited the employee’s contributions to the ESI and EPF beyond the due dates prescribed under the relevant Acts but before the due date for filing the return of income under Section 139(1) of the Income Tax Act.
The AO disallowed the contributions citing Section 36(1)(va), which stipulates that any sum received by the employer from employees towards ESI and EPF contributions must be credited to the employees’ account in the relevant fund before the due date under the respective Acts.
The appellant contended that the disallowance was not justified as the contributions were deposited before the due date for filing the return of income under Section 139(1). The appellant relied on various judgments of the Income Tax Appellate Tribunal (ITAT) and High Courts, which held that such contributions are allowable if deposited before the due date of filing the return.
The respondent argued that the disallowance was valid as per the provisions of Section 36(1)(va) and relied on the judgments of certain High Courts that held the employer is not entitled to claim deductions if the employees’ contributions were deposited beyond the due dates prescribed under the ESI and EPF Acts.
The Tribunal considered the following points while making its decision:
The Tribunal reviewed several judicial precedents, including:
The Tribunal noted that in these cases, the employee’s contributions to ESI and EPF were allowed as deductions if deposited before the due date of filing the return of income under Section 139(1).
The Tribunal also took into account the amendments introduced by the Finance Act, 2021, which clarified that the provisions of Section 43B do not apply to the determination of the due date under Section 36(1)(va). This amendment aimed to provide certainty and avoid disputes regarding the allowability of delayed deposits of employees’ contributions.
The Tribunal concluded that the disallowance made by the AO was not justified. It held that the employee’s contributions to ESI and EPF, if deposited before the due date of filing the return of income under Section 139(1), should be allowed as deductions. The Tribunal relied on the judicial precedents and the clarifications provided by the Finance Act, 2021.
In the final judgment, the Tribunal allowed the appeal filed by Dhruv Industries Limited and directed the AO to allow the deduction of the employees’ contributions to ESI and EPF. The Tribunal’s decision emphasized the importance of adhering to the due date for filing the return of income under Section 139(1) for claiming such deductions, aligning with the legislative intent and judicial interpretations.
This case underscores the necessity for employers to ensure timely deposits of employees’ contributions to statutory welfare funds to avail of the deductions under the Income Tax Act. It also highlights the evolving legal landscape regarding the interplay of Section 36(1)(va) and Section 43B, especially with the recent amendments.
Dhruv Industries Limited vs. AO Circle 7(1): Disallowance of ESI and EPF Contributions
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