Introduction
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘E’ delivered a judgment on August 23, 2023, dismissing the appeal filed by Omaxe World Street Pvt. Ltd. against the Assistant Commissioner of Income Tax, Circle-2(1), Delhi for the assessment year 2017-18 under case number ITA 1741/DEL/2022. The case delves into the complex issue of disallowance of expenditures towards employees’ contribution to the Employees’ State Insurance Corporation (ESIC)/Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act, 1961.
Background
Omaxe World Street Pvt. Ltd., a renowned real estate development company based in Faridabad, challenged the order dated July 7, 2022, by the Commissioner of Income Tax Appeals-National Faceless Appeal Centre (NFAC), which arose from the assessment order December 18, 2019, by the Assessing Officer under Section 143(3) of the Income Tax Act. The dispute centered on the disallowance of the late deposit of employees’ contributions to PF/ESIC.
Arguments Presented
During the proceedings, the appellant company was not represented, leading to an ex-parte decision. The Senior Departmental Representative (SR.DR) for the Revenue argued that the Assessing Officer correctly added Rs.1,65,347 to the assessee’s returned income due to the late deposits. Citing the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT, the SR.DR contended that for the assessment year in question, belated deposits of employees’ contribution should be taxed under Section 2(24)(X) read with Section 43B, without the allowance for deduction under Section 36(1)(va).
Ruling and Implications
The ITAT upheld the Revenue’s stance, mentioning that the issue of taxability of belated employees’ contributions to PF/ESIC had been settled by the Supreme Court’s judgment in Checkmate Services. The tribunal observed that the Income Tax Act distinguishes between employees’ and employer’s contributions, with the latter being covered by Section 43B. However, employees’ contributions deducted by the employer from the employees’ salaries are governed by the conditions specified in Section 36(1)(va), thus not permissible for deductions if deposited late.
The dismissal of this appeal underscores the stringent stance taken by tax authorities and judicial bodies on the adherence to statutory timelines for the deposit of employees’ contributions to ESIC/PF. It serves as a crucial reminder for corporations to ensure timely compliance with such statutory deposits to avoid disallowances and ensuing tax liabilities.
Conclusion
The case of Omaxe World Street Pvt. Ltd. vs. ACIT represents a critical analysis of non-compliance with tax regulations concerning employees’ contributions to welfare schemes. The ruling reaffirms the legal precedent emphasizing the necessity of punctuality in the deposit of such contributions, setting a significant precedent for other entities in similar situations.
Order pronounced in open court on August 23, 2023, by Vice President Shaktijit Dey and Accountant Member Pradip Kumar Kedia, marking a definitive conclusion to this legal discourse over tax compliance for employee contributions.
