Dispute Over Employee Contributions to PF and ESI: Krown Agro Foods Pvt Ltd vs. ACIT

Case Overview: ITA No. 2384/DEL/2022

The Income Tax Appellate Tribunal, Delhi Bench ‘C’, presided over by Shri Kul Bharat, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member, heard the case of Krown Agro Foods Pvt Ltd against the ACIT, Circle-14(1), New Delhi. The dispute arose from the Income Tax Department’s adjustments to the appellant’s contributions towards Employees’ State Insurance (ESI) and Provident Fund (PF), which were deemed as disallowed expenditures for the assessment year 2019-20.

Filed on September 27, 2022, and pronounced on April 18, 2023, this case highlights the complexities involved in the interpretation of fiscal statutes and amendments. The main contention revolves around whether Explanation 5 to Section 43B of the Income Tax Act, which deals with the deductions for employer contributions, applies retrospectively or prospectively.

The Tribunal examined the appellant’s claims against the backdrop of a recent Supreme Court decision, which upheld that employee contributions deducted but not deposited by the due date are not deductible. This ruling has significant implications for the accounting and tax treatment of employee contributions across India.

This detailed review explores the tribunal’s deliberations, focusing on the application of judicial precedents and statutory interpretations that impact how businesses handle their fiscal responsibilities towards employee welfare schemes.

Dispute Over Employee Contributions to PF and ESI: Krown Agro Foods Pvt Ltd vs. ACIT