The case of Elegant Dyeing and Processing Private Limited, New Delhi, against the DCIT CPC, Bengaluru, pertains to the assessment year 2019-20. The appeal was filed on June 23, 2021, under case number ITA 776/DEL/2021. The final tribunal order was pronounced on August 23, 2022.
The appellant, Elegant Dyeing and Processing Private Limited, filed appeals against two separate orders dated May 29, 2021, and April 28, 2021, by the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), New Delhi, pertaining to assessment years 2018-19 and 2019-20. The primary issue was the disallowance of employee’s contribution to Provident Fund (PF) and Employees’ State Insurance (ESI) due to delayed payments.
The hearing for this case was conducted on August 23, 2022, before the Delhi ‘H’ Bench of the Income Tax Appellate Tribunal, with the order being pronounced on the same day. The case was presented by Shri Ruchesh Sinha, Advocate, representing the assessee, and Shri M. Baranwal, CIT-DR, representing the revenue.
The key legal principles in this case revolved around the provisions of Sections 36(1)(va) and 43B of the Income-tax Act. The primary contention was whether the disallowance made by the CPC in the intimation issued under Section 143(1) was justified, especially considering the amounts claimed under Section 36(1)(va) for delayed payment of employee’s contributions towards PF and ESI but deposited before the due date of filing the return of income under the Income Tax Act.
The counsel for the assessee argued that the employee’s contributions towards PF and ESIC had been paid and deposited before the due date allowed under Section 139(1) of the Act, although the payments were made beyond the due dates specified in the respective Acts. The counsel cited several judicial pronouncements, including the decision of the Hon’ble Delhi High Court in the case of CIT vs. AIMIL Limited (321 ITR 508), to support their contention that deductions are allowable under Section 36(1)(va) if the contributions are paid before the due date of filing the return of income.
The tribunal observed that the Assessing Officer had made the impugned addition on the ground that the assessee had deposited employee’s contributions towards Provident Fund and ESI after the due date prescribed under the relevant Acts/Rules. The Assessing Officer resorted to the additions under Section 36(1)(va) read with Section 2(24)(x) of the Act.
The tribunal noted that the identical issue had been decided in favor of the assessee by the Hon’ble Delhi High Court in the case of CIT vs. AIMIL Limited (321 ITR 508), wherein it was held that the legislative intent was to ensure that the amount paid is allowed as an expenditure only when payment is actually made. The court did not intend to treat belated payment of Employee’s Provident Fund (EPF) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act.
Respectfully following the binding precedents of the Hon’ble Delhi High Court, the tribunal directed the Assessing Officer to allow the claim of the assessee and delete the addition. The tribunal also took note of the plea of the assessee that the delayed payment of employee’s contribution to PF/ESIC is not disallowable as the amendments to Section 36(1)(va) and Section 43B effected by the Finance Act, 2021, were applicable prospectively in relation to the Assessment Year 2021-22 and subsequent years. Therefore, the claim of deduction of contribution to Employee’s State Insurance Scheme (ESI) and Provident Fund under Section 36(1)(va) could not be denied to the assessee in the Assessment Year 2019-20 based on the amendments made by the Finance Act, 2021.
The tribunal allowed the appeal of Elegant Dyeing and Processing Private Limited, directing the deletion of the unwarranted disallowance and corrections in the income assessment as per the factual records and judicial principles.
The detailed judgment underscores the importance of accurate reporting and compliance with statutory deadlines, while also highlighting that procedural errors should not lead to unwarranted disallowances if the substantive compliance is met. The tribunal’s decision serves as a significant reference for similar cases involving employee’s contributions and statutory dues.
Order pronounced in the open court on August 23, 2022.
Signed by:
N.K. Billaiya, Accountant Member
Astha Chandra, Judicial Member
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