Income Tax Appeal Dismissal in Faridabad Case Involving PF & ESIC Deductions

Income Tax Appellate Tribunal’s Judgement on ITA No. 1188/DEL/2022: A Detailed Analysis

The Income Tax Appellate Tribunal (ITAT), Delhi, in the case bearing ITA No. 1188/DEL/2022 for the assessment year 2018-19, pronounced a significant judgement involving the appellant Naresh Kumar Chawla, a proprietor of SAC Enterprises from Faridabad, and the respondent ACIT Circle-2(1), Faridabad. The primary issue revolved around the disallowance of contributions to Provident Fund (PF) and Employees’ State Insurance Corporation (ESIC) dues, which has broad implications for payroll compliance in businesses.

Background and Proceedings

The appellant, an individual and proprietor, engaged in the manpower supply business, electronically filed his return for the Assessment Year 2018-19, declaring a total income of Rs.84,87,910. The CPC issued an intimation under Section 143(1), adjusting the total business income to Rs. 1,30,76,760 after disallowing Rs. 45,88,351 under Section 36(1)(va) for the delayed deposit of employee contributions to PF & ESIC.

Contesting the intimation, the appellant filed an appeal which was dismissed by the National Faceless Appeal Centre (NFAC), prompting further appeal to the ITAT.

Grounds of Appeal

The appellant raised multiple grounds questioning the legitimacy of the disallowance, including the erroneous confirmation by the NFAC, the beyond-scope addition under Section 143(1), and the lack of jurisdiction. Furthermore, the appellant contested that the disallowance of Rs. 45,88,351 for employee share contributions to PF & ESIC before the filing return due date under Section 139(1) was illegal and warranted deletion.

Judicial Deliberation and Final Verdict

The Tribunal carefully considered the matter, especially focusing on the disallowance under Section 36(1)(va). It was observed that though there was a delay in depositing the employees’ contributions, they were deposited before filing the return of income. The Tribunal referred to the Supreme Court’s stance in the Checkmate Services Pvt. Ltd. case, distinguishing the instant case’s circumstances and upheld the disallowance, citing the non-fulfillment of conditions prescribed under the relevant statutes for allowing such deductions.

The appellant’s reliance on various precedents to counter the validity of the disallowance did not find favor with the Tribunal, leading to the dismissal of the appeal. The Tribunal’s decision emphasized the strict adherence to statutory due dates for depositing employee contributions to PF & ESIC for claiming deductions under the Income Tax Act.

Implications of the Judgement

The judgment underscores the critical importance of compliance with statutory timelines for depositing employees’ contributions to PF & ESIC, reinforcing the stance that such contributions received from employees, considered as income under Section 2(24)(x), must be deposited within the due dates under respective acts for claiming deductions. This case serves as a stern reminder to all businesses about the stringent adherence required for payroll compliance under the Income Tax laws.

Conclusion

The dismissal of Naresh Kumar Chawla’s appeal by the ITAT in ITA No. 1188/DEL/2022 reaffirms the necessity for punctual compliance with the statutory provisions related to employees’ contributory funds like PF & ESIC to avail tax benefits. The judgement contributes significantly to the jurisprudence on payroll compliance and disallowance of delayed contributions under the Income Tax Act.

Income Tax Appeal Dismissal in Faridabad Case Involving PF & ESIC Deductions