Income Tax Appeal in Case ITA 1215/DEL/2022 – Allowance of Employee Contributions

Income Tax Appeal in Case ITA 1215/DEL/2022 – Allowance of Employee Contributions

The Income Tax Appellate Tribunal, Delhi Bench ‘G’, witnessed a significant ruling in the case of Chahal Security and Services, Rohtak (‘the appellant’) versus Income Tax Officer, Ward-3, Rohtak (‘the respondent’) for the assessment year 2018-19. The case, bearing case number ITA 1215/DEL/2022, revolved around the disputed allowance of employee contributions to Provident Fund (PF) and Employee State Insurance (ESI), a common point of contention impacting several appeals.

Background

The appellants, feeling aggrieved by the orders passed by the respective appellate authorities for various assessment years, brought forward the appeal. The matter under scrutiny was the correctness of disallowance of different amounts under section 2(24)(x) read with section 36(1)(va) towards employees’ contribution to PF/ESIC.

During the proceedings, it was contended that the contributions were deposited well before the prescribed date for filing the return of income under section 139(1), despite some delays in meeting the due dates under the respective Acts. This led to a thorough examination by the Tribunal of existing judicial pronouncements and legislative amendments impacting the case.

Judicial Analysis and Decision

The bench, comprising of Shri C.N. Prasad, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member, critically analyzed the submissions, precedents, and the legislative framework. They acknowledged the pivotal question of the legislative intent behind treating belated payments of employee contributions as deemed income of the employer under the Income Tax Act.

Significantly, the Tribunal referenced the honorable Jurisdictional High Court of Delhi’s ruling in the case of PCIT vs. Pro Interactive Service (India) Pvt.Ltd., which supported the appellant’s stance. Moreover, the adjustment brought by the Finance Act, 2021, was clarified to apply prospectively, thus not affecting the assessment year in question.

In light of the evidence and arguments presented, the Tribunal concluded that the Assessing Officer was not justified in denying the deduction claimed on account of late deposit of PF/ESI/EPF before the filing of the return of income. They underscored that there was no contention from the Revenue that the contributions were deposited post the filing of the income return.

The judgment also highlighted the Tribunal’s stance on adjustments towards employees’ contribution to PF/ESIC resulting in disallowance thereof, endorsing their allowability under the scrutinized sections of the Income Tax Act, backed by judicial precedents.

Conclusion and Implications

The Tribunal allowed the appeals filed by the captioned assessees, marking a significant precedent on the treatment of employee contributions to PF and ESI. The ruling reassured that delayed payments, if deposited before the due date of filing the return of income as per section 139(1), should not be construed unfavorably against the employers, affirming the legislative intent towards the genuine compliance framework.

This judgment not only impacts the appellant but also sets a reference point for similar cases, balancing the strict compliance requirements with a pragmatic interpretation of legislative objectives aimed at promoting timely deposits of employee contributions.

Order pronounced in the open court on 20.06.2022.

Income Tax Appeal in Case ITA 1215/DEL/2022 – Allowance of Employee Contributions