Income Tax Appeal ITA 1083/DEL/2022: Employee Contribution Allowance Before Due Date for Income Tax Return Filing

Income Tax Appeal ITA 1083/DEL/2022: Employee Contribution Allowance Before Due Date for Income Tax Return Filing

The Income Tax Appellate Tribunal, New Delhi, rendered a significant judgment in the case of ITA No. 1083/DEL/2022, addressing the issue of the allowance of employee contributions to various funds like EPF and ESI, if these contributions were deposited by the employer before the due date for filing the income tax return. The appeal was filed against the orders passed by the CIT (Appeals) / NFAC for the assessment years covering 2014-15, 2017-18, 2018-19, and 2019-20, which sustained the disallowance made under Section 36(1)(va) of the Income Tax Act, 1961.

The crux of the appeal revolved around whether the contributions by employees to their respective welfare funds, which were delayed yet deposited before the income tax return filing deadline, should be allowed as deductions under the Act. The Tribunal, through a detailed analysis, highlighted the legislative intent behind Sections 36(1)(va) and 43B and the amendments brought by the Finance Act, 2021.

All 60 cases brought forth in this bunch of appeals shared the common issue of employee contributions. The ruling of several benches within the Tribunal and various High Courts came into consideration during the proceedings, especially emphasizing the decisions in CIT Vs. AIMIL Ltd. and CIT Vs. M/s. Alom Extrusions Limited as leading precedents. Furthermore, the Hon’ble Supreme Court’s perspective in M.M. Aqua Technologies Ltd. Vs. CIT was deliberated to understand the retrospective applicability of statutory amendments intended for doubt removal.

The Tribunal meticulously dissected the legislative amendments effected by Finance Act, 2021, clarifying the non-applicability of Section 43B to the ‘due date’ mentioned under Section 36(1)(va) for employee contributions, asserting these amendments to be prospective, effective from AY 2021-22. It was concluded that for the years in question, employee contributions to EPF and ESI, if deposited before the due date for income tax return filings, should not face disallowance.

The allowance of the appeal signifies a pivotal clarification in the precedential tax regime, particularly for employers managing employees’ contributions to statutory funds. This judgment aligns with the broader objective of ensuring employers’ compliance with labor welfare laws without unduly penalizing delays in fund deposits, provided these are completed before statutory income tax filing periods.

The decision holds considerable significance for both the taxpayer community and the revenue authorities, paving the way toward a more measured interpretation of statutory provisions concerning employee welfare contributions.

Income Tax Appeal ITA 1083/DEL/2022: Employee Contribution Allowance Before Due Date for Income Tax Return Filing