Income Tax Appeal (ITA 1095/DEL/2022) – Karan Luthra vs. ITO, New Delhi: A Case on Employee Contributions

The Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’, deliberated on a significant case (ITA No. 1095/DEL/2022) between Karan Luthra, the appellant, and the Income Tax Officer (ITO), Circle-62(1), New Delhi, the respondent. This article aims to provide a comprehensive analysis and summary of the tribunal’s decision, especially concentrating on the pivotal issue of employees’ contributions to the Employees’ State Insurance (ESI) and Provident Fund (PF), a matter of wide interest and applicability.

Assessment Year in focus was 2019-20, and the tribunal allowed the appeal filed by Karan Luthra, leading to a noteworthy precedent regarding the treatment of employees’ contributions to ESI and PF under the Income Tax Act, 1961. The tribunal’s bench consisted of Judicial Member Shri Challa Nagendra Prasad and Accountant Member Shri Pradip Kumar Kedia, who collectively assessed the appeal’s merits.

The heart of the dispute revolved around the disallowance under Section 36(1)(va) of the Income Tax Act concerning employees’ contributions to ESI and PF. According to the provisions, such contributions, if not deposited within the due dates prescribed under the respective Acts but deposited before the due date of filing the return under Section 139(1) of the Act, have led to diverse interpretations and judicial scrutiny. Karan Luthra’s case was one among many highlighting this contention.

The tribunal, referencing various judicial pronouncements, including the jurisdictional High Court’s decision in CIT Vs. AIMIL Ltd. and the Supreme Court’s judgment in CIT Vs. Alom Extrusions Ltd., elucidated that if such contributions are remitted to the government account before the filing of the return of income, no disallowance is warranted. This interpretation aimed to clarify the disputes arising out of late deposits of employees’ contributions and ensure compliance with the labor welfare laws without imposing undue penalties on employers.

In delivering the judgment, the ITAT meticulously detailed the legislative intent behind the relevant provisions and amendments, especially those introduced by the Finance Act, 2021. This Act, effective from April 1, 2021, aimed to rationalize the provisions relating to the deductions for employees’ contributions to welfare funds. By affirming that no disallowance should be made for belated payments if such payments were made before the return filing deadline, the tribunal provided substantial relief and clarity to taxpayers.

This case, therefore, stands as a crucial reference point for both employers and tax practitioners regarding the admissibility of deductions pertaining to employees’ contributions to ESI and PF. It underscores the importance of adhering to statutory timelines while also recognizing the procedural compliances that must be met to ensure tax benefits are duly availed.

The ITAT’s ruling in favor of the appellant, Karan Luthra, underscores the judiciary’s approach towards facilitating compliance with social security laws, emphasizing the need for a balanced interpretation that serves the interests of employees, employers, and revenue authorities.

Income Tax Appeal (ITA 1095/DEL/2022) – Karan Luthra vs. ITO, New Delhi: A Case on Employee Contributions