Income Tax Appeal Verdict on the Disallowance of Employee Contributions: Case ITA 1390/DEL/2022

Income Tax Appellate Tribunal Decision on Ajit Singh vs. ITO, Ward-1(1), Gurgaon [ITA No. 1390/DEL/2022]

Introduction

The appellant, Ajit Singh from Gurgaon, filed an appeal against the Income Tax Officer (ITO), Ward-1(1), Gurgaon concerning the assessment year 2019-20. This case revolves around the disallowance of the employees’ contribution to Provident Fund (PF) and Employees’ State Insurance (ESI) due to delayed deposits, despite being made before the due date of the income tax return filing. The Income Tax Appellate Tribunal (ITAT), Delhi, led by Shri Anil Chaturvedi (Accountant Member) and Shri Anubhav Sharma (Judicial Member), delivered the final judgment on this matter.

Background

The controversy in this appeal and several similar appeals lay in the interpretation of provisions related to the disallowance of employees’ contributions to PF/ESI under sections 36(1)(va) and 2(24)(x) of the Income Tax Act, 1961, if such contributions are not deposited within the due dates specified under the respective Acts. The crux of the arguments presented revolved around whether the appellant’s delayed yet pre-return filing date deposits could be considered for deduction.

Arguments

The appellant’s representative argued that the contributions, although delayed, were deposited before the filing of the income tax return, citing various judicial precedents favoring the appellant’s claim. On the opposite end, the representative for the Revenue stood by the lower authorities’ decisions, highlighting the legislative amendments made by the Finance Act, 2021, and arguing their impact on this case.

Judgment

After considering the submissions from both sides and the legislative amendments brought about by the Finance Act, 2021, the ITAT found the appellant’s arguments persuasive. It was observed that the amendments are to be applied prospectively from the assessment year 2021-22 onwards and, therefore, are not applicable to assessment years prior to that, including the assessment year in question, 2019-20. Consequently, the Tribunal allowed the appeal, holding that since the deposits were made before the return filing deadline, the disallowance was unjust.

Conclusion

The decision in ITA No. 1390/DEL/2022 has significant implications for the interpretation of the law regarding the timing of employees’ contribution deposits to PF/ESI. The ITAT’s ruling reinforces the principle that such contributions, if deposited before the income tax return filing due date, should be allowed as deductions, providing relief to the employers who make late deposits but within the allowed timeline. This case sets a precedent for similar disputes, ensuring the applicability of the law in a manner that supports the intent behind the statutory provisions of the Income Tax Act, 1961.

Income Tax Appeal Verdict on the Disallowance of Employee Contributions: Case ITA 1390/DEL/2022