The case ITA 1695/DEL/2021 involves Pearl Apparels Inc., a company based in Delhi, contesting the disallowance of Employee State Insurance (ESI) and Employee Provident Fund (EPF) contributions made by the Income Tax Officer (ITO), Ward-28(4), Delhi for the assessment year 2019-20. The appeal was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’.
Pearl Apparels Inc. filed its income tax return for the assessment year 2019-20. The disallowance in question arose due to the delayed payment of employees’ contributions towards ESI and EPF. The ITO, while processing the return, disallowed these contributions under Section 36(1)(va) of the Income Tax Act, 1961, as they were not deposited within the due date prescribed under the relevant acts.
The case was brought to the ITAT on the grounds that the contributions, although delayed, were deposited before the due date for filing the income tax return under Section 139(1) of the Income Tax Act.
The appeal was heard on February 21, 2022, via video conferencing by a bench comprising Judicial Member Shri Saktijit Dey and Accountant Member Dr. B. R. R. Kumar. The order was pronounced on February 28, 2022.
The counsel for Pearl Apparels Inc., Shri Sourabh Rohtagi, CA, argued that the disallowance of ESI and EPF contributions was unjustified as the payments were made before the due date of filing the income tax return. The Revenue, represented by Shri Umesh Takyar, Sr. DR, contended that the disallowance was valid since the payments were not made within the due dates specified under the respective statutes.
The ITAT examined various precedents and amendments to the Income Tax Act. It reviewed the judgments of multiple high courts and the Supreme Court regarding the allowability of delayed ESI and EPF contributions. The tribunal noted the following key points:
The tribunal considered judgments such as CIT vs. Alom Extrusions Ltd., CIT vs. Bharat Hotels Ltd., and CIT vs. AIMIL Ltd., which discussed the implications of late deposits of employees’ contributions to welfare funds.
In its detailed analysis, the ITAT referred to the legislative intent behind the amendments, emphasizing the importance of timely deposits to ensure employees’ welfare and avoid misuse of funds by employers. The tribunal observed that while the employers’ contributions are covered under Section 43B, the employees’ contributions are strictly governed by Section 36(1)(va).
The ITAT concluded that the disallowance of ESI and EPF contributions was justified since the payments were made beyond the due dates specified under the ESI and PF Acts, even though they were deposited before the due date for filing the income tax return. The tribunal dismissed the appeal of Pearl Apparels Inc., affirming the disallowance made by the ITO.
This decision underscores the necessity for employers to adhere to the statutory deadlines for depositing employees’ contributions to welfare funds. It also highlights the distinct treatment of employees’ and employers’ contributions under the Income Tax Act.
The judgment in ITA 1695/DEL/2021 reaffirms the principle that timely compliance with statutory requirements is crucial for claiming deductions related to employees’ contributions. Employers must ensure that such contributions are deposited within the prescribed due dates to avoid disallowance and potential penalties.
The case serves as a significant precedent for future disputes involving the disallowance of employees’ contributions to welfare funds and reinforces the legislative intent to safeguard employees’ interests through strict compliance measures.
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