Stelatoes Shoes and Accessories Pvt. Ltd. vs. DCIT, CPC Bengaluru

Introduction

In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, adjudicated on ITA No. 736/DEL/2022 pertaining to the assessment year 2018-19 involving Stelatoes Shoes and Accessories Private Limited, New Delhi (the appellant) against the Circle-24(2), New Delhi (the respondent). This case brings into focus the intricacies of disallowances related to the employees’ contributions to PF/ESI on account of delays in deposits as per the respective Acts. The outcome of the case was in favor of the appellant, setting a notable precedent.

Background

The case delves into the appeals filed by various assessees, including Stelatoes Shoes and Accessories Pvt. Ltd., feeling aggrieved by the orders passed by the appellate authority concerning disallowances of employees’ contributions to PF/ESI due to late deposits. The Tribunal, for the sake of brevity and convenience, clubbed together all cases pertaining to this issue and disposed of them via a consolidated order.

Arguments

The appellant, represented by advocate Shri Madhava Kapoor, raised multiple grounds challenging the CIT(A)’s decision which sustained the addition made by the CPC under Section 143(1) of the Income Tax Act, 1961. The central grievance was the alleged violation of principles of natural justice by not affording a proper opportunity of being heard, and the contention that late deposit of PF/ESI contributions, which were indeed deposited before the due date of filing the return of income, should not attract disallowances.

Key Judicial Findings

The ITAT scrutinized the legislative intent and judicial precedents regarding the issue. Notably, the Tribunal referenced the jurisdictional High Court’s decision in the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd., which supported the appellant’s position. The Tribunal highlighted that the legislative intent was to ensure expenditure allowance only upon actual payment and not to treat belated EPF and ESI payments as deemed income.

It was further observed that the amendments brought by the Finance Act, 2021, clarified certain provisions but were deemed applicable prospectively and thus not applicable to the assessment year in question.

Conclusion

The Tribunal, siding with the assessee, allowed the appeal and set aside the additions made on account of late deposit of employees’ contributions towards PF & ESI. This decision underscores the importance of judicial scrutiny in upholding the principles of natural justice and the legislative intent behind tax provisions.

Impact

This ruling is pivotal for companies dealing with late deposits of PF/ESI contributions. It provides a clear interpretation of the relevant legal provisions and lays down a precedent that could influence similar cases in the future. The judgement emphasizes the need for timely compliance while also offering relief in instances where delays do not undermine the legislation’s objective.