Judgment Summary for ITA 754/DEL/2022 – Canary Agro Chemicals Private Limited vs. Circle-5(2), Delhi

Date of Hearing: 19.05.2022
Date of Pronouncement: 19.05.2022

Presiding Members:
KUL BHARAT, Judicial Member
PRADIP KUMAR KEDIA, Accountant Member

Summary:

The appeal involves Canary Agro Chemicals Private Limited, the appellant, against the respondent Circle-5(2), Delhi, for the assessment year 2019-20. The crux of the appeal lies in the disallowance of employees’ contributions to Provident Fund (PF) and Employee State Insurance (ESI) due to delays in their deposits as per the respective Acts.

After careful deliberation, the Tribunal observed that the issue was not novel and referenced various judicial pronouncements favoring the appellant’s position. Notably, it cited the Hon’ble Jurisdictional High Court of Delhi’s decision in PCIT vs Pro Interactive Service (India) Pvt.Ltd., where it was held that belated payments should not be deemed as the employer’s income under section 2(23)(x) of the Act, provided they are deposited before the filing of the return of income.

The Tribunal also noted an amendment brought by the Finance Act, 2021, clarifying the non-application of Section 43B of the Act to such sums, effective from AY 2021-22 onwards, implying its irrelevance to the current case.

In an interesting turn, it was brought to attention that Canary Agro Chemicals Pvt.Ltd. had already made disallowances in its tax computations for the late payment of PF & ESI, indicating that the revenue’s action constituted a double disallowance.

Conclusively, the Tribunal sided with the appellant, emphasizing the restoration of the appeal to the Revenue should it emerge that the contributions were not deposited before the income return’s due date as mandated by section 139(1) of the Act. Thus, the appeal by Canary Agro Chemicals Private Limited was allowed.

This summary aims to encapsulate the essence of the judgment in ITA 754/DEL/2022, marking a significant precedence in matters of late deposit of employees’ contributions to PF/ESI and its implications on tax assessments.

Order:

All appeals filed by the respective assessees, including the highlighted case of Canary Agro Chemicals Pvt.Ltd., have been allowed by the Tribunal in a decision that reinforces the legal framework pertaining to employee contributions towards social security funds.