ITA No. 1051/DEL/2022: Pratham Motors Pvt. Ltd. vs. ACIT, Delhi – Allowed

IN THE INCOME TAX APPELLATE TRIBUNAL [DELHI BENCH “G” : DELHI]

BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER

Assessment Year: 2018-19

Pratham Motors Pvt. Ltd., Delhi Vs. ACIT, Circle-20(1), New Delhi.

Case Filing Reason: This case involves Pratham Motors P. Ltd., the appellant, challenging the decision of the Assistant Commissioner of Income-Tax (ACIT), Circle-20(1), New Delhi, regarding the disallowance made under Section 36(1)(va) of the Income Tax Act, 1961, in respect of employees’ contribution to ESI and PF deposited after the due date under the relevant Acts, but before the due date for filing return of income under Section 139(1) of the Act.

Judgment Summary: The appeal was filed on account of disputes over the disallowance of contributions to employee provident fund (PF) and employee state insurance (ESI), which were deposited by the due date of filing of the return but after the statutory due date. The key issue revolved around the applicability of the deductions under Section 36(1)(va) and the implications of Section 43B as amended by the Finance Act, 2021.

In a significant judgment, the tribunal allowed the appeal in favor of Pratham Motors Pvt. Ltd. It was held that the amendments brought in by the Finance Act, 2021, clarifying the disallowance under Section 36(1)(va) and Section 43B for employees’ contributions to ESI and PF, are effective from April 1, 2021, and therefore not applicable to this case concerning the assessment year 2018-19. The tribunal directed the ACIT to delete the disallowance of employees’ contributions to EPF and ESI, as the contributions were remitted before the due date for filing the return of income.

The tribunal’s decision rests on various judicial precedents, including the landmark case of CIT Vs. AIMIL Ltd., and revisits the interpretation of the relevant sections of the Income Tax Act. This judgment accentuates the distinction between the employer’s and employee’s contributions to welfare funds, highlighting the legal and procedural nuances associated with the timing of such contributions and their deductibility under the Act.

If the employees’ contribution is deposited within the stipulated time frame, no disallowance is warranted, providing a significant relief to employers concerning compliance with the Provident Fund and ESI Act provisions.

The judgment holds critical implications for the interpretation of amendments made by the Finance Act, 2021, and provides clarity on the application of Section 36(1)(va) and Section 43B to employees’ contributions to welfare funds.

Order pronounced on: 15/06/2022

ITA No. 1051/DEL/2022: Pratham Motors Pvt. Ltd. vs. ACIT, Delhi – Allowed