ITA No. 1153/DEL/2022: Prabhanjan Yadav vs ITO – Allowance of Employees’ Contribution to ESI and PF

ITA No. 1153/DEL/2022: Prabhanjan Yadav vs ITO – Allowance of Employees’ Contribution to ESI and PF

Introduction: This detailed analysis discusses the case of ITA No. 1153/DEL/2022, where appellant Prabhanjan Yadav from Gurgaon filed an appeal against the decision of the Income Tax Officer, Ward 4(1)(5), Aligarh, for the assessment year 2018-19. The main issue pertained to the disallowance of employees’ contribution to the Employees’ State Insurance (ESI) and Provident Fund (PF) which had significant implications on the assessment of taxes for the concerned fiscal year.

Background

The case originated from the decision made by the Income Tax Officer (ITO) to disallow the contributions made by the employer towards ESI and PF on the grounds that they were not deposited within the stipulated time as per respective Acts. This led to an increased tax liability for Prabhanjan Yadav, prompting an appeal to the Income Tax Appellate Tribunal (ITAT) in Delhi.

Arguments Presented

The appellant argued that the contributions, though delayed, were made before the due date of filing the income tax return under Section 139(1) of the Income Tax Act, 1961. This, according to prevailing judgements and guidelines, should allow for the contributions to be considered as deductible expenses. The Income Tax Department, represented by its legal counsel, argued that any delay in depositing these contributions negated the possibility of them being considered for deduction, relying on stringent interpretations of the relevant legislative provisions.

Judgement

The bench, comprising Judicial Member Shri Challa Nagendra Prasad and Accountant Member Shri Pradip Kumar Kedia, analyzed the submissions, relevant legal provisions, and precedents. Notably, they referred to various judgments, including the landmark decision in the case of CIT vs. AIMIL Ltd., which allowed for the consideration of such contributions as deductions if deposited before the due date of filing the return.

In a unanimous decision, the ITAT allowed the appeal in favor of Prabhanjan Yadav, setting aside the disallowance made by the ITO. The bench clarified that as per the interpretation of the law and the decisions of higher judiciaries, employees’ contributions to ESI and PF, if deposited before the due filing date, should be allowed as deductions.

Conclusion

This judgement has implications for similar cases where employers may face disallowances due to delayed contributions. It reiterates the importance of adhering to timelines while also offering a relief mechanism through timely filing of income tax returns. For Prabhanjan Yadav, this verdict enabled the rectification of an increased tax liability issue, reaffirming the tribunal’s stance on allowing deductions for employees’ contributions to ESI and PF when deposited before the return filing deadline.

ITA No. 1153/DEL/2022: Prabhanjan Yadav vs ITO – Allowance of Employees’ Contribution to ESI and PF