ITA No. 988/DEL/2022 – Fashion Makers Group vs. DCIT

Detailed Background and Proceedings

The core of the dispute was the deadline for depositing employees’ contributions to ESI and PF into the respective government accounts. The assessing officer (AO) disallowed deductions claimed by the appellant under Section 36(1)(va) of the Income Tax Act, 1961, pertaining to the employees’ contributions to ESI and PF, on the grounds that these were not deposited by the due dates as per the relevant acts.

The appellant contested this understanding and took the matter to the ITAT, asserting that the contributions, though delayed, were made before the due date for filing the return of income under Section 139(1) of the Act. This was a pivotal argument, as it highlighted the difference in interpretation between what constituted ‘due date’ for such contributions.

Judgement Overview

The ITAT, after careful examination of the case, preceding judgments, and the amendments brought into the Income Tax Act by the Finance Act, 2021, decided in favor of the appellant. The tribunal held that the amendments to Sections 36(1)(va) and 43B of the Act, introduced for clarifying the ambiguities regarding ‘due dates’ for depositing employees’ contributions, have a retrospective effect only from the assessment year 2021-22 onwards. Thus, for the relevant assessment year 2019-20, the tribunal found that the appellant had complied with the requirements by depositing the contributions before the filing of the income tax return.

Furthermore, the ITAT directed the assessing officer to delete the disallowance made under Section 36(1)(va) concerning the employees’ contributions to ESI and PF, as they were deposited before the due date for filing the return of income under the Income Tax Act. This decision was backed by various judicial precedents, including the landmark judgment of the Supreme Court in the case of CIT Vs. AIMIL Ltd., and a series of decisions by the Delhi High Court that underscored similar interpretations.

Significance and Impact

This judgement is significant as it sets a precedent for numerous similar disputes involving the interpretation of ‘due dates’ for the deposit of employees’ contributions to ESI and PF. It underscores the tribunal’s stance on giving due consideration to the intent and compliance efforts of the assessee, marking a relief to many who faced similar disallowances.

In sum, ITA No. 988/DEL/2022 serves as a guiding case for understanding the complexities related to employees’ contributions to welfare funds. It emphasizes the need for clear legislatorial definitions and the consideration of genuine compliance efforts by assessees in the eyes of law.