Case Number: ITA 936/DEL/2021
Appellant: Kapoor Industries Ltd., New Delhi
Respondent: DCIT, CPC, Bengaluru
Assessment Year: 2019-20
Result: 2019-20
Case Filed on: 2021-08-03
Order Type: Final Tribunal Order
Date of Order: 2022-05-17
Pronounced on: 2022-05-17
Tribunal: IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘G’, NEW DELHI
Before: SHRI KUL BHARAT, JUDICIAL MEMBER and SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
Introduction
This appeal by the assessee, Kapoor Industries Ltd., pertains to the assessment year 2019-20 and is directed against the order of the Deputy Commissioner of Income Tax (DCIT), Central Processing Centre (CPC), Bengaluru. The primary issue revolves around the disallowance of employee contributions towards Provident Fund (PF) and Employee State Insurance (ESI) on account of delayed deposits.
Background
The appellant, Kapoor Industries Ltd., located at 29A-2/1, Desu Road, Mehrauli, New Delhi, filed an appeal against the disallowance of employee contributions to PF and ESI. The contributions were disallowed by the CPC, Bengaluru, on the grounds that they were deposited beyond the due date prescribed under the respective Acts. Aggrieved by this decision, the appellant filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’.
Hearing and Decision
The appeal was heard on 17th May 2022. The appellant was represented by Shri R.K. Mehra, CA, while the respondent was represented by Shri Sanjay Kumar Nargas, Sr. DR.
The Tribunal clubbed this appeal with several others involving similar issues for the sake of brevity and convenience, disposing of them by way of a consolidated order.
Tribunal’s Observations
The Tribunal noted that the sole grievance of the assessee was the confirmation of additions on account of delayed deposits of employee contributions towards PF and ESI. The Tribunal observed that though there was a delay in the deposits, all contributions had been made before the filing of the return of income. It cited various judicial pronouncements, including the Hon’ble Delhi High Court’s judgment in the case of PCIT vs Pro Interactive Service (India) Pvt. Ltd., which held that the legislative intent was to allow the expenditure when payment was made, and belated payments should not be treated as deemed income.
Regarding the amendment brought by the Finance Act 2021, the Tribunal clarified that it applies prospectively from 01st April 2021 and does not affect the assessment year under consideration.
The Tribunal concluded that the Assessing Officer was not justified in denying the deduction claimed by the assessee, provided the contributions were deposited before the due date of filing the return of income.
Conclusion
The appeal filed by Kapoor Industries Ltd. was allowed, and the disallowance on account of delayed deposits of employee contributions towards PF and ESI was deleted. The decision was pronounced in the open court on 17th May 2022.
Order
In the result, the appeal filed by the assessee is allowed. The above decision was pronounced in the open court on 17th May 2022.
Signed:
[PRADIP KUMAR KEDIA]
ACCOUNTANT MEMBER
[KUL BHARAT]
JUDICIAL MEMBER
Dated: 17th May 2022
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
Relevant Legal Provisions and Precedents
The Income Tax Act, 1961, under Section 36(1)(va), deals with the deductions for payments towards employee contributions to PF and ESI. The section stipulates that such payments should be made before the due date as prescribed under the respective Acts. However, in numerous judicial pronouncements, courts have taken a lenient view if the payments were made before the due date of filing the income tax return.
In the case of CIT vs. AIMIL Ltd. [2010] 188 Taxman 265 (Delhi), the Delhi High Court held that the deduction under Section 36(1)(va) would be available if the employee’s contributions to PF and ESI are deposited before the due date of filing the return of income. This view was reaffirmed in subsequent cases, including the Pro Interactive Service (India) Pvt. Ltd. case.
Impact of Finance Act 2021
The Finance Act 2021 introduced amendments to Sections 36(1)(va) and 43B of the Income Tax Act. These amendments clarified that the provisions of Section 43B would not apply to sums received by the assessee from employees if they were not credited to the employees’ accounts in the relevant fund on or before the due date. However, the explanatory notes to the Finance Bill 2021 stated that these amendments would take effect from 01st April 2021 and apply to the assessment year 2021-22 and subsequent years.
The ITAT, in its order, noted this prospective applicability and ruled that the amendments do not affect the assessment year 2019-20 under consideration.
Key Takeaways
This case highlights the importance of understanding the timelines for depositing employee contributions to PF and ESI and the implications of delayed payments. While the amendments introduced by the Finance Act 2021 aim to ensure timely deposits, the judicial precedents continue to provide relief for delays, provided the payments are made before the due date of filing the return of income.
The decision by the ITAT, Delhi Bench ‘G’, in favor of Kapoor Industries Ltd., reaffirms the position that such deductions should be allowed if the payments are made before the due date of filing the income tax return, despite the delays as per the respective Acts.
This ruling serves as a significant reference for similar disputes and reinforces the need for timely compliance to avoid litigation.
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