Late Payment of EPF and ESI Contributions Deduction Allowed – ITA 1427/DEL/2022

In a significant judgment by the Income Tax Appellate Tribunal, Delhi Bench, in the case of Rajan Banquet Pvt. Ltd. Vs. ACIT-1, Moradabad, bearing ITA No. 1427/Del/2022 for the assessment year 2020-21, the tribunal issued a decision granting relief to the taxpayer on the contentious issue of deduction for late payments of Employee Provident Fund (EPF) and Employee State Insurance (ESI) contributions.

The case revolved around the disallowance of a deduction claimed by Rajan Banquet Pvt. Ltd. for the delayed payment of employees’ contributions to EPF and ESI amounting to Rs. 1,15,163/-. The core of the dispute was whether the taxpayer was entitled to deduct these contributions despite making the payments after the due dates specified under the relevant statutes but before the due date of filing the income tax return under section 139(1) of the Income Tax Act.

Elaborating on the tribunal’s rationale, it was noted that there has been a persistent conflict of judicial precedent on the allowability of such deductions. On one hand, certain tribunals and courts have ruled against taxpayers citing the mandatory adherence to statutory due dates for depositing employees’ contributions to avail deductions. In contrast, other decisions have sided with the taxpayers, allowing such deductions provided the contributions are paid before the filing of the income tax returns.

The tribunal, in its detailed judgment, meticulously examined the precedents, statutory provisions, amendments, and the legislative intent behind these provisions. It underscored the distinction between the employer’s and the employees’ contributions to welfare funds and reiterated the fiduciary responsibility of employers in handling the employees’ contributions.

Conclusively, aligning with recent legislative amendments and relying on the principle of harmonious interpretation, the tribunal held that disallowances for the late payment of employees’ contributions to EPF and ESI were not warranted if such payments were made before the due date of filing the income tax return. The case settled a crucial aspect of tax law, providing clarity and relief to numerous taxpayers grappling with similar disallowances.

This judgment has wide-reaching implications, affirming the taxpayer’s standpoint in battles over the timing of payments towards employees’ welfare contributions. It also sheds light on the interpretation of tax laws, emphasizing the taxpayer’s intent and compliance efforts rather than penalizing for procedural lapses.

The case of Rajan Banquet Pvt. Ltd. sets a precedent for allowing deductions for late payment of EPF and ESI contributions, marking a significant shift in the approach towards assessment and disallowances related to employee welfare fund contributions.

Late Payment of EPF and ESI Contributions Deduction Allowed – ITA 1427/DEL/2022