The case ITA No. 1105/DEL/2021 involves the appeal filed by Nepal Singh against the disallowance of employee contributions to Provident Fund (PF) and Employee State Insurance (ESI) due to delayed deposits. The appeal is directed against the order passed by the Additional Director of Income Tax (CPC), Bangalore, for the assessment year 2019-20. The appeal was filed on 14th September 2021, and the final tribunal order was pronounced on 18th May 2022.
Nepal Singh, the appellant, faced disallowance of employee contributions to PF and ESI by the ADIT, CPC, Bangalore, due to delays in depositing these contributions. The disallowance was made under Section 36(1)(va) of the Income Tax Act, 1961. The appellant argued that the contributions were deposited before the due date for filing the income tax return, thus qualifying for deduction.
The primary issue in this case revolves around the timing of the deposits of employee contributions to PF and ESI. The appellant contended that despite delays, the contributions were made before the income tax return filing date, thus should be allowed as deductions under Section 43B of the Act.
Aggrieved by the disallowance, Nepal Singh filed an appeal with the Income Tax Appellate Tribunal (ITAT), Delhi Bench “G”. The appeal, numbered ITA 1105/DEL/2021, was heard alongside other similar appeals and disposed of through a consolidated order.
During the hearing, the appellant’s representative argued that the contributions were deposited with the appropriate authorities before the filing of the income tax return. The representative relied on several judicial precedents to support the claim that such contributions should not be disallowed if deposited before the return filing date.
The respondent, represented by the Senior Departmental Representative (DR), supported the disallowance, citing the amendment brought by the Finance Act 2021. This amendment clarified that the provisions of Section 43B do not apply to employee contributions to PF and ESI, which must be deposited within the due dates specified under the respective Acts.
The Tribunal observed that the issue at hand had already been settled in favor of the assessee by various judicial pronouncements, including the jurisdictional High Court of Delhi. The Tribunal noted that the legislative intent was to ensure that contributions are allowed as expenditure only when payment is made, but not to treat delayed payments as deemed income under Section 2(24)(x) of the Act.
While the respondent argued that the amendment by the Finance Act 2021 should apply, the Tribunal pointed out that the “notes on clauses” to the Finance Bill 2021 specified that the amendment would take effect from 1st April 2021 and apply prospectively for assessment year 2021-22 and subsequent years. Therefore, it did not apply to the assessment year under consideration.
The Tribunal concluded that the disallowance by the Assessing Officer (AO) was not justified, as the contributions were deposited before the filing of the income tax return. The appeals filed by Nepal Singh and other similar cases were allowed, and the impugned orders were set aside. The applications were restored to the CIT(E) for fresh decisions in accordance with the law, ensuring reasonable opportunities for hearing.
This case highlights the importance of understanding the legislative intent behind tax provisions and amendments. It underscores that amendments to tax laws should be applied prospectively unless explicitly stated otherwise. The decision provides clarity on the treatment of delayed employee contributions to PF and ESI and emphasizes the need for fair and reasonable opportunities for taxpayers to present their cases.
The order was pronounced in the open court on 18th May 2022 by Shri Kul Bharat, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member.
This case serves as a precedent for similar disputes regarding the timing of PF and ESI contributions. It reinforces the principle that contributions deposited before the income tax return filing date should be allowed as deductions, ensuring that taxpayers are not unfairly penalized for delays within the assessment year.
The decision in this case can guide future cases involving similar issues, providing a clear interpretation of the legislative intent and application of amendments. It highlights the Tribunal’s role in ensuring justice by adhering to established legal principles and precedents.
Nepal Singh vs ADIT, CPC Bangalore – ITA 1105/DEL/2021 – Employee Contributions Delay
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