PF and ESI Contribution Delay Dispute: Prisma, Moradabad vs ITO Ward-1(1), Assessment Year 2018-19

Introduction

This article provides an in-depth analysis of the Income Tax Appellate Tribunal (ITAT) Delhi Bench’s decision on ITA No. 1197/DEL/2022 involving Prisma, Moradabad as the appellant and ITO, Ward-1(1), Moradabad as the respondent concerning the assessment year 2018-19. The core issue revolves around the delayed payments of employees’ Provident Fund (PF) and Employees’ State Insurance (ESI) contributions and their eligibility for deduction under section 43B and 36(1)(va) of the Income Tax Act.

Background

The case was filed due to disallowed deductions of Rs.456,402 under section 43B of the Income Tax Act for the delayed payment of employees’ contributions to PF and ESI by Prisma, Moradabad. The appellant contested that these contributions, although delayed, were made before the due date for filing the Income Tax Return (ITR) for the year, citing numerous judicial precedents favoring the assessee’s argument. However, the contention faced a significant challenge due to differing judicial viewpoints and statutory provisions.

Judicial Findings and Analysis

The ITAT, after careful review of submissions, evidence, and applicable legal provisions, recognized the criticality of timely PF and ESI contributions towards employees’ welfare and statutory compliance. The tribunal referenced several precedents but significant weight was given to the recent Supreme Court judgment in the case of Checkmate Services P. Ltd. Vs. CIT, which provided clarity on the matter, affirming that employees’ contribution to PF and ESI paid beyond the due dates specified under respective Acts are not allowable as deductions under section 36(1)(va) of the Act.

Outcome and Implications

The ITAT partly allowed the appeal, directing the Assessing Officer to verify the amounts claimed to be deposited within the due dates as per PF/ESI Acts and to allow such deductions if substantiated. This decision underscores the stringent stance on compliance with statutory due dates for PF and ESI contributions, reflecting the legislature’s intent to ensure timely deposits for employees’ welfare and to prevent misuse of funds by employers.

Conclusion

The case between Prisma, Moradabad and ITO, Ward-1(1) offers crucial insights into the interpretation and application of sections 43B and 36(1)(va) of the Income Tax Act concerning delayed PF and ESI contributions. It highlights the judiciary’s position on ensuring strict compliance with statutory deadlines for employees’ welfare measures and mandates a thorough verification process for claims of timely deposits.

The judgment serves as a significant reference for taxpayers and practitioners alike, illuminating the intricacies of tax law and the critical importance of adhering to statutory deadlines for financial contributions towards employee welfare schemes.

PF and ESI Contribution Delay Dispute: Prisma, Moradabad vs ITO Ward-1(1), Assessment Year 2018-19