Ram Singh vs ITO Ward 3(1), Haryana

Ram Singh vs ITO Ward 3(1), Haryana

ITA No. 894/DEL/2022

Assessment Year: 2019-20

Judgment Date: 15/06/2022

In a significant judgment, the Income Tax Appellate Tribunal allowed the appeal of Ram Singh, for the assessment year 2019-20, challenging the disallowance made by the Income Tax Officer, Ward 3(1), Haryana. The core issue revolved around the disallowance under Section 36(1)(va) of the Income Tax Act, 1961, concerning the employees’ contributions to ESI and PF that were deposited after the due date prescribed under relevant acts but before the due date for filing the return of income under Section 139(1).

The Tribunal noted that despite notices issued, there was no appearance on behalf of the assessees, nor were any adjournments sought. However, based on the precedents and submissions made by the Department’s representative, the bench comprising of Judicial and Accountant members delved deep into the matter.

After hearing the submissions and scrutinizing the orders from the authorities below, the Tribunal recognized the contention was highly debatable. It highlighted that no disallowance towards the employees’ contribution to PF and ESI is warranted, especially when such issues have been decided favorably for the assessee in various previous Tribunal decisions. Moreover, the contribution was made before the due date of filing the return, as mandated.

The Tribunal further cited the jurisdictional High Court’s decision in the case of CIT Vs. AIMIL Ltd., which directly supports the assessee’s standpoint. It was held that if the employees’ contribution to PF and ESI is remitted to the government account before the filing deadline for returns, the disallowance under concern is not justified.

Thus, by siding with the assessee, the Tribunal underscored the critical distinction between the employer’s and employees’ contributions towards welfare funds. It indicated that late deposit of employee contributions, which is done in fiduciary capacity by the employer, does not entitle the department to penalize the employer by considering it as their income under Section 2(24)(x).

The Tribunal concluded by directing the Assessing Officer/CPC to delete the disallowance of employees’ contributions to ESI and PF, as these were deposited before the due date for filing of the income tax return. This judgment is significant, highlighting the Tribunal’s stance on encouraging compliance without unduly penalizing taxpayers for procedural delays within reasonable limits.

This judgment adds to the spate of rulings reinforcing the principle that statutory dues if paid before the income tax return filing deadline, should not attract disallowance under the Income Tax Act, thus ensuring fairness and justice in tax administration.

Ram Singh vs ITO Ward 3(1), Haryana