In a significant ruling by the Income Tax Appellate Tribunal, Delhi Bench ‘G’, the appeal of VE Commercial Vehicles Limited, New Delhi against Circle-25(1), New Delhi for the assessment year 2019-20 was allowed. The case, marked by ITA number 776/DEL/2022, was presided over by Shri Kul Bharat, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member. This article comprehensively analyzes the judgment and its implications for the interpretation of laws concerning the disallowance of employee contributions to Provident Fund (PF) and Employee State Insurance (ESI).

Background

The appeals were lodged by various assessees aggrieved by the orders passed by the appellate authority concerning the disallowance of employee’s contribution to PF/ESI on account of delays in deposits as per the respective Acts. The tribunal, in consolidating these appeals for convenience, took ITA No. 776/DEL/2022 as the lead case.

Legal Standpoints and Judgments Cited

The crux of the matter revolved around whether the delayed deposits of employee’s contributions toward PF/ESI could be allowed as deductions. The tribunal, after deliberating on the legislative intent and various judicial pronouncements, ruled in favor of the assessee. Several pivotal cases were cited, including the judgment of the Hon’ble Jurisdictional High Court of Delhi in the case of Pro Interactive Service (India) Pvt. Ltd, which held that belated payment of employee’s PF and ESI should not be treated as deemed income of the employer under section 2(24)(x) of the Act. Additionally, the tribunal considered the amendments brought out by the Finance Act, 2021, clarifying that they apply prospectively from the assessment year 2021-22 onwards and thus have no bearing on the current case.

Conclusion and Impact

The tribunal’s decision to allow the appeals sets a significant precedent regarding the interpretation of sections related to the disallowance of employee contributions to PF/ESI due to delays in deposit. This judgment underlines the principle that if the contributions have been deposited before the due date of filing the return of income, no disallowance should be called for. The tribunal’s reliance on judicial precedents in favor of the assessee further strengthens the legal position of entities facing similar disputes.

Order pronounced in the open court on 18.05.2022 thus marked a conclusive end to the long-standing deliberation in ITA No. 776/DEL/2022, providing substantial relief to VE Commercial Vehicles Limited and potentially to many other assessees in similar situations.