VE Commercial Vehicles Ltd. vs. Circle-26(2), New Delhi – Assessment Year 2018-19

In the case of VE Commercial Vehicles Limited versus Circle-26(2), New Delhi bearing case number ITA 768/DEL/2022 for the assessment year 2018-19, the Income Tax Appellate Tribunal, Delhi Bench ‘G’, delivered a significant verdict. The tribunal, comprising Shri Kul Bharat, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member, addressed the appeals concerning disallowance of employee’s contribution to PF/ESI due to delays in deposit as outlined by their respective Acts.

This article aims to dissect this appellate tribunal’s decision, exploring its legal underpinnings, implications for future tax litigation, and its impact on the interpretation of related income tax provisions.

Background of the Case

The appellant, VE Commercial Vehicles Limited, New Delhi, contested the decision made by its assessing officer, Circle-26(2), New Delhi, concerning the assessment year 2018-19. The bone of contention was the disallowance of employee’s contribution to Provident Fund (PF) and Employee’s State Insurance (ESI) due to deposit delays, as per the regulatory acts governing these contributions.

The Tribunal’s bench, after considering the totality of arguments and submissions presented by both parties, decided to club together similar appeals for convenience and expediency. Among these, the case concerning ITA No. 324/Del/2022 served as a leading case for the discussion.

Key Issues and Deliberations

• The primary issue revolved around the disallowance of employee’s contribution to PF/ESI due to deposits made after the deadlines specified in their respective Acts.
• The appellants argued that despite the delays, all contributions had been deposited before the filing of income tax returns, which should nullify the basis for disallowance.
• References were made to various judgements, emphasizing that late deposits, if made before the return filing deadline, should not invite disallowance.
• The Departmental Representative (DR), on the other hand, leaned on the discretion provided by recent amendments and previous judicial pronouncements favoring the disallowance under similar circumstances.

The Tribunal’s Decision

After hearing both sides, the Tribunal made the following observations and rulings:

• It acknowledged the precedent set by prior judgements that had dealt with similar issues, noting especially the cases which ruled in favor of the assessees under comparable conditions.
• The bench clarified that amendments introduced by the Finance Act, 2021, were prospective and could not be applied retroactively to the case at hand.
• Ultimately, the Tribunal allowed the appeals, directing the deletion of disallowance made on account of late deposit of employee’s contribution to PF/ESI, subject to conditions that such deposits were indeed made before the tax return filing deadline.

Implications of the Ruling

This ruling reinforces the interpretation that timely corrective measures taken by employers, in depositing employee contributions to PF/ESI before the tax filing deadline, can mitigate the adverse implications of previous delays as per the income tax laws.

It provides a certain degree of leniency and acknowledges practical challenges faced by employers while also emphasizing the need for compliance within specified timelines to ensure the welfare benefits reach the employees without undue delay.

The decision is a crucial reference point for similar disputes, promoting a balanced approach between strict regulatory compliance and practical challenges in operational dynamics.

Conclusion

The Income Tax Appellate Tribunal’s decision in ITA 768/DEL/2022 serves as a significant benchmark for assessing officers and appellants alike. It underscores the precedence of judicial interpretations over procedural lapses, provided there is evident compliance intent demonstrated by the taxpayer. For tax practitioners and businesses, this verdict highlights the importance of adhering to statutory deadlines while also offering a recourse for mitigation in situations where delays are unavoidable but promptly rectified.