Virender Kumar vs. ITO, Ward-4(1), Gurgaon – Allowance of Delayed PF & ESI Contributions [ITA No. 1155/DEL/2022]

Virender Kumar vs. ITO, Ward-4(1), Gurgaon – Allowance of Delayed PF & ESI Contributions [ITA No. 1155/DEL/2022]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in a landmark judgment, has set a significant precedent concerning the treatment of delayed contributions to employees’ Provident Fund (PF) and Employee State Insurance (ESI) under the Income Tax Act, 1961. This decision specifically pertains to case number ITA No. 1155/DEL/2022, where the appellant, Virender Kumar from Gurgaon, contested the disallowance made under Section 36(1)(va) for the assessment year 2018-19 against the Income Tax Officer (ITO), Ward-4(1), Gurgaon.

During the proceedings, none appeared on behalf of the assessees in some of the cases, and no adjournments were sought, indicating a dependency on the legal representations made in writing or precedent judgments. The main contention revolved around the disallowance of employees’ contributions to PF and ESI, which were deposited after the stipulated due dates under their respective Acts but before the deadline for filing the income tax return as per Section 139(1).

The tribunal analyzed various precedents and the legislative amendments introduced through the Finance Act, 2021. It was observed that there exists a clear distinction between the employer’s and the employees’ contributions towards welfare schemes such as PF and ESI. Historically, delayed remittances of such contributions have led to debates about their admissibility as deductions for tax purposes.

In a decisive observation, the ITAT underscored the amendments made by the Finance Act, 2021, which clarified that the provisions related to the due date under Section 36(1)(va), and the applicability of Section 43B to such contributions would not apply to assessments for the year 2021-22 onwards. This clarification was seen as an effort to remove doubts and ambiguities regarding the legislative intent behind these provisions.

The tribunal ultimately held that the disallowance of employees’ contributions to PF and ESI, if deposited before the due date of filing the return of income, is not justified. This ruling is grounded in the judgment of the Jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 321 ITR 508, where it was established that as long as the contributions are made before the deadline for filing the income tax return, they should be allowed as deductions.

This judgment serves as a noteworthy reference for similar cases, highlighting the Tribunal’s stance on promoting compliance while also ensuring that the taxpayers are not unduly penalized for minor delays in remitting employees’ contributions towards mandated welfare schemes.

Virender Kumar vs. ITO, Ward-4(1), Gurgaon – Allowance of Delayed PF & ESI Contributions [ITA No. 1155/DEL/2022]