This article provides a comprehensive review of the Income Tax Appellate Tribunal (ITAT) case involving Yeekay Engineers Pvt. Limited, now amalgamated with Mehra Metals Components Pvt. Limited, and the Deputy Commissioner of Income Tax (DCIT), Centralized Processing Center (CPC), Bangalore. The case, documented under ITA 1238/DEL/2021, addresses the contentious issue of disallowance of employee contributions towards Provident Fund (PF) and Employee State Insurance (ESI) due to alleged delays in deposits.
The appeal was lodged against adjustments made to the appellant’s assessments for the financial year 2019-20, which were deemed inappropriate by the appellant. This situation highlights significant legal interpretations concerning the timing of such contributions under the prevailing tax laws.
The Tribunal’s order dated May 17, 2022, provides a detailed discourse on whether late payments of employee contributions to PF and ESI can justify disallowances under Section 36(1)(va) of the Income Tax Act, 1961. The case was heard by Judicial Member Shri Kul Bharat and Accountant Member Shri Pradip Kumar Kedia, who rendered a unified decision on this matter.
The appellants argued that despite the delays, all contributions were settled before the submission of the income tax return, citing precedents like the Azamgarh Steel & Power vs. CPC and CIT vs. AIMIL Ltd. cases which supported their position. The Tribunal acknowledged these arguments and referenced the legislative changes introduced in the Finance Act 2021, emphasizing that these amendments did not apply retrospectively and thus were not pertinent to the assessment year in question.
The Tribunal concluded that the contributions, although delayed, were deposited before the due date of the tax return filing and hence should not attract disallowances. It also clarified that any adjustment regarding such disallowances could not be made under section 154 of the Act, as these issues were debatable and not straightforward clerical errors amendable under said section.
This judgment underscores the Tribunal’s approach in handling cases involving employee contributions to welfare funds. It reaffirms the stance that delays in depositing these contributions, if rectified before tax filing, should not be penalized, thus aligning with taxpayer-friendly jurisprudence on this matter.
The decision has significant implications for employers and HR professionals managing employee contributions to statutory funds, highlighting the importance of understanding the legal landscape and ensuring compliance to avoid potential fiscal liabilities.
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