The case of Sunny International Limited vs. DCIT, CPC, Bengaluru, addressed crucial issues regarding the timeliness of employees’ contributions towards ESI, PF, and Labour Welfare Fund for the assessment year 2018-2019.
The primary contention in ITA No. 1626/DEL/2021 revolves around the disallowance made by the AO due to the late deposit of employees’ contributions, despite being made before the statutory deadline for the filing of income tax returns.
The tribunal examined whether the late payment of these contributions could legitimately attract disallowances under the Income Tax Act, 1961. The appellant’s argument, supported by various high court judgments, was that if payments were made before the filing of returns, they should not be disallowed. Contrarily, the Revenue argued based on newer statutory amendments that sought to tighten the deadlines for such deposits.
The tribunal’s analysis focused on the applicability of Section 43B and amendments to Section 36(1)(va) introduced by the Finance Act, 2021. The decision reiterated that any amendments affecting the deductions related to employees’ welfare contributions apply prospectively, not retrospectively.
The ruling favored the taxpayer, Sunny International Limited, setting aside the disallowances for AY 2018-2019. This decision underscores the judiciary’s stance on protecting taxpayer rights against retrospective legislative changes and emphasizes the importance of clarity in legislative intent for tax provisions.
This case serves as a vital reference for employers and tax professionals dealing with similar disputes regarding the timing of welfare fund contributions and their tax implications.
Order pronounced on January 31, 2022, by the ITAT, Delhi, providing significant insights into the judicial handling of tax disputes related to employee welfare contributions.
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