This article delves into the details of the case between Bhagwati Security Services and the Income Tax Officer, Saharanpur, where the dispute revolves around the disallowance of employees’ contributions to PF and ESI during the assessment year 2018-19.
The appellant, Bhagwati Security Services, filed an appeal against the decision of the Commissioner of Income Tax (Appeals), which upheld the disallowance of Rs.41,43,856 under Section 36(1)(va) of the Income Tax Act, 1961. This amount was disallowed on the grounds that it was deposited after the due date as per relevant Acts but before the deadline for filing income tax returns under Section 143(1).
The case was argued on the basis that recent amendments to Sections 36(1)(va) and 43B of the Act, which were inserted by the Finance Act, 2021, should not apply retrospectively. The tribunal analyzed various judicial precedents and statutory provisions, concluding that these amendments are to be applied prospectively from the assessment year 2021-22 onwards.
The tribunal, therefore, directed the Assessing Officer to delete the disallowance related to the employees’ contribution to PF and ESI as these were remitted before the due date of filing the return of income. This decision was in line with the jurisdictional High Court’s precedent in CIT Vs. AIMIL Ltd. 321 ITR 508 and the Supreme Court’s decision in CIT Vs. M/s. Alom Extrusions Limited (2009) 319 ITR 306 (SC).
The case sets a significant precedent for the treatment of employees’ contributions to welfare funds under the Income Tax Act, affirming the prospective application of legislative amendments and the adherence to established judicial decisions. This decision provides clarity for businesses on compliance with tax laws concerning employee benefits contributions.
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