Reimbursement of Medical expenses incurred by Employees cannot be disallowed by invoking Section 40A(9) of the Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the reimbursement of medical expenses incurred by the employees cannot be disallowed by invoking Section 40A(9) of the Income Tax Act, 1961.

The assessee Company is mainly engaged in the manufacture of drugs & pharmaceuticals, it also provides marketing and consultancy activities in respect of drugs and pharmaceuticals, fine chemicals, industrial glass containers, packing materials, electronic tests and measuring instruments, consumer electronic and industrial research.The assessee provides medical facilities to the assessee’s employees through the Ambalal Sarabhai Foundation which is set up by the assessee. The assesse do not pay any fixed contribution to the Foundation and the Foundation is set up for the welfare of the employees of the assessee. The assessee reimbursed the expenses incurred by the employees relating to medical facilities provided by the Foundation.

During the course of assessment, the Assessing Officer disallowed the reimbursed amount by invoking Section 40A(9) of the Act.

A two-member bench of the Tribunal comprising Ms. Suchitra Kamble, (Judicial Member) and Shri Waseem Ahmed (Accountant Member) has observed that the assessee only reimbursed the expenses incurred by the employees relating to medical facilities provided by the Foundation.

“Such expenses does not come under purview of Section 40A(9) of the Act. Thus, CIT(A) rightly allowed these expenses. As relates to previous year’s expenses, during the year, assessee accounted for bills / debit notes of some parties for interest, price difference etc. pertaining to earlier years. There were disputes between the assessee and these parties during the previous year and some disputes were settled during the previous year. Therefore, liability is crystallized during the year on account of settlement with those parties in current year as the assesse is follows mercantile system of accounting. The said expenses were also allowed in previous assessment years by the Tribunal as well. Hence, the CIT(A) has rightly allowed the previous period expenses,” the Tribunal said.

The assessee was represented by Shri BandishSoparkar, A.R. & Shri Parin Shah, A.R.

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