The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that the provision of gratuity after deduction of the actual gratuity charged to the profit in the profit/ loss account doesn’t attract disallowance under Section 37 of the Income Tax Act, 1961.
The assessee has an unproved gratuity fund. The assessee made a provision of Rs.52,49,681/- and the same was disallowed under Section 40A(7) of the Income Tax Act. It is said to be made an actual payment of Rs.55,74,555/- and the same has been claimed under Section 37 of the Income Tax Act while processing the return of income.
It was disallowed by the Assessing Officer. On appeal, the Commissioner of Income Tax (Appeal) [CIT(A)] observed that the auditor is required to call for and verify the details of contribution to the gratuity fund, etc.
It was observed by the CIT(A) that as per Rule 12(2) of Income Tax Rules, 1962, as amended with effect from 01.04.2013, the Tax Audit Report under Section 44AB of the Income Tax Act has to be mandatorily filed electronically within the prescribed due date by the auditor and any correction thereof also ought to be carried out by filing a revised Tax Audit Report electronically.
The CIT(A) observed that the adjustment under Section 143(1)(a) of the Income Tax Act made by CPC on the basis of the validly e-filed Tax Audit Report on the issue of disallowance under Section 43B of the Income Tax Act is found to be consistent with facts on record and in accordance with law and hence does not warrant any interference.
It was further observed that the intimation under Section 143(1) of the Income Tax Act shows that as against the sum of Rs.54,43,53,518/- claimed by the assessee as Loss of Current Year to be carried forward, CPC has allowed a sum of Rs.53,87,78,963/-. The difference of Rs.55,74,555/- is due to the adjustment under Section 43B of the Income Tax Act.
The Two-member bench comprising of Chandra Poojari (Accountant member) and Beena Pillai (Judicial member) was of the opinion that if the assessee has charged gross provision for gratuity to the profit as per profit & loss account, thereafter the assessee deducted actual gratuity payment of Rs.55,74,555/-, the assessee’s claim cannot be disallowed in principle.
On the other hand, if the assessee has debited the actual payment of gratuity in the account provision for gratuity, then the payment of gratuity already gets subsumed, thereafter, the assessee cannot once again claim actual payment of gratuity in the return of income as it would amount to double deduction.
To verify this, the issue was remitted to the file of the Assessing Officer to examine the provision for gratuity account along with payment of gratuity. After satisfying the treatment given by the assessee in his books of accounts, the claim of the assessee is to be examined.
Thus, the issue was remitted back to the file of the Assessing Officer for fresh consideration. Therefore, the appeal of the assessee was partly allowed for statistical purposes.
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