The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowance of expenses under Section 43B of the Income Tax Act, 1961 cannot be denied when the ex-gratia and employee benefits are shown under the appropriation of funds.
The assessee is a co-operative bank and is engaged in the banking business. The assessee in the computation of income claimed the deduction of certain expenses without debiting the same in the profit and loss account for the year under consideration. The assessee explained expenditures were appropriated from the profit in the earlier years by debiting the profit and loss account and crediting the respective fund account.
However, it was not claimed as a deduction since the actual payment was not made. The deduction of these expenses without actual payment is prohibited under the provisions of Section 43B of the Income Tax Act.
The Assessing Officer disagreed with the explanation of the assessee by holding that the expenditure claimed was not debited in the profit loss which is necessary. The Assessing Officer disallowed the claim of the expenditure aggregating to Rs. 1,12,87,989/- claimed on a payment basis without debiting to the profit and loss account and added the total income of the assessee.
The Authorized Representative filed the ledger accounts of all 4 funds in support of which the accounting entries were made. As per him, these documents were not filed before the authorities below due to some unavoidable reason. The documents regarding the expenses are available now supported by the payment of the expenditure which is allowable as a deduction by virtue of the provision of Section 43B of the Income Tax Act. Thus, it was contended to restore the issue to the file of the Assessing Officer for fresh adjudication.
The Departmental Representative did not raise any objection if the appeal is transferred to the Assessing Officer for fresh adjudication as per the provision of law.
The Two-member bench comprising of Waseem Ahmed (Accountant member) and TR Senthil Kumar (Judicial member) observed that the question of making any payment towards staff ex-gratia and staff benefit arises in relation to employees/management of the assessee. These employees/management persons are paid salary, remuneration which was nowhere been disallowed by the authorities below. Based on the salary structure the amount of ex-gratia and employee staff benefits are determined.
The bench found a direct connection between the impugned payment and the activities of the assessee. Therefore, held that the assessee cannot be denied the benefit of the deduction available to it under the Act. Merely the same has been shown under appropriation of funds, the benefit available to the assessee cannot be denied. Therefore, the order of the Commissioner of Income Tax (Appeal) was set aside and the appeal of the assessee was allowed.
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