Hon’ble ITAT Ahmedabad in case of ACIT Vs Grand Polycoats Company Pvt. Ltd. (ITAT Ahmedabad) ITA No. 434/Ahd/2022 Date of Order: 03/10/2023 held that Gratuity Premium paid to LIC is allowable as business expenditure under section 37(1) of the Income Tax Act. The relevant para of order is as follows:
Extract from case law:
12. Ground No.2 relates to the disallowance of gratuity expenses incurred by the assessee. The disallowance being made for the reason that it was not found to havefulfilled the conditions required by sections 40A(7) of the Act, regarding the gratuity being paid to an approved gratuity fund. Assessee, as per the facts of the case had paid gratuity premium amounting to Rs.7,04,541/- to LIC, but the gratuity fund itself being not found to be approved by the CIT/CIT, the AO disallowed the entire gratuity premium paid by the assessee during the year.
13. The ld.CIT(A) allowed the assessee’s claim by following the decisionof the Hon’ble Madras High Court in the case of CIT Vs. Tamil Nadu Maritime Board, 131 taxmann.com 250 holding that contributionmade towards the fund was tobe treated as business expenditure, and was allowable under section 37(1) of the Act, even though, said fund was unapproved.
The ITAT in the immediately preceding year, A.D 20 13-14, we find, confirmed the order of the ld.CIT(A) passed on identical lines holding at para 9 to 10 of its order as under:
“9. Regarding ground no. 2, Gratuity amount paid towards a fund which was not approved by the Income Tax Authority. This issue is been settled by the Hon’ble High Court of Gujarat in the case of Valsad District Central Co-Op. Bank Ltd. Vs. ACIT reported in [2018] 92 taxmann.com 280 in favour of the assessee held as follows:”
……10. In the present case, the petitioner had raised a claim and had also placed all necessary computation on record in connection with such a claim. It is of course true that the contribution to the gratuity scheme itself was not sufficient to enable an assessee to claim deduction. Additional requirement that such scheme in which the contribution is made must also have been approved by the Commissioner is undisputable. In normal case therefore, nondisclosure of such claim not being approved, if such was the fact, may amount to not disclosing true and full facts. However, this issue must be examined in peculiar facts of the present case. According to the petitioner, factually, the scheme was approved by the Commissioner way back in A the year 1976. It was only after it, the LIC would undertake the responsibility to manage the same. It was on this basis that the petitioner had been raising the claim year after year right since its inception every year. In none of the past years, any such issue was raised by the Assessing Officers in this respect. Therefore, the petitioner produced what it had been producing all along namely, the contribution made towards the fund and the agreement of the LIC to manage the fund. If the Assessing Officer had any doubt about such a claim, it was always open for him to examine it, ask the petitioner to fulfill further requirements. Merely because the petitioner did not provide an additional declaration in the return that the scheme though approved, the pentioner is unable to produce a copy of the order approved by the Commissioner after long gap of time, cannot be categorized as failure on the part of the petitioner to disclose truly and fully all material facts. Only on this ground, we are inclined to quash the notice.”
9.1. Further the Ld. CIT(A) relied upon the Madras High Court judgment in the case of CIT Vs. Tamilnadu Maritime Board reported in 131 taxmann.com 250, wherein the Hon’ble High Court has held that contribution made towards fund was to be treated as business expenditure and the same was allowable u/s. 37(1) of the Act, even though the said fund was unapproved by Income Tax Department.
10. Thus following the above judicial decisions, we have no hesitation in confirming the deletion made by the Ld. CIT(A). Thus the ground no. 2 raised by the Revenue is also devoid of merit and the same is liable to be rejected.
14. We find that in the preceding year identical disallowance of gratuity paid to LIC by the assessee was disallowed for identical reason of the fund to which it was paid not being approved. The ITAT however upheld the order of the Ld.CIT(A) deleting the disallowance.
The ld.DR was unable to point out any distinguishing facts in the present case nor was he was able to show any infirmity in the order of the ld.CIT(A).
15. In view of the same, since the issue is squarely covered in favour of the assessee by virtue of the order passed by the ITAT in the case of the assessee itself in the preceding year, we have no hesitation in upholding the order of the ld.CIT(A) deleting the disallowance of gratuity premium paid amounting to Rs.7,04,541/-. The ground no.2 raised by the Revenue is rejected.
