2010 (8) TMI 1082 - AT - Income Tax

Tribunal upholds CIT(A) decision on LIC gratuity contribution, disallowing AO's claim.

The D.C.I.T., Bharuch Circle, Bharuch Versus Baroda Gujarat Gramin Bank (Erstwhile Panchmahal Vadodara Gramin Bank Ltd.)

The Tribunal upheld the decision of the CIT(A) to allow the contribution made to LIC's group gratuity scheme, disallowing the AO's claim under section ... - Issues involved:The judgment deals with the disallowance of contribution made to a group gratuity scheme of LIC of India, being an unapproved fund u/s 40A(7) of the Income Tax Act, 1961.Details of the Judgment:Issue 1: Disallowance of contribution to unapproved gratuity fund u/s 40A(7) of the IT ActThe AO disallowed the claim of payment of &8377; 26,53,000/- to LIC under section 40A (7) as the application for recognition of the group gratuity scheme was pending for approval. The CIT(A) allowed the appeal based on the decision of ITAT Ahmedabad Bench in the case of Crystal Solvent Pvt. Ltd., stating that disallowance u/s 40A(7) cannot be made due to the absence of approval of the gratuity fund as the deduction was not claimed on account of any provision.Issue 2: Interpretation of Section 40A(7) of the IT ActThe Tribunal analyzed Section 40A(7) which disallows deduction for any provision made by the assessee for gratuity payment. It was noted that the assessee claimed deduction for actual expenses incurred under gratuity contribution, not just a provision. Citing precedents like CIT vs Gujarat Machine Tools and CIT vs Bitoni Lamps Ltd., it was held that actual payment of funds to LIC, not mere provision, is not hit by section 40A(7).Conclusion:After considering the submissions and legal provisions, the Tribunal found no error in the CIT(A)'s decision to delete the addition. The departmental appeal was dismissed, affirming that the contribution towards gratuity made to LIC was allowable as a deduction under the circumstances presented.Note: Separate judgment was not delivered by the judges mentioned in the case.