2014 (1) TMI 649 - AT - Income Tax

Appellate Tribunal allows deduction for unapproved gratuity fund payments under Income Tax Act

The Appellate Tribunal ITAT Hyderabad partly allowed the appeal for the assessment year 2008-09, concerning the disallowance of gratuity expenditure. The ... Disallowance of deduction of Gratuity expenditure – Held that:- Following The Asst. Commissioner of Income-tax Versus Vs. M/s. Sri Krishna Drugs Ltd. [2013 (11) TMI 111 - ITAT HYDERABAD] - The amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v) - even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37 – order of the CIT(A) set aside – Decided in favour of Assessee. Issues:1. Disallowance of deduction of Gratuity expenditure2. Levy of interest u/s 234B of the Act3. Initiation of penalty proceedings u/s 271(1)(c) ActIssue 1: Disallowance of deduction of Gratuity expenditureThe appeal was against the order of the Dispute Resolution Panel (D.R.P.) regarding the assessment year 2008-09. The primary contention was the disallowance of deduction of Gratuity expenditure amounting to INR 13,514,933. The appellant argued that the gratuity fund maintained with LIC was unapproved due to the absence of an acknowledged copy of the original application filed before the CIT. It was highlighted that the appellant had no control over the fund maintained with LIC for the benefit of employees. The appellant relied on a Supreme Court decision to support their claim. The ITAT, Hyderabad referred to a previous case where a similar issue was decided in favor of the assessee. The Tribunal upheld that unapproved gratuity fund payments could be deducted under section 37 of the Income Tax Act, even if not approved under section 36(1)(v). Consequently, the Tribunal set aside the order of the CIT(A) and allowed the ground of appeal of the assessee, partly allowing the appeal.Issue 2: Levy of interest u/s 234B of the ActThe issue related to the charging of interest under section 234B of the Income Tax Act. The Tribunal deemed the charging of interest under this section as consequential in nature, directing the AO accordingly. The Tribunal did not delve into further adjudication on this matter.Issue 3: Initiation of penalty proceedings u/s 271(1)(c) ActThe ground regarding the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act was deemed premature by the Tribunal, hence not requiring adjudication. The Tribunal did not provide a detailed analysis on this issue due to its premature nature.In conclusion, the judgment by the Appellate Tribunal ITAT Hyderabad addressed various issues including the disallowance of gratuity expenditure, levy of interest under section 234B, and the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. The Tribunal primarily focused on the disallowance of gratuity expenditure, citing relevant legal precedents and ultimately allowing the appeal partly based on the decision in a similar case. The Tribunal provided a detailed analysis of the legal provisions and case law to support its decision, ensuring a thorough examination of the issues raised in the appeal.