Employer's Ex-Gratia Payments Upheld for Commercial Reason, Tribunal Rejects Revenue's Appeal

The High Court held that ex-gratia payment made by the employer to its employees is allowable as it is on account of commercial expediency. The Tribunal found the issue to be covered by previous decisions in the assessee's favor and dismissed the Revenue's appeal, upholding the deduction of ex-gratia payments.

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Issues:
Deduction of ex-gratia payment made by assessee to its employees.

Analysis:
The appeal was against the order of the CIT(A)-3, Mumbai for the A.Y 2014-15, which was directed against the order passed by the Assessing Officer under Sec. 143(3) of the IT Act, 1961. The Ld. CIT(A) decided the grounds raised by the assessee by following the order of a coordinate bench of ITAT in the assessee's own case for the A.Y 2007-08. The A.O had disallowed the deduction of ex-gratia payment made by the assessee to its employees. However, the coordinate bench of ITAT in the assessee's own case for the A.Y 2007-08 had decided a similar ground in favor of the assessee, which was also upheld by the Hon'ble Jurisdictional High Court. The High Court held that ex-gratia payment made by the employer to its employees is on account of commercial expediency and hence allowable. The Tribunal had also observed that the assessee had been extending incentives to employees in preceding and subsequent years, which was accepted by the Revenue. The Tribunal relied on previous judgments to support the allowance of ex-gratia payments. The matter was found to be squarely covered by the decision of the Coordinate Bench of ITAT in the assessee's own case, which was also upheld by the Hon'ble Bombay High Court in a similar case. Therefore, the issue was decided in favor of the assessee, and the appeal filed by the Revenue was dismissed.

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