Appellate tribunal allows appeal for gratuity fund payment deduction under Income-tax Act but dismisses expenses disallowance appeal.

The appellate tribunal allowed the appellant's appeal in part, permitting the deduction of the payment made to the unapproved gratuity fund under section 37(1) of the Income-tax Act. However, the appeal regarding the disallowance of expenses written off to Profit & Loss A/c pertaining to an earlier year was dismissed.

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Issues:
1. Disallowance of payment to unapproved gratuity fund.
2. Disallowance of expenses wrote off to Profit & Loss A/c pertaining to an earlier year.

Issue 1: Disallowance of payment to unapproved gratuity fund:
The appellant contested the disallowance of a payment made to a gratuity fund that was not approved by the Commissioner of Income Tax. The Assessing Officer invoked section 36(1)(v) of the Income-tax Act, disallowing the amount as it was not paid to an approved fund. The CIT(A) upheld this decision, stating that section 40A(7) did not apply, and the amount was not allowable under section 36(1)(v). However, the appellant argued that even if disallowed under section 36(1)(v), the amount should be allowed under section 37(1) of the Act. Citing a Hyderabad Tribunal decision, the appellant contended that unapproved gratuity fund payments are deductible under section 37(1). Relying on precedents, including a Bombay High Court case and a Supreme Court judgment, the tribunal held that the amount paid towards an unapproved gratuity fund is deductible under section 37(1) but not under section 36(1)(v). Consequently, the ground of appeal regarding the disallowance of the payment to the unapproved gratuity fund was allowed.

Issue 2: Disallowance of expenses wrote off to Profit & Loss A/c pertaining to an earlier year:
The appellant also challenged the disallowance of expenses amounting to Rs. 16,88,394 written off to the Profit & Loss A/c, contending that the expenses were capital in nature and related to a previous fiscal year. The appellant requested to capitalize the expenditure in the relevant assessment year and claim depreciation accordingly. However, this ground of appeal was not pressed by the appellant and was dismissed as such. Therefore, the disallowance of expenses pertaining to an earlier year was not further considered by the tribunal.

In conclusion, the appellate tribunal partially allowed the appellant's appeal, permitting the deduction of the payment made to the unapproved gratuity fund under section 37(1) of the Income-tax Act while dismissing the appeal regarding the disallowance of expenses wrote off to Profit & Loss A/c pertaining to an earlier year.

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