Tribunal allows appeal on gratuity payment, directs assessing officer to examine trust approval

The Tribunal allowed the appeal of the assessee, setting aside the disallowance of the gratuity payment and directing the assessing officer to examine the application for approval of the gratuity trust. The Tribunal emphasized that the assessee had taken all necessary steps and the trust was in accordance with standard procedures, leading to the decision in favor of the assessee. The order was pronounced on 20/12/2018.

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Issues:
Appeal against disallowance of gratuity payment without approval from competent authority.

Analysis:
The appeal was filed by the assessee against the order of the ld CIT (A) for the AY 2013-14, specifically challenging the disallowance of INR 3,46,000 representing payment of Gratuity to the employees. The case involved a cooperative bank engaged in banking business. The assessment under section 143(3) of the Income Tax Act resulted in several additions by the assessing officer, with the disallowance of gratuity payment being the only addition in dispute. The disallowance was based on the lack of approval from the competent authority for the gratuity fund. The CIT (A) confirmed the disallowance, emphasizing the mandatory condition of approval under the provisions of the act for such deductions. However, the assessee contested that the correct disallowance amount should be INR 3,00,000 instead of INR 3,46,000.

The authorized representative argued that the assessee had applied for approval of the gratuity scheme before the Commissioner of Income Tax, with reminders sent regarding the pending approval. Despite repeated reminders, the approval was still pending, leading to the disallowance of the amount. The departmental representative supported the lower authorities' orders. After considering the contentions and orders, the Tribunal noted that the application for approval of the gratuity trust with Life Insurance Corp of India had been pending since 2013, with no registration granted despite the submission of required documents. The Tribunal found it unfair to uphold the disallowance when the assessee had taken all necessary steps and the trust was in accordance with standard procedures. Therefore, the Tribunal set aside the disallowance and directed the assessing officer to examine the application and grant registration if found in accordance with the law, allowing the deduction for the expenditure incurred on gratuity. The decision was to be made after the principal Commissioner's decision on the application.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, pronouncing the order on 20/12/2018.

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