Appellate Tribunal Upholds Gratuity Provision as Allowable Expenditure

The Appellate Tribunal ITAT Chennai upheld the decision of the Commissioner of Income Tax (Appeals)-III to allow the provision made for payment of Gratuity as an allowable expenditure under Section 40A(7)(b) of the Income-tax Act, 1961. The Tribunal confirmed that since the Gratuity Fund was approved and a provision was made for payment, the claim was valid, dismissing the Revenue's appeals for the assessment years 2005-06 and 2008-09.

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Issues: Disallowance of provision made for payment of Gratuity.

In the judgment delivered by the Appellate Tribunal ITAT Chennai, the appeals of the Revenue were directed against the orders passed by the Commissioner of Income Tax (Appeals)-III for the assessment years 2005-06 and 2008-09. The common issue in both appeals was the disallowance of provision made for payment of Gratuity. The Departmental Representative argued that since the payment was not made during the relevant year, the Assessing Officer disallowed the claim. However, the CIT(A) allowed the claim citing Section 40A(7)(b) of the Income-tax Act, 1961. The Departmental Representative contended that without payment details, the claim cannot be allowed under Section 43B of the Act. On the other hand, the counsel for the assessee argued that under Section 40A(7)(b), a provision made for payment of Gratuity from an approved fund is an allowable expenditure. The Tribunal had previously ruled similarly in other cases. The Tribunal noted that the Gratuity Fund was approved, and since a provision was made for payment, Section 40A(7)(b) would apply, leading to the allowance of the claim. The Tribunal found no fault in the lower authority's decision and confirmed the allowance, dismissing the Revenue's appeals. The judgment was pronounced on 3rd July 2015 in Chennai.

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