ITAT allows appeals on disallowed Group Gratuity Scheme payments to LIC under Section 40A(7)

The ITAT allowed the appeals for the disallowance of payments made towards a Group Gratuity Scheme to LIC under Section 40A(7) for A.Y. 2008-09, 2009-10, and 2012-13. The ITAT held that once the revenue accepted the fund's status, denial based on non-approval was unjust, emphasizing the purpose of the provision and the benefit to employees. The decision underscored the importance of diligently pursuing approvals for statutory compliance and upheld the recognition of the employee benefit fund's status despite lack of approval, in line with previous judgments.

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Issues:
Disallowance of payment made to LIC towards Group Gratuity Scheme under Section 40A(7) for A.Y. 2008-09, 2009-10, and 2012-13.

Analysis:
The appeals by the assessee challenged the disallowance of payments made towards a Group Gratuity Scheme to LIC under Section 40A(7) for the mentioned assessment years. The assessee had applied for an irrevocable trust named "Man Structural Pvt. Ltd. Employees Group Gratuity Assurance Scheme" in 1996. The Assessing Officer disallowed the contributions as the gratuity fund was not recognized by the CIT. The CIT(A) upheld this disallowance, stating that the fund lacked approval. The assessee argued that they had applied for approval, and LIC had requested approval. The assessee contended that the payment was made for employee benefits and cited the CIT Vs Textool Co. Ltd. judgment. The Revenue argued that the assessee did not pursue approval diligently and that Section 40A(7) conditions were binding. The ITAT found that the assessee had submitted the application and supporting documents, and LIC had requested approval. The ITAT held that once the revenue accepted the fund's status, denial based on non-approval was unjust. Citing Narasus Spinning Mills case and the Textool Co. Ltd. judgment, the ITAT allowed the appeals for all assessment years, emphasizing the purpose of the provision and the benefit to employees.

This judgment highlights the importance of diligently pursuing approvals for statutory compliance while emphasizing the intention behind provisions like Section 40A(7) to ensure employee benefits. The ITAT's decision to allow the appeals was based on the assessee's submission of documents and LIC's request for approval, ensuring that the employee benefit fund's status was recognized despite non-approval. The reference to previous judgments reinforced the principle of reasonable construction to uphold the purpose of statutory provisions.

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