2017 (6) TMI 168 - AT - Income Tax

Assessee granted exemption for gratuity and leave encashment, additions deleted, appeals allowed

Sh. Dev Raj Sood Versus Income Tax Officer, Ward-1, Hisar, Haryana

The Tribunal found in favor of the assessee, ruling that they were entitled to exemption under Sections 10(10)(i) and 10(10AA)(i) for arrears of gratuity ... Addition on account of arrears of gratuity and leave encashment added u/s 10(10)(iii) and 10(10AA)(iii) - Held that:- Identical issue relating to the gratuity, having similar facts has already been adjudicated in case of Dharam Jeet Dahiya Vs ITO, Ward-1, Hisar [2017 (6) TMI 165 - ITAT DELHI] wherein held as the assessee is found to be an employee holding a civil post under a State, in considered opinion, the provisions of section 10(10)(i) are fully attracted in this case entitling him to exemption for the amount under consideration. Once a case falls under clause (i) of section 10(10), the same cannot be brought within the purview of clause (iii) of section 10(10). Therefore, hold that the assessee is entitled to exemption u/s 10(10)(i) in respect of gratuity amount received and leave encashment. - Decided in favour of assessee. Issues Involved:1. Legality and jurisdiction of notice issued under Section 148 and assessment order passed under Sections 147/143(3).2. Validity of the reasons to believe and statutory approval under Section 151.3. Failure to supply reasons recorded to the assessee.4. Additions on account of arrears of gratuity and leave encashment.5. Classification of the assessee as a state employee.6. Interest charged under Section 234B.Detailed Analysis:1. Legality and Jurisdiction of Notice Issued under Section 148 and Assessment Order Passed under Sections 147/143(3):The assessee contended that the notice issued under Section 148 and the assessment order passed under Sections 147/143(3) were illegal, bad in law, and without jurisdiction. The Tribunal examined whether the Assessing Officer (AO) had tangible material and proper jurisdiction to issue the notice and pass the assessment order.2. Validity of the Reasons to Believe and Statutory Approval under Section 151:The assessee argued that the AO did not frame the reason to believe and that the notice was issued without any tangible material, making it illegal and without jurisdiction. Additionally, the statutory approval under Section 151 was allegedly taken in a mechanical manner without application of mind. The Tribunal scrutinized whether proper approval was obtained and whether the reasons to believe were adequately framed and justified.3. Failure to Supply Reasons Recorded to the Assessee:The assessee claimed that the assessment proceedings were completed without supplying the reasons recorded to the assessee, which is illegal and without jurisdiction. The Tribunal assessed whether the AO failed to provide the reasons recorded for reopening the assessment, thereby violating the principles of natural justice.4. Additions on Account of Arrears of Gratuity and Leave Encashment:The main grievance of the assessee was related to the addition made by the AO and sustained by the CIT(A) on account of arrears of gratuity and leave encashment added under Sections 10(10)(iii) and 10(10AA)(iii) of the Income-tax Act, 1961. The Tribunal examined whether the assessee, being an employee of Chaudhary Charan Singh Haryana Agricultural University, Hisar, was eligible for exemption under Sections 10(10)(i) and 10(10AA)(i) of the Act. The Tribunal referred to previous ITAT decisions, including cases like Anoop Singh, Hisar Vs ITO and Ram Kanwar Rana, Hisar Vs ITO, which favored the assessee's claim for exemption.5. Classification of the Assessee as a State Employee:The assessee contended that they were a state employee, as the Chaudhary Charan Singh Haryana Agricultural University is a State controlled and a State Government Statutory Body. The Tribunal evaluated whether the assessee was eligible for exemption under Section 10(10)(i) based on their classification as a state employee. The Tribunal found that the university employees were covered under Section 10(10)(i) as they were holding a civil post under the State, thus entitling them to the exemption.6. Interest Charged under Section 234B:The assessee argued that the interest charged under Section 234B was wrongly and illegally charged and incorrectly calculated. The Tribunal reviewed the calculation and imposition of interest under Section 234B to determine its correctness.Conclusion:The Tribunal, after considering submissions from both parties and reviewing previous ITAT decisions, found that the assessee was entitled to exemption under Sections 10(10)(i) and 10(10AA)(i) for arrears of gratuity and leave encashment. The Tribunal set aside the impugned order and directed the AO to allow the claims of the assessee. Consequently, the additions made by the AO and sustained by the CIT(A) were deleted. The appeals of the assessees were allowed, and the interest charged under Section 234B was also addressed as per the findings.