2020 (4) TMI 583 - AT - Income Tax

Tribunal Upholds Assessee's Gratuity Fund Deduction, Emphasizes Fair Treatment

The Tribunal held that the delay in approval of the payment to a gratuity fund should not penalize the assessee, as the delay was not justified and the ... Disallowance payment made to gratuity fund u/s.36(1)(v) - gratuity fund was unapproved by the Learned Pr. CIT after 9 years - HELD THAT:- Assessee had made particular application for granting of approval on 14.08.2008. However, the approval was only granted by the Pr. CIT on 06.03.2017. CIT has taken almost 9 years to grant approval, in our view by any stretch of reasoning, the time taken for granting the approval cannot be justified by the Revenue - lapse/delay on the part of the Pr.CIT for not deciding the approval application of the assessee within a stipulated period of time, cannot be the ground for not allowing the claim of deduction u/s.36(1)(v) to the assessee - assessee should not suffer loss on account of inaction and lethargic attitude of the Revenue in granting the approval - deduction u/s.36(1)(v) cannot be denied on account of failure or delay in passing order of the application of the assessee on 14.08.2008 - though the order of granting approval was passed on 06.03.2017, the same should have made effective from the date of 14.08.2008 or at least effective from 01.04.2009 because in our view 6 months time is sufficient for considering process of application for approval u/s.36(1)(v) - Decided in favour of assessee. Issues:Disallowance of payment to gratuity fund under section 36(1)(v) - Delay in approval by Pr. CIT - Eligibility for deduction under section 37 - Retrospective application of approval.Analysis:1. The appeal involved the disallowance of a payment made to a gratuity fund under section 36(1)(v) of the Income Tax Act, 1961, due to lack of approval from the Principal CIT. The assessee applied for approval in 2008 but received it only in 2017. The CIT(A) dismissed the claim citing the approval's effective date as 2017.2. The assessee argued that the delay in approval should not affect the deduction eligibility, citing a Hyderabad Tribunal case where contributions to an approved gratuity fund with LIC were allowed, even without direct payment to the fund. The AR also referenced Rajasthan High Court decisions supporting deduction where no fault lay with the assessee for delayed approval.3. The AR contended that the approval, though prospective, should apply retrospectively from the application date in 2008, as the delay was not the assessee's fault. The DR argued against allowing the benefit of the 2017 approval to the assessee.4. The Tribunal held that the delay in approval should not penalize the assessee, as the application was complete and the delay in approval was not justified. The Tribunal emphasized that the assessee should not suffer due to the Revenue's inaction, and the deduction under section 36(1)(v) should not be denied due to delays in approval.5. Consequently, the Tribunal allowed the assessee's appeal, directing the Revenue to grant the benefit of approval for the assessment year in question. The decision highlighted the need for timely processing of approval applications and the importance of not penalizing taxpayers for delays caused by authorities.This detailed analysis of the judgment provides insights into the legal reasoning and implications of the decision regarding the disallowance of payment to a gratuity fund and the retrospective application of approval under the Income Tax Act, 1961.