ITAT allows appeal for AY 2017-18 on gratuity expenses but dismisses appeal for AY 2018-19 on club membership fee.

The ITAT allowed the appeal for AY 2017-18, directing the AO to delete the disallowed gratuity expenses under section 43B of the Act. However, the appeal for AY 2018-19 regarding the disallowance of membership fee paid to the club under section 37 of the Act was dismissed.

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Issues:
1. Disallowance of gratuity paid u/s. 43B of the Act.
2. Denial of MAT credit u/s. 115JB of the Act.
3. Disallowance of membership fee paid to club u/s. 37 of the Act.

Issue 1: Disallowance of Gratuity Paid u/s. 43B of the Act:
The case involved the assessee filing its return of income for AY 2017-18 with 'NIL' total income, which was processed by the AO under section 143(1) of the Act. The AO disallowed gratuity payment claiming it was a provision. However, the assessee contended that the deduction was on an actual payment basis, supported by necessary evidence. The ITAT found that the gratuity expenses were indeed paid by the assessee and not merely a provision. Consequently, the AO and the CIT(A) were held to be erroneous in disallowing the gratuity expenses u/s. 43B of the Act. The ITAT directed the AO to delete the additions made towards gratuity expenses.

Issue 2: Denial of MAT Credit u/s. 115JB of the Act:
The second issue revolved around the denial of MAT credit for AY 2017-18 by the AO due to additions made towards gratuity expenses and employees' contributions to PF & ESI. The assessee claimed MAT credit as it paid tax u/s. 115JB of the Act, despite declaring 'NIL' total income under normal provisions. The ITAT noted that the entitlement to MAT credit was consequential, and directed the AO to verify the assessee's entitlement towards credit and allow it after computing income as per Sec. 115JB and normal provisions of the Act.

Issue 3: Disallowance of Membership Fee Paid to Club u/s. 37 of the Act:
The final issue centered on the disallowance of membership fee paid to a club under section 37 of the Act for AY 2018-19. The AO disallowed the membership fee based on the Tax Audit Report citing personal nature expenses. The assessee argued that the subscription fee was for the overall business and should be allowed as a deduction. The ITAT held that the adjustment made by the AO towards disallowance of the subscription fee was permissible under Sec. 143(1)(a)(iv) of the Act. It was noted that the subscription fee paid to the club was not proved to enhance the business of the assessee, and thus, the disallowance was upheld. Consequently, the appeal filed by the assessee was dismissed.

In conclusion, the ITAT allowed the appeal filed by the assessee for AY 2017-18 regarding gratuity expenses and directed the AO to delete the additions. However, the appeal for AY 2018-19 regarding the disallowance of membership fee paid to the club was dismissed. The judgment was pronounced on March 9, 2022, in Chennai.

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