2025 (9) TMI 700 - AT - Income Tax

Assessing Officer ordered to re-examine s.41 additions and s.43B gratuity disallowance after missed P&L and payment facts

ITAT, Mumbai directed the AO to re-examine additions treated as income u/s 41 and the alleged disallowance of gratuity under s.43B, noting the amounts ... Addition to Income from Business /profession as income deemed to be chargeable to tax u/s 41 - aforesaid amount is credited to the profit and loss a/c and thus already offered to tax by assessee - HELD THAT:- As seen from the above profit and loss account, the assessee has shown other operating revenue at Rs. 451.89. The assessee has added back which is part of its other operating revenue as mentioned above. Since this fact has missed the sight of CPC, the AO is directed to examine the same and decide the issue afresh as per the relevant provisions of law. Ground No.1 is allowed for statistical purposes. Addition to Income from Business /profession as inconsistency between gratuity amount disallowable u/s 43B claimed in income tax return and tax audit report - The assessee claims that the same has been paid before filing the return of income. This is also missed the sight of the CPC, therefore, the AO is directed to decide the grievance afresh after affording reasonable and adequate opportunity of being heard to the assessee. Appeal by the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition made as income deemed to be chargeable to tax under section 41 should stand where the same amount is reflected and offered to tax in the assessee's profit and loss account (i.e., whether the addition is a double addition). 2. Whether an addition for alleged inconsistency in gratuity (disallowance under section 43B) is sustainable where the assessee contends the gratuity contribution was paid before filing the return of income though after the tax audit report was finalized. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 41 alleged to be a double addition Legal framework: Section 41 operates to treat amounts as income deemed to be chargeable to tax in specified circumstances where amounts previously allowed or reflected are subsequently recovered. Relevant tax accounting treatment requires that income disclosed in the profit and loss account and offered to tax ordinarily precludes a further addition as a deemed income unless a distinct legal basis for re-characterisation exists. Precedent treatment: No specific precedents are cited or applied in the impugned order. The Tribunal resolved the matter on the basis of accounts and documentary content (note to annual report / profit & loss bifurcation) rather than by distinguishing or overruling any judicial authority. Interpretation and reasoning: Examination of the profit and loss account and the detailed break-up of 'Other income' (Note 23) shows that the amount added by CPC as deemed income (Rs. 29,33,84,364) forms part of the assessee's other operating revenue (specifically sundry balance written back). The Tribunal found that CPC overlooked this accounting disclosure and therefore could not sustain the addition without re-examining the underlying ledger/accounting entry and its tax treatment. The Court directed the Assessing Officer to re-examine the issue afresh in light of the profit & loss schedule and decide as per relevant law, implying that where an amount is already reflected in the P&L and offered to tax, a further addition under section 41 requires specific justification which was not shown on the record before CPC. Ratio vs. Obiter: Ratio - An addition under section 41 cannot be sustained if the CPC failed to consider documentary accounting disclosure showing the amount was part of income already offered to tax; the assessing authority must re-examine and apply relevant provisions before making a deemed-income addition. Obiter - No broader pronouncement on the scope of section 41 beyond the requirement for proper examination of accounting disclosure. Conclusion: Ground allowed for statistical purposes and matter remitted to the AO/CPC for fresh consideration after examination of the profit & loss account entries and relevant documentary evidence. Issue 2 - Disallowance under section 43B for gratuity where payment is claimed to have been made before filing of return Legal framework: Section 43B disallows certain deductions unless payment is actually made (or tax is paid) within the period prescribed; where payment is made before the filing of the return but after the tax audit report, the timing of payment relative to the return and audit determines allowability under section 43B and the tax audit deductions must be reconciled with the return. Precedent treatment: The order does not reference specific precedents. The Tribunal adjudicated the factual sufficiency of the record regarding the timing and quantum of gratuity payments and the interplay between tax audit figures and amounts claimed in the return. Interpretation and reasoning: The assessee produced a computation showing gratuity debited to P&L and contributions made during the year, with specific amounts paid during the FY (including amounts paid between 01/04/2022 and 31/10/2022). The Tribunal found that CPC did not take note of the documentary position that payment was effected before filing of the return. Given section 43B's reliance on actual payment timing, the CPC's addition for inconsistency between tax-audit figures and the return could not be sustained without affording the assessee a reasonable opportunity to demonstrate payment. The Tribunal therefore directed the AO to re-decide the grievance after affording adequate opportunity of being heard and examining the payment evidence. Ratio vs. Obiter: Ratio - Where a disallowance under section 43B is premised on an apparent inconsistency between tax-audit report figures and the return, the authority must verify actual payment records and afford hearing; if payment was made before filing the return, the disallowance cannot be mechanically sustained. Obiter - No expansive rule laid down on the exact documents required to prove payment; the decision is remedial and fact-specific. Conclusion: Ground allowed for statistical purposes and remitted to the AO to decide afresh after examining proof of payment and granting the assessee reasonable opportunity to be heard. Cross-references and procedural direction The two issues are related by the common procedural defect identified by the Tribunal: both additions were sustained by CPC without properly considering accounting disclosure and payment evidence. The Tribunal's remedial direction in both issues is to remit the matters to the AO/CPC for fresh adjudication in accordance with law and after affording the assessee a fair opportunity of hearing. Final disposition The appeal is allowed for statistical purposes with directions to the assessing authority to re-examine and decide both disputed adjustments afresh in accordance with the documentary record, statutory provisions (sections 41 and 43B as applicable), and after affording adequate opportunity of hearing.