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M/s Bihar State Warehousing Corporation Ltd. Versus Commissioner of Income Tax- 1, Patna and Dy. Commissioner of Income Tax, Circle-2, Patna

2016 (7) TMI 940 - PATNA HIGH COURT

Addition under Section 2 (24)(x) read with Section 36(1)(va) - provision for gratuity made towards approved gratuity fund - Addition u/s 40A - Held that:- Only before this Court for the first time the plea has been taken by the assessee that the provision has been made for the purpose of payment to an approved gratuity fund, i.e., the LIC Group Gratuity Scheme. It is apparent that the appellant is now trying to raise, at a belated sage, a pure question of fact which has not been raised by it bef .....

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3.2003, i.e., last date of the previous year of the assessment year in question and till that date it does not appear that there was any concluded contract between the assessee and the LIC for subscribing to the said scheme nor anything has been brought on the record to show that the contribution had been made for the previous year relevant to the assessment year in question. - In the said circumstances, it is not open to learned counsel for the appellant to even raise and argue such a quest .....

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the Tribunal was correct in holding that the assessee was not entitled to deduction of gratuity in view of Section 40A is answered in the affirmative against the assessee and in favour of the revenue. - Miscellaneous Appeal No.302 of 2008 - Dated:- 19-7-2016 - MR. HEMANT GUPTA AND MR. RAMESH KUMAR DATTA, JJ. For The Appellant : Mr. Ajay Kumar Rastogi For The Respondents : Mrs. Archana Sinha, Mr. Alok Kumar, Mrs. Shalini Bihari CAV JUDGMENT (Per: HONOURABLE MR. JUSTICE RAMESH KUMAR DATTA) Heard .....

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year 2003-04, the appellant filed its return of income of ₹ 28,35,710/-. Initially, the return was processed under Section 143 (1) of the Income-tax Act, 1961 (in short the Act ) and assessment was made at the total income filed but subsequently notices under Sections 143 (2) and 142 (1) of the Income-tax Act were issued on 14.10.2004. Thereafter, fresh notice under Section 142 (1) of the Act was issued along with detailed questionnaires on 08.08.2005. The representative of the assessee ap .....

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Fund amounting to ₹ 8,32,507/- treating the same as income from other sources as per the provision of sub-section (2) of Section 24 read with Section 36 (1) (va) of the Act. Similarly, the provision of ₹ 7,64,335/- towards gratuity was disallowed and the same was added to the total income in terms of the provisions of Section 40A (7) of the Act. It may be pointed out that prior to such disallowance the assessee was specifically asked to explain why the said amount should not be allow .....

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payment of employer s contribution to Employees Provident Fund to the extent of ₹ 8,32,507/- was concerned under Section 43B of the Act and the said addition was ordered to be deleted. So far as the delayed payment of ₹ 8,32,507/- of the employees contribution to E.P.F. is concerned, the addition of the same was confirmed holding that no relief is allowable on the ground of Section 43B of the Act as the omission of second proviso to the said Section with effect from 01.04.2004 does .....

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same, the present appeal has been filed by the assessee. The appeal was admitted on the following substantial questions of law:- (i) Whether on the facts and in the circumstances of the case the Tribunal is justified in upholding the addition of ₹ 8,32,507/- made under Section 2 (24)(x) read with Section 36(1)(va) of the Income-tax Act? (II) Whether on the facts and in the circumstances of the case the Tribunal is correct in holding that the provision for gratuity was not made towards app .....

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isallowing the same was also on the basis, i.e., the delay in credit to the appropriate authorities, which was condoned by the appropriate authorities and thus the contention of the Department was found to be without force and it was held that there was no reason to consider the amount as income from other sources of the assessee and the addition was deleted. It is submitted that the present matter is practically on the same footing as the employees contributions were paid within due date of fil .....

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h Section 36 (1) (va) of the Act for disallowing the same. In support of the aforesaid stand, learned counsel for the appellant relies upon a decision of the Supreme Court in the case of Commissioner of Income-tax vs. Alom Extrusions Ltd.: (2009) 319 ITR 306 (SC) = 2010 (1) SCC 489, following which the Bombay High Court in the case of Commissioner of Income-tax vs. Ghatge Patil Transports Ltd.: (2014) 368 ITR 749 (Bom) and Punjab and Haryana High Court in the case of Commissioner of Income Tax v .....

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in the matter with regard to delay in payment of employees contribution to the Provident Fund and delayed payment of employer s contribution to Provident Fund. It is submitted that the appeal of the Department has been rejected by the Tribunal making a distinction between the two provisions which appear to be justified. It is urged that only the payment of employer s contribution to Provident Fund is covered by the provision of Section 43B of the Act and employees contribution is squarely cover .....

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ing with the provisions of the said section vis-à-vis the period prescribed under the Employees Provident Fund Act. Earlier by way of the first proviso the benefit of deduction was restricted only to tax, duty, cess or fee paid after the closing of the accounting year but before the date of filing of the return of income under Section 139 (1) but not to labour welfare funds. The second proviso was then inserted to allow deduction of contribution to, inter alia, any provident fund if made .....

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sion, it is evident that it does not specifically refer to the employees contribution or employer s contribution and both have been treated on the same footing. So far as difficulties in complying with the due date under the EPF Act vis-à-vis the previous year of the Income-tax is concerned, there can be no distinction between the payment of employees or employer s contribution and the same difficulties would be faced for both. In Alom Extrusions case, the Court has broadly dealt with con .....

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b and Haryana High Court in Hemla Embroidery Mills case (supra) and both the High Courts have answered the same holding that both the employees and employer s contributions are covered by the amendment of Section 43B of the Act after considering Alom Extrusions case (supra). Although technical reading of Section 43B and the provisions of sub-section (2) of Section 24 (x) read with Section 36 (1) (va) of the Act creates the impression that the employees contribution would continue to be treated d .....

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een the two as similar problem of implementation would arise in both the cases, although specific issue was not raised therein; but both the Bombay High Court and the Punjab and Haryana High Court in the above referred cases after considering Alom Extrusions case (supra) have answered the question treating the two contributions on the same footing. Thus, I am inclined to respectfully agree with the view taken by the Bombay High Court and the Punjab and Haryana High Court. Coming to the second su .....

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that the provision on account of gratuity has been made towards approved gratuity fund/scheme issued by the Life Insurance Corporation of India known as Group Gratuity Scheme and that the gratuity being an ascertained liability is to be accounted for every year as per mercantile system of accounting and becomes payable as per the terms of employment either at the time of superannuation or otherwise. It is contended that the gratuity is a contractual obligation of the appellant as an employer an .....

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ase has also claimed premium paid/payable to LIC under the Group Gratuity LIC Fund. Learned counsel for the Revenue, on the other hand, submits that the Tribunal has rightly relied upon the decision of the Apex Court in the case of Shree Sajjan Mills Ltd. vs. Commissioner of Income Tax and Another: (1985) 156 ITR 585 (SC) disallowing the provision for gratuity made by the appellant. It is submitted that a categorical finding has been recorded by the Tribunal that it is not the case of the assess .....

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& (b) of the Act is in the following terms:- 40A (7) (a) No deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment, for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for t .....

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wards approved gratuity fund; and the second exception is if the provision is for the purpose of payment of any gratuity that has become payable during the previous year. Apart from these two exceptions, any provision for gratuity has to be read in terms of sub-section (2) of Section 40A of the Act. In the assessment order itself, it has been recorded by the Assessing Officer that the assessee was specifically asked to explain why the amount of ₹ 7,64,335/- on account of provision for grat .....

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r every year and that has been made towards an approved gratuity fund or they were sums which had become payable during the previous year concerned. The Tribunal has clearly recorded that it is not the case of the assessee that it has made the provision for the purpose of payment of gratuity by way of any contribution towards approved gratuity fund or for the purpose of any gratuity that has become payable during the financial year under consideration. In view of the aforesaid factual position, .....

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gratuity fund, i.e., the LIC Group Gratuity Scheme. It is apparent that the appellant is now trying to raise, at a belated sage, a pure question of fact which has not been raised by it before any of the three lower authorities. I am afraid that such a pure question of fact cannot be permitted to be raised by the assessee at this belated stage. Along with the memorandum of appeal the assessee has brought on record two letters dated 27.08.2002 and 31.03.2003 of the Life Insurance of India which me .....

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