TMI Blog2019 (2) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... ked for payment of gratuity, i.e., provision is made for payment of gratuity, the amount has to be allowed for deduction. In view of this, we are inclined to decide the issue in favour of the assessee - I.T.A. No. 489/Coch/2018 - - - Dated:- 6-2-2019 - SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For The Assessee : Shri Mathew Joseph, CA For The Revenue : Smt. A.S. Bindhu, Sr. DR ORDER Per CHANDRA POOJARI, AM: This appeal filed by the assessee is directed against the order of the CIT(A), Kottayam dated 24/07/2018 and pertain to the assessment years 2013-14. 2. The only issue raised in this appeal is with regard to disallowance of provisions made by the assessee towards gratuity. 3. The facts of the case are that the Assessing Officer disallowed the provisions made by the assessee towards gratuity, leave salary, bonus and medical aid of retired staff during the period May, 2010 to January, 2012 on the ground that such sums are allowable only in the year of payment. 4. On appeal, the CIT(A) observed that the provisions were created only to meet the guidelines issued by RBI. The CIT(A) observed that the Ld. AR could not produce any ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: 43B Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of ( b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees; 7.1. In our opinion, the judgment relied on by the assessee in the case of Indian Overseas Bank cited supra cannot be applied to the present case as in that case, the Tribunal was concerned with allowability of provisions for leave encashment wherein it was held as under: 29.1 We have heard both the parties and perused the material on record. The same issue came for consideration before this Tribunal in ITA No.2031/Mds./2013 for assessment year 2010-11 (supra) wherein held that:- 92. The next issue in the appeal of the Revenue is that Commissioner of Income Tax (Appeals) erred in allowing provision made for leave salary. The counsel for the assesses submits that this issue has been decided in favour of the assessee for the assessment year 2008-09 in ITA No, 1815/Mds/2011 dated 2.4.2013 at page 11 to 14 in para 6 of the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it under the Act on the other introduced the provisions of section 43B(f). Under clause (f) of section 43B any sum payable by the employer to its employees as leave encashment shall be deductible only in computing the income referred to in section 28 of that previous year in which the sum is actually paid by the employer to its employees. The Hon'ble High Court further held that while inserting the clause (f) no special reasons were disclosed. Without such reasons the enactment is inconsistent with the Original provisions of that section. Although the disclosure of the reasons was not mandatory, but in the interest of justice, it was incumbent upon the legislature to disclose the reasons. The legislature must disclose reasons which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the Supreme Court decision. The Hon'ble High Court further held that section 43B(f) was liable to be struck down as arbitrary and inconsistent and de hors the decision of Hon'ble Supreme Court of India in the case of Bharat Earth Movers Ltd. (supra). 22. In the present case, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above said settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. The appeal is allowed. The judgment under appeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The Hon'ble Madras High Court following the judgment of the Hon'ble Supreme Court of India, dismissed the appeal of the Revenue in the case of CIT Vs. Panasonic Home Appliances reported as 323 ITR 344 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee relies on the decision of ITAT Jabalpur Bench in the case of Mewar Sugar Mills Ltd. vs. DCIT reported in TTJ Volume-61 page 633 (copy enclosed) In this connection, the assessee also wishes to submit further on the subject as under:- For the F.Y. under consideration, provision for Gratuity Premium was made In the books. Though the provision for Gratuity is covered u/s. 43B(b), no disallowance has been made in view of the provisions of section 40A(7)(b). Provision of section 40A(7) are applicable only if the provision towards gratuity is made. The distinguishing factor is that the company has taken policy under /group Gratuity Scheme of LIC. Further, section 40A(7) in clause (b) categorically mentions that nothing in clause (a) shall apply in relation to i) 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 the purposes of payment of any gratuity that has become payable during the previous year. The assessee submits that the Assessee's Gratuity Fund is managed by the LIC and is approved under the Income Tax Act. Moreover, the premium payable to the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is an approved one. Therefore, the issue is covered by the above referred findings of the Tribunal for the A.Y 2003- 04. We find no reason to interfere in the said order. Accordingly relevant ground of the assessee's appeals is allowed in his favour. 7.3 Further, it is pertinent to mention herein the order of the ITAT, Jodhpur Bench in the case of Jodhpur Central Co-operative Bank Ltd. vs. JCIT (37 CCH 342) wherein by following the judgment of the Supreme Court in the case of CIT vs. Test Tool Co. Ltd. (263 CTR 257), it was held that payments made by assessee-company directly to LIC towards gratuity fund was allowable. 7.4 Further, the Gauhati High Court in the case of George Williamson (Assam) Ltd. vs. CIT (228 ITR 343) held that there are three modes of payment, namely, (1) having an approved fund, (2) by having a fund though not approved, and (3) when there is no fund but provision is made for payment of gratuity. In the first two cases payment has to be made and in the third case it is not necessary to make payment but a provision has to be made for such payment. U/s. 43B of the Act, the Legislature has specifically mentioned about fund. Therefore, the me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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