TMI Blog2020 (8) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Act is illegal, arbitrary, erroneous approach to the facts as well as law and excessive exercise of Jurisdiction and as such liable to be quashed in the interest of justice. 2) For that the disallowances of payment made to Gratuity fund U/s 40 A(7) of the Act on the technical point that the Gratuity funds has not been approved by the competent authority is out and out illegal when the admitted fact is that the Gratuity fund was created by a trust deed and a Group Gratuity Scheme was floated in collaboration with LIC of India and since the contribution in each year has been claimed as deduction, thereby, not claimed each years accrual. Hence, the Appellant has rightly claimed the deduction, which may kindly be allowed in the interest of justice. 3) For that the order passed U/s 263 is not sustainable being change of opinion and passed without application of mind since, the appellant has formed a trust on 29.01.1999 to look after independently the Gratuity Fund of all the employees and made a Group Gratuity Scheme through Life Insurance Corporation of India. Every year whatever sum of premium calculated by LIC at the beginning of the year considering present e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lted rental income, is a business asset depreciation on which has been claimed as deduction. Further such receipt is found to be related to earlier years but, as explained, credited by HUL during the previous year 2013-14 only. Hence, the AO found that the income/receipt against godown is nothing but the income chargeable under the head 'business profession'. Thus, the AO held that the same receipt is taken as business receipt and enhanced the income from business to that extent and calculated the income from business at ₹ 2,36,56,768/- assessing total income of the assessee at ₹ 2,50,43,120/-. 3. Subsequently, the Pr. CIT invoking the revisonary power vested u/s.263 of the Act called for the assessment records and after due examination, directed the AO to modify the assessment order making disallowance u/s.40A(7) of the Act on account of payment made to unapproved gratuity fund. 4. Against the above order of Pr.CIT, the assessee is in appeal before the Income Tax Appellate Tribunal. 5. Ld. AR before us filed his written submissions, which read as under :- 1. That the Appellant is Private Limited Company engaged in the business of manufacture of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called for the detail nor examined this issued while completing the assessment but allowed the said claim, hence the assessment order is prejudicial to the interest of revenue and the learned CIT issued notice . 5. That pursuant to such notice, the Appellant has submitted all the evidences as called for and Notes of submission by stating as follows ... we have formed a Trust on 29.01.1999 to look after independently the Gratuity Fund of all the employees and made a Group Gratuity Scheme through Life Insurance Corporation of India. Every year whatever sum of premium calculated by LIC at the beginning of the year considering present employees and their current emoluments. We deposit the amount in Group Gratuity Scheme and consider it in our Profit Loss account for the relevant year. The employees left are being paid gratuity by the Trust having no impact in our Profit Loss Account. In the financially year 2013-14 we have paid ₹ 16,65,030.00 towards premium for gratuity as calculated by LIC and taken it in our Profit Loss Account but erroneously in the Tax Audit Report 3CD at point No. 21 (e) shown under Provision for payment of gratuity not allowable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the nature of business expenditure deductible under the provisions of Section 37 of the Act and therefore, is to be allowed as it is laid out wholly and exclusively for the purposes of the business. The Hon'ble ITAT has in this case has observed that provisions of section 40A(7) of the Act would apply only in respect of provision made for gratuity in case of unapproved funds and not actual payments made, which are covered by section 37 of the Act. The similar view has been taken by the Hon'ble ITAT, Delhi B Bench in the case of ITO v. MMTC Ltd,. 3 ITD (Del)305 Further, the Hon'ble ITAT in the case of PCIT, Circle-3 (2) , Hyderabad v. Sri Krishna Drugs Ltd, in ITA No. 198/ Hvd/2011, dated 16.12.2011. has also held that payment to Group Gratuity Fund of LIC of India is allowable as business expenditure u/s. 37 (1) of the Act. Even though not recognized bythe Commissioner of income Tax, The Hon'ble Tribunal has relied on the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd, while allowing the payment of premium to the LIC group Gratuity Fund. Similarly, ITAT Ahmedabad Bench in the case of Baroda Gujarat GrameenBank cited fsupra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Verizon Data Services India Pvt Ltd. (supra^ ITAT, Madras Bench held that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively for the benefit of employees and deduction shall be allowed. The coordinate bench of Madras while deciding the appeal relied on the decision of Hon'ble Madras High Court in the case of Textool India Pvt. Limited (supra) Civil appeal No. 447 of 2003 ) . In the instant case the assessee has made the payments to the LIC towards group gratuity scheme directly in approved schemes . The assessee has also obtained the policy in favour of the bank. The assessee has no control oyer the funds contributed to LIC towards the gratuity. The assessee is receiving the gratuity payment directly from the LIC of India as per the scheme which is paid to the employees on happening of the event i.e retirement or death or resignation. Therefore, the facts of the assessee's case are squarely covered by the decisions cited supra. The coordinate bench of Hyderabad while delivering the ruling relied on the decision of jurisdictional High Court in the case of Warner Hindustan Ltd. Since the facts are identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund and the assessee has produced agreement with the LIC which is at page No.32 to 38. On perusal of the paper book filed by the assessee there is a demand letter issued by the LIC which is at page 75 to 83 and copy of cheque deposited to the LIC of India which is placed at page book page No.84, dated 26.03.2014 bearing Cheque No.291811 which is in favour of LIC of India and the LIC of India has issued renewal endorsement on 15.04.2014 of ₹ 16,65,030/-. The renewal due was on 01.04.2014 and the mode of payment is yearly. Further on perusal of the case law relied on by the ld. AR of the assessee in the case of The Guntur District Cooperative Central Bank Ltd., ITA Nos.77 78/Viz/2018 along with other appeals vide order dated 31.07.2018, we found that the similar issue has already been decided by the Vizag Bench of the Tribunal in the above case and the Tribunal while deciding the issue has followed the decision rendered by the Ahmedabad Bench of the Tribunal in the case of Baroda Gujarat Gramin Bank(Erstwhile Panchmahal Vadodara Gramin Bank Ltd.), ITA No.1479/Ahd/2010, order dated 06.08.2010. The relevant observations of the Tribunal in the case of The Guntur District Coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and the ease laws preferred and relied by the assessee. The assessee has claimed expenditure of As. 56, 62,325/- towards Premium' paid to LIC under 'Group Gratuity Scheme'. As per part 'C' to Schedule-TV of the Act, any such contributions should be under a scheme duly approved by the Chief Commissioner or Commissioner of income Tax, for allowing as eligible deduction. Any contributions made for gratuity fund approved by an appropriate authority only are allowable expenditure under the provisions ofsec.36(1)(v) of the Income Tax Act, 1951. In the instant case, the assessee is contributing for group gratuity scheme to LIC of India which does not have approval of the concerned authority. Hence, added to the total income. The Hon 'ble ITAT, Hyderabad B-Bench, in the case of international Ore and Fertilizer (India) (P) Lid., Vs ITO (3 ITO Hyd., 593) has held that payment to LIC Group Gratuity Scheme is in the nature of business expenditure deductible under the provisions of Section 37 of the Act and therefore, is to be allowed as it is laid out wholly and exclusively for the purposes of the business. The Hon'ble ITAT has in this case has obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of gratuity on 1.7.2003, and is contributing the sums to the LIC of India towards the group gratuity on actuarial basis. The assessee has not made any provision and made the payment before filing the return of income. On happening the event, the assessee bank is receiving the gratuity payment from the LIC which is being paid to the employee concerned and no further deduction is being claimed by the assessee as expenditure. Thus no double deduction is claimed. The expenditure claimed by the assessee under group gratuity scheme to LIC of India was allowed in the earlier years prior to 2007-08. During the previous year relevant to the assessment year 2007-08, the A.O. disallowed the same since the payment made to LIC of India towards group gratuity scheme is not covered by section 36(1)(v), 40A(7)(b) 40A(9) of the Act because the assessee has not satisfied the conditions. The argument of the assessee is that since the payments were made to LIC of India in Master policy scheme, the premiums contributed to the LIC of India is allowable deduction and relied on the decisions of coordinate bench of Hyderabad in the case of Capital IQ Information Systems (India) Pvt. Limited (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but laid out and expended wholly and exclusively for the purposes of the business or profession, while computing income chargeable to tax. The main contention of the Revenue is that under sec. 36(1)(v), the payment made by the assesse e as employer could be allowed only in respect of approved gratuity fund. Since the Group Gratuity Scheme is not approved by the CIT, according to the Revenue, it cannot be allowed. However, the contention of the assessee is that in view of the judgement of the Madras High Court in the case of Premier Spinning Mills Ltd. (supra) and the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra), it has to be allowed. 5. We have carefully gone through the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra). In the case before the jurisdictional High Court, the Provident Fund was not approved by the CIT. The Andhra Pradesh High Court after referring to the judgement of the Bombay High Court in Tata Iron Steel Co. Ltd. v. D. V. Bapat, ITO (1975) 101 ITR 292, and the judgement of the Supreme Court in Metal Box Company of India Ltd. vs. The Workmen (1969) 73 ITR 53, held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mps Ltd. 144 Taxman 33 held that Section 40A(7) of the Income-tax Act, 1961 - Business disallowance - Gratuity - Assessment year 1979-80 - Assessee-company claimed deduction under section 40A(7) (b) (i) on account of gratuity actually deposited in fund created by it - Whether such a claim could only have been disallowed if it had been proved that gratuity, in respect of which said payment had been made, had not become payable during previous year - Held, yes - Whether in absence of such a case made out by revenue, Tribunal was right in holding that grant of approval of gratuity fund was not relevant for purpose of instant case as said deduction was not being claimed on account of any provision and amount of gratuity was an allowable deduction - Held, yes . 5. Considering the above aspects, we do not find any infirmity in the order of the learned CIT(A) in deleting the addition. There is no merit in the departmental appeal. Same is accordingly dismissed. 10. In the case of Verizon Data Services India Pvt. Ltd. (supra) the coordinate bench of Madras held that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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