VATSALYA TRUST,MUMBAI vs. INCOME TAX, EXEM. WARD 2(4), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short 'the CIT(A)’] dated 30/03/2022 for the assessment year 2016-17.

The solitary ground assailing the findings of CIT(A) in the present appeal is with respect t to disallowance of provision for gratuity Rs.8,23,549/-.

Shri Dharan V. Gandhi appearing on behalf of the assessee submits that the assessee is a charitable trust registered u/s. 12A of the Income Tax Act, 1961 [ in short ‘the Act’]. The ld. Authorized Representative for the assessee submits that the assessee has created provision of staff gratuity. The claim is made only once i.e. when the provision is made. No claim is made when actual payment is made to the staff. Assessee is regularly following this method of accounting since inception i.e. for more than twenty years back. The method of accounting followed by the assessee was never quested by the Department. It is for the first time in Assessment Year 2015-16 that the claim of assessee was disturbed. Even in the subsequent Assessment Year no scrutiny assessment was made in the case of the assessee. The ld. Authorized Representative for the assessee submits that since the assessee has been regularly following this accounting practice, the claim of the assessee should allowed.

Per contra, Shri Chetan M. Kacha representing the Department vehemently supporting the impugned order submits that no actual payment was made by the assessee during the year towards staff gratuity. The expenditure actually incurred during the relevant period is only considered as application of the fund for the purpose of section 11 in the case of charitable institutions. He further submitted that the case law on which the assessee has placed reliance was considered by the CIT(A) and were distinguished.

We have heard the submissions made by rival sides and have examined orders of authorities below. The ld. Authorized Representative for the assessee has stated at Bar that the claim is made with respect to staff gratuity only once that is when the provision is made, no claim is made when actual payment is made by the assessee to the staff. It is unrebutted that this method of accounting is followed by the assessee since long and was never objected by the Department in past. In the impugned assessment year we find that the assessee’s claim was rejected by the Assessing Officer at the threshold. The Assessing Officer failed to examine as to whether the actual payment of staff gratuity was made by the assessee and that the claim is made only once.

The claim of the assessee is allowed in principle, however the issue is restored to the Assessing Officer for the limited purpose to verify that the claim of staff gratuity is made by the assessee only once. The appeal of the assessee is allowed, in the aforesaid terms.