U K PAINTS INDIA PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE- 27(1), NEW DELHI

The assessee has raised the following grounds of appeal:-

The appellant craves leave to add, alter, modify or delete any ground of appeal either before or at the time of the hearing.”

Brief facts of the case are that the return of income was filed by the assessee declaring total income at Rs. 10,29,20,434/- . The case was selected for scrutiny under section 143(2) of the Act, statutory notices have been issued, the Representative of the assessee participated in the assessment proceedings. An assessment order came to be passed on 16.12.2017 by making disallowance under section 14A read with rule 8D at Rs. 1,88,08,529/-, sum of Rs. 41,72,011/- has been disallowed u/s 43B of the Act, further an amount of Rs. 51,084/- has been found to be paid towards interest on TDS which has been added back to the income of the assessee and a sum of Rs. 81,17,646/- being provision for gratuity has also added back in computation of income.

As against the assessment order dated 16.12.2017 the assessee has preferred an appeal before the Ld. CIT(A). Ld. CIT(A) vide order dated 14.11.2019 partly allowed the appeal wherein the Ld. CIT(A) upheld the addition/disallowance made under section 43B of the Act at Rs. 14,18,067/- and further upheld the addition/disallowance under section 40A(7) at Rs. 27,59,188/-.

Aggrieved by the order of the Ld. CIT(A) dated 14/11/2019 assessee has preferred the present appeal on the grounds mentioned above.

Thus as per the Ld. AR the amount debited to the profit and loss account was of Rs. 11,69,480/-. Therefore submitted that the amount disallowable will be Rs. 11,69,480/- - Rs. 3,040,428/- = Rs. 8,65,052/- which has been added back in the computation. But submitted that Ld. AO has erroneous disallowed Rs. 41,32,801/-. Ld. Counsel for the assessee further submitted that both the Ld. AO and Ld. CIT(A) have picked up the figure of Rs. 49,97,853/- from audit report which was in the row 26(i)(B)(b). The said information given in the Tax Audit Report was not for the purpose of disallowance under section 43B of the Act, on the contrary the Ld. AO and the Ld. CIT(A) have not considered the figure of Rs. 4,77,358/- paid against the leave encashment in the upper row against 26(i)(B)(a). Ld. Counsel for the assessee further submitted that figure in the Tax Audit Report cannot bind the assessee if the figures are contrary to laid down law or to the existing facts.

Per contra Ld. DR submitted that the Tax Audit Report has been produced by the assessee in himself which is binding on him. Therefore the assessee cannot find fault with the department in making the addition.

We have heard the parties, perused the material on record and gave our thoughtful consideration.

On going through the balance sheet, copy of account of leave with wages payable for the year ended 31.03.2015, profit and loss account it is found that the actual disallowable will be Rs. 11,69,480-Rs. 3,04,428 = 8,65,052 which has been added back in the computation. Ld. AO and the Ld. CIT(A) have considered and picked up the figure of Rs. 49,97,853/- mentioned in the Tax

The Ld. CIT(A) observed that the disallowance made on the basis of observation of tax audit report u/s 44AB of the Act and the assessee fail to give proper explanation on that count. It is found that the Ld. A.O has not raised the query on the said issue but suo-moto disallowed the claim of the expenditure. In our opinion, it has to be seen whether the assessee has paid this expenditure before the due date of filing of the return u/s 139(1) of the Act. If the same is paid within the due date filing of return there cannot be any disallowance on this count. The AO cannot make addition only based on the figure picked from the Tax Audit Report which is contrary to the existing facts. Since in the present case, the actual disallowance i.e. Rs. 11,69,480/- (-) Rs. 3,04,428/- = 8,650,52/- has been added back to the computation by the assessee, we are of the opinion that, the addition/disallowance made u/s 43B of the Act at Rs. 14,18,067/- is deserves to be deleted. Accordingly, we allow the Ground No. 1 of the assessee. Ground No. 2

Ground No. 2 is regarding gratuity provision. Ld. Counsel for the assessee submitted that the amount of provision for gratuity debited in the profit and loss account and which was credited to the provision of gratuity account is only Rs. 24,27,081/-. But the Ld. AO has erroneously disallowed sum of Rs. 81,17,646/- under section 40A(7) of the Act.

The ledger account of the assessee depicts that opening balance of Rs. 81,17,646/-. The payment of Rs. 1,83,935/- was made and the residual account out of the opening balance was reversed amounting to Rs. 79,33,711/- the amount debited on account of gratuity for the year ended 31.3.2015 is Rs. 24,27,081/- Rs. 1,03,60,792/- - Rs. 79,33,711/- ). The said

The Ld. A.O. and the Ld. CIT(A) ought to have appreciated the tax audit report in proper sense the computation. The Lower Authorities ought to have appreciated the fact that the amount of provision for gratuity debited in the profit and loss account and which was credited to the provision of the gratuity account is only Rs. 24,27,081/- and should not have made disallowance of Rs. 81,17,646/- u/s 40A(7) of the Act. Therefore, the Ground No. 2 of the Assessee is deserves to be allowed, accordingly, the Assessee’s Ground No.2 is allowed.

Ground No. 3 to 6 being general in nature, requires no adjudication.

In the result, appeal of the Assessee is allowed .