RELIANCE COMMERCIAL DEALERS LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 8(1)(1), MUMBAI

2.1. A complete scrutiny was taken up in case of the assessee and statutory notices u/s 143(2) of the Act was issued. Notice u/s 142(1) of the Act was also issued to the assessee. In response to the statutory notices, the assessee furnished various details as called for. No adverse inference was drawn by the Ld. AO. Assessment u/s 143(3) for the Act was passed at total income of nil as determined u/s 143(1)(a) of the Act vide intimation dated 22/09/2022.

Aggrieved by the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A).

3.1. However, it was submitted that the CPC while issuing intimation u/s 143(1) of the Act disregarded the submissions filed by the assessee and made addition in the hands of the assessee by holding that the assessee could not have claimed deduction in respect of the same without having actually incurred. Before Ld. CIT(A), the assessee submitted that, it did not claim any deduction in respect of the provision for gratuity in any preceding years and, therefore, the disallowance was not warranted. The Ld. CIT(A) considering the submissions of the assessee observed and held as under:-

“6.3.7. From the above submission, it is evident that, the appellant company has been reporting the actuarial gain / loss on gratuity liability in accordance with Accounting Standards (IND AS). Further, in the financials, the appellant has reported the said item as "Other comprehensive income" below the Net Profit. Further, the appellant claimed that, in earlier years, there were losses out of the same and it was not claimed as expenses and hence, on account of consistency in accounting treatment, the gain this year is also not taxable. In this regard, the appellant relied on certain Judicial decisions as reproduced in it's submission above. 6.3.8. Furthermore, regarding the classification of the said item under clause 16(d) of Tax Audit Report as "Amount not credited to Profit & Loss account - any other item of income", the auditors concerned have clarified that the same is in accordance with "Guidance note issued by the ICAl". Further in the said response, the Tax Auditors have further stated that, the appellant though have not given an effect on the Actuarial Gain / Loss in the computation of income in the normal provisions, the relevant effect on the gain / loss has been given in MAT computation u/s.115JB. Further in the year under consideration, the appellant has opted for new tax regime u/s. 115BAA, hence the MATU/s. 115JB is not applicable. 6.3.9. The submissions of the appellant are considered. The appellant had reported the actuarial gain on the gratuity liability of Rs.37,21,235, as "Amount not credited to Profit & Loss account-any other item of income" under Clause 16(d) of the Form 3CD, but has not included the same in the computation of income. However,. the appellant in the earlier have considered the said item for the purpose of MAT Liability U/s.115JB. Therefore, the sum of Rs.37,21,235 ought to have been considered as income of the appellant. Hence, it is held that, the order of the CPC U/s. 143(1) is upheld and accordingly, the appeal of the appellant is dismissed.” 3.2. The Ld. CIT(A) also dismissed the plea of the assessee in respect of short grant of TDS credit. In respect of short grant of interest u/s 244A of the Act, the Ld. AO was directed to re-compute it in accordance with law.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

4.1. The Ld. AR submitted that, the intimation issued u/s 143(1) of the Act was beyond jurisdiction. It was submitted that the CPC did not give any fair opportunity before making the said adjustment in respect of the actuarial valuation of the gratuity.

4.2. Be that as it may, the Ld. AR submitted that, on merits, for the year under consideration, assessee credited Rs. 37,21,235/- to “other comprehensive income” in profit and loss account which was below the line item in profit and loss. It was submitted that in the tax audit report, the same was disclosed in clause 16 pertaining to items not credited to the profit and loss account being any “other item of income”. The Ld. AR submitted that, the said amount is mainly in the nature of notional gain on account of actuarial valuation of gratuity routed through “other Comprehensive income” which is shown below the line item of net profit before tax at page 4 of the paper book. The Ld. AR submitted that the same does not have any impact on the tax computation since the starting point for computation of income under the head profit and gains from business and profession is net profit before tax followed by various other adjustment that are debited/credited to profit and loss account.

4.3. The Ld. AR submitted that the assessee maintains a number of gratuity funds as per section 43B of the Act and the deduction is allowable only on actual payment basis. It is submitted that, the assessee did not claim any deduction in respect of provision made towards maturity in any of the preceding years and, therefore, any reduction in the provision of gratuity on account of its valuation would not impact the total income of the assessee. He submitted that the above accounting policy is as per the Indian accounting standards applicable to an assessee i.e., IndAS-19.

4.4. The Ld. AR also submitted the year -wise details of gratuity that was routed to “other comprehensive income” on account of 64 of the paper book, which is also supplemented with the copies of computation of income and the return of income for the relevant assessment years from page 65 to page 136. The Ld. AR submitted that, based on the liability recognised for financial years 2016-17, 2018-19 and 2019-20, there is an increase in the gratuity liability that is recognised under the head “Other Comprehensive Income” totalling to Rs. 95,43,652/- and the same is duly paid to the fund on year-to-year basis. He submitted that the for the year under consideration there is a decrease in the gratuity liability of Rs. 54,64,202/- which is recognised under the head other comprehensive income and has not been claimed separately by the assessee in the past in the computation of income. It is submitted that for financial year 2017-18, where there was reduction in the liability, the same was not offered separately to tax in the computation of income and income tax return.

4.5. He submitted that such consistent approach followed by the assessee on year after year basis has been accepted in the earlier years and accordingly any reduction in the gratuity liability of Rs.37,21,235/- for financial year relevant to the assessment year under consideration being notional in nature can not to be added in the computation of income and return of income filed.

4.6. On the contrary, the Ld. DR relied on the orders passed by the authorities below.

We have perused the submissions advance by both the sides in light of the records placed before us.

5. On perusal of AS-19, it is noted that changes to actuarial valuation can be because of changes in the assumption for such valuation like average age of the employees, period of service etc. Therefore, this falls under the category of “Other Comprehensive Income” which does not impact the real income of the assessee. In any event, the assessee is claiming deduction on payment basis only and, therefore, any increase or decrease in the amount of gratuity as per actuarial valuation which is not routed through P&L A/c, cannot have any impact on the taxable income of the assessee. We, therefore, we do not find any basis for the addition to be sustained.

Accordingly, Ground Nos. 1-3, raised by the assessee stand allowed.

6.1. The Ld. AR submitted that CPC determined refund of Rs. 2,58,66,205/- on account of the tax deducted at source and tax collection at source for 18 months i.e., 01/04/2021 to 22/09/2022 which is up to the date of intimation issued u/s 143(1) of the Act. He placed emphasis on the provisions of Section 244A(1) of the Act which provides that the assessee is entitled to receive interest @1 ½ % for every month or part of month comprised in the period from first date of April of the assessment order to the date on which the refund is actually granted. In support, the Ld. AR placed reliance on the following decisions:-

Decision of the Hon’ble Bombay High Court in the case of Group M Media India (P.) Ltd. vs. DCIT (IT) reported in [2023] 157 taxmann.com 487 (Bombay) • Decision of the Hon’ble Delhi High Court in the case of Nokia Solutions and Networks India (P) Ltd. vs. ACIT reported in [2024] 169 taxmann.com 537 (Delhi)

6.2. On the contrary, the Ld. DR relied on the orders passed by the authorities below.

We have perused the submissions advanced by both sides in light of records placed before us.

We direct the AO to re-compute interest u/s 244A of the Act till the date of payment of refund based on the ratio of the decisions referred to hereinabove.