THE PR. COMMISSIONER OF INCOME TAX (CENTRAL), LUDHIANA vs. M/S BRIGHT ENTERPRISES PVT. LTD., MBD HOUSE, RAILWAY ROAD, JALANDHAR

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ITA/197/2017HC Punjab & HaryanaPHHC01117388201705 May 2017Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE RAMENDRA JAIN4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT had correctly upheld the deletion of the addition of ₹14,94,648/-. The Tribunal had noted that the gratuity payable pertained to assessment year 2008-09 and had been added back in the computation for that year. The current balance was merely a brought-forward amount, and no new provision for gratuity had been created during the assessment year 2010-11, meaning no debit had been charged to the profit and loss account for that year. The learned counsel for the Revenue was unable to controvert these findings. Consequently, the Tribunal found no infirmity in the order of the CIT(A) and dismissed the Revenue's appeal. The High Court concurred that no substantial question of law arose and dismissed the appeal.

What were the facts?

The Revenue, Principal Commissioner of Income Tax (Central), Ludhiana, appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated 28.10.2016, for assessment year 2010-11. The ITAT had upheld the deletion of an addition of ₹14,94,648/- made by the Assessing Officer (AO). The assessee, M/s Bright Enterprises Private Limited, a hotel operator, had shown gratuity payable of ₹14,94,648/-. The AO added this amount to the assessee's income, contending the gratuity fund was unapproved, violating Section 40A(7) of the Income Tax Act. The Commissioner of Income Tax (Appeals) deleted the addition, a decision confirmed by the ITAT. The High Court heard the appeal from the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT erred in deleting the addition of ₹14,94,648/- made by the AO on account of gratuity payable, considering that the assessee's gratuity fund was unapproved and Section 40A(7) of the Income Tax Act disallows provisions made in unapproved funds? Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT's order, as narrated, indicates that the gratuity payable related to assessment year 2008-09 and was added back in the computation for that year. The current balance was a brought-forward balance, with no provision created during the year under consideration, meaning no debit was effected in the profit and loss account for the year in question. Revenue's Contention: The Revenue argued that the gratuity fund was unapproved, and therefore, as per Section 40A(7) of the Income Tax Act, no provision for gratuity payable could be allowed. The AO had made the addition on this basis.

Which sections of the Income-tax Act were involved?

Section 40A(7),Section 260A

AI-generated summary — verify with the full judgment below

ITA No. 197 of 2017(O&M) 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 197 of 2017 (O&M)

Date of decision: 5.5.2017

The Principal Commissioner of Income Tax (Central), Ludhiana

……Appellant

Vs.

M/s Bright Enterprises Private Limited, Jalandhar, MBD House, Railway Road, Jalandhar

…..Respondent

CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL

HON’BLE MR. JUSTICE RAMENDRA JAIN

Present: Mr. Rajesh Katoch, Senior Standing counsel for the appellant.

Ajay Kumar Mittal,J.

1.

The appellant-revenue has filed the instant appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 28.10.2016, Annexure A.III, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) in I.T.A. No.518(Asr)/2014 for the assessment year 2010-11, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has erred in deleting the addition of ` 14,94,648/- made by the Assessing Officer on account of Gratuity payable without appreciating the fact that the Gurbax Singh 2017.05.15 16:36

ITA No. 197 of 2017(O&M) 2

gratuity fund of the assessee was unapproved and as per Section 40A(7) of the Income Tax Act, 1961, no provision can be made is allowable when such amount is kept in an unapproved fund?”

2.

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The respondent- assessee is running a Hotel known as Radisson MBD at Noida (UP). During the course of assessment year 2010-11 it was noticed by the Assessing Officer that the assessee company had shown employees credit of ` 28,74,558/- under the head ‘sundry payable account’ which included a sum of ` 14,94,648/- on account of ‘gratuity payable’. It was found that the gratuity fund of the assessee was not approved fund within the meaning of Section 40A(7) and Schedule-IV of the Act. In view of the unapproved status of the assessee is Gratuity fund the amount of ` 14,94,648/- of ‘Gratuity payable’ was added to the income of the assessee vide order dated 28.03.2017, Annexure A.

1.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 08.05.2014, Annexure A.2, the CIT(A) deleted the addition of ` 14,94,648/-. Not satisfied with the order, the revenue filed an appeal before the Tribunal. Vide order dated 28.03.2013, Annexure A.3, the Tribunal confirmed the order passed by the CIT(A) deleting the addition of ` 14,94,648/- and dismissed the appeal filed by the revenue. Hence, the instant appeal by the appellant- revenue.

3.

We have heard learned counsel for the appellant-revenue.

4.

It has been noticed by the Tribunal in its order dated 28.10.2016, Annexure A.3, that the CIT(A) observed that the impugned

ITA No. 197 of 2017(O&M) 3

balance of gratuity payable amounting to ` 14,94,648/- had been created in the assessment year 2008-09 and the same had been added back in the computation for the said assessment year. It was further observed that the current balance was only a brought forward balance and no such provision had been created during the year under consideration which meant that no such debit had been effected in the profit and loss account for the year under consideration. Thus, the addition made by the Assessing Officer was directed to be deleted. After examining, the matter and perusing the findings recorded by the authorities below. The Tribunal concurred that the gratuity payable related to the assessment year 2008- 09 which was added in the computation for the said assessment year. While concurring with the findings recorded by the CIT(A). The Tribunal dismissed the appeal filed by the revenue. The relevant findings recorded by the Tribunal read thus:- “We find that the learned CIT(A) has made categorical findings that the gratuity payable related to the assessment year 2008-09 and the same was added in the computation for the said assessment year. The learned CIT(A) has further given finding of fact that the current balance is only a brought forward balance and no such provision had been created during the year under consideration which meant that no such debit had been affected in the profit and loss account. The learned DR was not able to controvert any of the findings of the learned CIT(A). In view of the above discussion, we do not find any infirmity in the order of the learned CIT(A) and therefore, the appeal of the revenue is dismissed.”

5.

Learned counsel for the appellant-revenue has not been able to point out any error in the findings recorded by the Tribunal upholding

ITA No. 197 of 2017(O&M) 4

the view taken by the CIT(A), thus, no substantial question of law arises and the appeal stands dismissed.

(Ajay Kumar Mittal)

Judge

May 05, 2017

(Ramendra Jain)

‘gs’

Judge Whether speaking/reasoned

Yes

Whether reportable

Yes

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