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Facts
The assessee, an individual, did not file an income tax return for AY 2016-17. Upon a notice under Section 148, the AO completed the assessment. The assessee's salary income included gratuity, from which exemption under Section 10(10) was claimed.
Held
The Tribunal held that the AO was incorrect in denying the exemption for gratuity under Section 10(10). Relying on CBDT Circular No. 14 of 1955, the Tribunal directed the AO to grant the benefit of exemption and recompute the income.
Key Issues
Whether the assessee is entitled to exemption on gratuity under Section 10(10) of the Income Tax Act, and whether the AO erred in denying this benefit.
Sections Cited
10(10), 143(3), 147, 148
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY&
(Assessment Year: 2016-17) Mr. Nagarajan Chandrashekhar The Int. Tax Ward-2(1)(1), Room No. 1724, 17th Floor, 302, President House, Wodehouse Vs. Road, Colaba, Mumbai-400001. Air India Building, Nariman Point, PAN : ACLPC4789K Mumbai-400021. Appellant) : Respondent) Appellant /Assessee by : Shri Pradip Modi, CA (Virtually appear) : Shri Pushkaraj Bhangepatil, Revenue / Respondent by Addl. CIT Date of Hearing : 03.01.2025 Date of Pronouncement : 07.01.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the final order of assessment passed by the Income Tax Officer (International Tax), Ward-2(1)(1), Mumbai [for short 'the AO] dated 31.01.2023 for the AY 2016-17. The assessee raised six grounds raising various contentions, however, during the course of hearing, the ld. AR pressed for only the following ground:
(iii) On the facts and the circumstances of the case and in law the ld. AO erred in not giving deduction of the gratuity of Rs. 10,00,000/- being exempt under section 10(10) of the Income Tax Act, 1961 (the Act).
The assessee is an individual and did not file the return of income for AY 2016-17. Since the assessee had substantial financial transaction to the tune of Rs. 1,39,53,187/- during the FY relevant to AY 2016-17, the AO issued a notice under section 148. The assessee filed a response providing details of the various income received by him during the year under consideration. The AO completed the assessment by assessing the income at Rs. 89,67,450/-. The assessed income includes a sum of Rs. 50,66,897/- declared by the assessee as income from salary, the breakup of which is tabulated below: Nature of payment Gross amount (Rs.) TDS – Rs. Net amount received in bank account – Rs. Gratuity 27,55,000 3,62,045 23,92,955 Superannuation 23,11,897 7,14,376 15,97,521 Total 50,66,897 10,76,421 39,90,476
The assessee filed its objections before the DRP against the draft assessment order passed by the AO and the DRP confirmed the income assessed by the AO in the draft assessment order. Assessee is in appeal before the Tribunal against the final order of assessment passed by the AO.
There is a delay of 503 days in filing the appeal before the Tribunal and the assessee in this regard filed an affidavit praying for condonation of delay. In the condonation petition it is stated that the assessee has filed the appeal before the CIT(A) against petition for rectification of order passed under section 143(3) by the AO and that the CIT(A) has directed the assessee to file an appeal against the order under section 143(3) before the Tribunal. It is also stated that due to this process, there was a delay and that the delay is due to the bonafide mistake on the part of the assessee in understanding the correct appellate authority before whom the appeal against the order of AO should lie. Considering the peculiar facts and circumstances of the case and keeping in mind that technicalities should not stand in the way of rendering substantive justice as held by the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC), we condone the delay in filing the appeal and admit the appeal for adjudication.
The ld. AR submitted that the salary income earned by the assessee includes gratuity received to the tune of Rs. 27,55,000/- and a tax of Rs. 3,62,045/- is deducted on the same after giving exemption to the tune of Rs. 10,00,000/- as per the provisions of section 10(10) of the Act. The ld. AR in this regard drew our attention to the Form-16 issued by the Employer (page 66 of Paper Book). The ld. AR further submitted that the AO as well as the DRP while considering the income from salary did not give benefits of the exemption which the assessee is entitled under section 10(10) of the Act. The ld. AR further submitted that the assessee filed a petition before the AO for rectifying the mistake apparent on record in this regard and the same is rejected by the AO. The ld. AR argued that as per the CBDT Circular No. 14 dated 11.04.1955 the AO should have taken the initiative to grant the relief which is due to the assessee.
The ld. DR on the other hand relied on the order of the lower authority.
We heard the parties and perused the material on records. For the year under consideration the assessee did not file the return of income due to which the proceedings under section 147 of the Act is initiated. The assessee in response to notice under section 148 of the Act filed the details of various incomes /receipts received during the year under consideration. The AO while completing the assessment made addition towards income from salary and income from other sources as not offered by the assessee and remittance from foreign company to the tune of Rs. 36,25,718/- and payment to non-resident to the tune of Rs. 95,529/- are treated as unexplained. The assessee filed its objections before the DRP and the DRP gave partial relief to the assessee towards remittance from foreign company. The DRP while giving directions to the AO has stated that the income from salaries of Rs. 50,66,897/- and interest of Rs. 1,79,307/- are considered by the assessee and therefore no relief is given in this regard. The prayer of the assessee before the Tribunal is that the AO while passing the final assessment order has considered the gross figure of the salary income without considering the exemption which is available to the assessee under section 10(10) of the Act towards gratuity received.
From the perusal of the records, we notice that the Employer for the purpose of deducting tax at source on the gratuity paid to the assessee has considered the exemption under section 10(10). The reason for AO not giving the benefit of section 10(10) is that the DRP has mentioned the gross salary as the income from salaries in the hands of the assessee. It is relevant to note that the CBDT Circular No.14 dated 11.04.1955 states that the income tax authorities are required to bring to the notice of the assessee any claim of relief, exemption, deduction etc. to which the assessee is legally entitled and allow the same even though the assessee may not have claimed the said relief, exemption, deduction etc. for any reason. It was further stated that the Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. In the light of the above CBDT circular when we examine the assessee's case we notice that the revenue has not questioned the eligibility of the assessee to claim the benefit under the provisions of section 10(10) but for the mere fact that the DRP has mentioned that the gross salary is to be income from salaries the assessee. The relevant observations of the DRP in this regard is extracted below – “i. Salary Received - Rs. 50,66,897- The assessee has stated that it has received, after deduction of taxes, net Gratuity of Rs. 23,92,955/- and net Superannuation of Rs. 15,97,521/- amounting to a total of Rs. 50,66,897/-. Further, from the details filed by the assessee, the explanation provided by the assessee is found to be in order. However, it is seen that even though TDS has been deducted, no Return of Income has been filed by the assessee. As the income of the assessee was above the specified limit, the assessee was liable to file the same. Accordingly, the Gross Amount of Rs. 27,55,000/- and Rs. 23,11,897/- in respect of the Gratuity and Superannuation is added to his total income under the head Income from Salary.”
From the above it is noticed that the DRP has not given any adverse finding with regard to the income offered in respect of gratuity but has held the gross of amount of Rs.27,55,000 to be added to the total income under income from salaries. This in our view cannot be the sole reason to hold that the assessee is not entitled for the benefit under section 10(10) which the assessee otherwise entitled as per the provisions of law. Considering the facts and evidences brought on records before us we are of the view that the exemption under section 10(10) of the Act to the tune of Rs. 10,00,000/- cannot be denied to the assessee without bringing anything on record to show that the assessee is not legally entitled for the said benefit. We are further of the view that the AO is not correct in denying the benefit which the assessee is legally entitled to merely for the reason that the directions of the DRP do not explicitly mention that the assessee should be given the exemption under section 10(10) of the Act more so in the light of the Circular issued by the CBDT dated 11.04.1955. In view of the discussion, we direct the AO to give the benefit of exemption under section 10(10) to the assessee as per the provisions of the said section and re-compute the income assessable to tax. It is ordered accordingly.
In result the appeal of the assessee is allowed.