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Facts
The assessee claimed a provision for gratuity based on actuarial valuation. The CPC disallowed this provision under Section 40A(7) as it was a mere provision and not a contribution to an approved gratuity fund. The CIT(A) upheld this disallowance.
Held
The Tribunal noted that the disallowance of the mere provision for gratuity under Section 40A(7) was correct. However, it considered a new plea that a certain sum was actually paid towards LIC premium and another sum as gratuity debiting the provision. The Tribunal directed the CIT(A) to adjudicate these specific payments.
Key Issues
Whether a mere provision for gratuity, not being a contribution to an approved fund, is disallowable under Section 40A(7), and if actual payments made from such provision can be allowed as deductions.
Sections Cited
143(1), 40A(7)
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Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा�रणवष� / Assessment Year: 2020-21) The Kasauli Club ITO, Exemption Ward बनाम/ Vs. Upper Mall, Kasauli Club, Kasauli, Solan (HP) - 173213 Solan, Himachal Pradesh - 173204 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCT-6983-F (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Sh. Sahil Chadha (Advocate) – Ld. AR ��थ�कीओरसे/Respondent by : Dr. Ranjit Kaur (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 20-11-2025 घोषणाकीतारीख /Date of Pronouncement : 20-11-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2020-21 arises out of an order of learned Addl. / Joint Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 23-04-2025 in the matter of an intimation issued by CPC u/s 143(1) on 18-12-2021 disallowing provision of gratuity for Rs.14,50,110/- u/s 40A(7) as reported by Tax Auditor. Having heard rival submissions, the appeal is disposed-off as under.
The assessee made provision for gratuity as per actuarial valuation. The CPC made the said disallowance as per reporting of Tax Auditor. Upon further appeal, Ld. CIT(A) upheld the disallowance on the ground that in terms of provisions of Sec.40A(7), any provision for payment of gratuity is not allowable as deduction. Aggrieved, the assessee is in further appeal before us.
It is undisputed fact that the assessee has made a mere provision for gratuity which is not allowable u/s 40A(7)(a). The clause (b) to s.40A(7) provide that clause (a) shall not apply in relation to any provisions as made by the assessee for the purposes of payment of a sum by way of an contribution towards an approved gratuity fund or for the purpose of any gratuity that has become payable during the previous year. Nothing has been established before us that the said provision is on account of contribution to approved gratuity fund. Therefore, the deduction could not be allowed to the assessee either under clause (a) or under clause (b). However, Ld. AR has made a limited prayer that the assessee has paid sum of Rs.2,52,710/- towards LIC premium and another amount of Rs.3,09.268/- has actually been paid on account of gratuity which has been debited to this provision. The Ld. AR has stated that the deduction to that extent could be allowed to the assessee. Considering the new plea of Ld. AR, we direct Ld. CIT(A) to adjudicate the issue of these two payments by considering the factual matrix with a direction to the assessee to plead and prove its case to that extent. For that limited purpose, the appeal stand restored back to Ld. CIT(A) accordingly. The remaining disallowance as made by CPC stand confirmed.
The appeal stand partly allowed for statistical purposes. Order pronounced on 20th November, 2025.