BIHAR STATE TOURISM DEVELOPMENT CORPORATION LTD,PATNA vs. DCIT/ACIT CIRCLE-2, PATNA

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ITA 271/PAT/2025Status: HeardITAT Patna09 December 2025AY 2017-185 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Ground No. 1 concerning the provision for gratuity should be allowed for statistical purposes. It noted a potential factual mistake in the tax audit report and the assessee's suo motu disallowance. The matter was set aside to the AO for re-examination and to ascertain the correct amount, with a direction to delete the addition if the assessee had indeed suo motu disallowed %39,88,247 and there was an error in the tax audit report. For Ground No. 2, the Tribunal held that interest on EPF and TDS was not penal in nature and was an allowable expense. The order of the CIT(A) was set aside, and the AO was directed to delete the addition. Ground No. 3, regarding bonus paid, was allowed for statistical purposes. The Tribunal restored the issue to the AO to verify if the bonus was paid before the due date of filing the return, directing its allowance if so. For Ground No. 4, concerning LIC premium for superannuation benefits, the issue was restored to the AO for examination and decision in accordance with the law, as it was not verified by the AO and not claimed in the return. Ground No. 5, relating to prior period expenses, was allowed. The Tribunal found that these were expenses that crystallized during the year and related to the current financial year, not prior periods. The CIT(A)'s order was set aside, and the AO was directed to delete the disallowance.

What were the facts?

The assessee, Bihar State Tourism Development Corporation Ltd., filed an appeal before the Income Tax Appellate Tribunal (ITAT) against the order of the National Faceless Appeal Centre, Delhi, dated 03.04.2025, for Assessment Year 2017-18. The appeal challenged additions made by the Assessing Officer (AO) and confirmed by the CIT(A). The disputed amounts pertained to provision for gratuity (%58,35,063), interest on EPF and TDS (%14,99,000), bonus paid (%14,02,544), premium payable to LIC for superannuation benefits (%39,88,247), and prior period expenses (%1,41,867). The AO had made these additions based on various grounds, including disallowance under Section 40A(7) and characterization of interest as penal.

What were the issues?

1. Whether the addition of %58,35,063 in respect of provision for gratuity was justified, considering a potential factual mistake in the tax audit report and the assessee's suo motu disallowance of %39,88,247. The assessee contended that the tax audit report contained a factual error and that the actual gratuity paid was %39,88,247, which was suo motu disallowed. The revenue, through the AO, sought to add the difference. 2. Whether interest paid on EPF (%11,98,185) and TDS (%3,00,815) was allowable as an expense, or if it was penal in nature and thus not deductible. The assessee argued for its allowability as a business expense, while the revenue, via the AO, considered it penal. 3. Whether the addition of %14,02,544 for bonus paid was correct, given the assessee's claim that it was paid before the due date of filing the return of income. The assessee argued that bonus paid before the due date is admissible. The revenue, through the AO, disallowed it. 4. Whether the addition of %39,88,247 for premium payable to LIC for superannuation benefits was justified, as it was not claimed in the return of income and not verified by the AO. The assessee's position on this was not explicitly recorded, but the AO and CIT(A) disallowed it. 5. Whether the addition of %1,41,867 on account of prior period expenses was correct, with the assessee arguing these were expenses crystallized during the year and related to the current financial year.

Which sections of the Income-tax Act were involved?

Section 40A(7)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “PATNA” BENCH, PATNA

Before: SHRI DUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM

For Appellant: Shri Ratendra Kumar, AR
For Respondent: Shri Ashwani Kr. Singal, DR
Hearing: 27.11.2025Pronounced: 09.12.2025

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 03.04.2025 for the AY 2017-18.

2.

The issue raised in ground no.1 is against the order of learned CIT (A) confirming the addition of ₹58,35,063/-, which was made by the learned Assessing Officer in respect of provision for gratuity.

2.1. After hearing the rival contentions and perusing the materials available on record, we find that the learned Assessing Officer during the course of assessment proceedings noted from the tax audit report in form No.3CD vide point number 21(e) that provision for gratuity 2.2. In the appellate proceedings, the learned CIT (A) confirmed the addition.

2.3. We note that this is a factual mistake on the part of the tax auditor in the tax audit report which was revised and corrected subsequently. However, we find that the issue needs to be examined at the level of the learned Assessing Officer so that the correct amount could be ascertained and disallowed. Needless to say that if the assessee has suo moto disallowed the amount of ₹39,88,247/- while filing the return of income and there is mistake in the tax audit report then the addition of ₹58,35,063/- has to be deleted. With this observation, we set aside the issue to the file of the learned Assessing Officer with a direction to decide the same after affording reasonable opportunity of being heard to the assessee. The ground no. 1 is allowed for statistical purpose.

3.1. The facts in brief are that during the year the assessee paid interest on EPF of ₹11,98,185/- and interest on TDS of ₹3,00,815/-. According to the learned Assessing Officer the said interest is penal in nature and therefore, not allowable. In our considered view the said interest is not penal in nature and is allowable expenses when paid in computing the income of the assessee. Accordingly, we set aside the o order of learned CIT (A) and direct the learned Assessing Officer to delete the addition. The ground no. 2 is allowed.

4.

The issue raised in ground no.3 is against the order of learned CIT (A) confirming the addition of ₹14,02,544/- in respect of bonus paid, whereas as a matter of fact the said amount was paid before the due date of filing the return of income. In case of bonus is paid before the due date of filing the return, the same is admissible expenses and has to be allowed. However, the issue required to be verified at the end of the learned Assessing Officer and therefore, we restore this to the file of the learned Assessing Officer to verify the payments made on account of bonus outstanding before the due date of filing the return of income ,then the same has to be allowed as deduction. With this observation, we restore the issue to the file of the learned Assessing Officer to decide the same in the light of the aforesaid observations. The ground no. 3 is allowed for statistical purpose.

5.

The issue raised in ground no.4 is against the confirmation of addition of ₹39,88,247/- by the learned CIT (A), which was not claimed in the return of income in respect of premium payable to LIC for

6.

The issue raised in ground no.5 is against the conformation of addition of ₹1,41,867/-, as made by the learned Assessing Officer on account of prior period expenses.

6.1. After hearing the rival contentions and perusing the materials available on record including the evidences in support of these evidences, we find that these are not the prior period expenses but in fact the expenses which crystalized during the year and related to the current financial year. Accordingly, the order of learned CIT (A) is set aside on this issue and the learned Assessing Officer is directed to delete the disallowance. The ground no. 5 is allowed.

7.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 09.12.2025.

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