SETH INDUSTRIES P. LTD,MUMBAI vs. ACIT (OSD) 2(3), MUMBAI

Though, in the memorandum of appeal, the assessee has raised a number of grounds, however, at the time of hearing, the learned Authorised Representative on the instructions of the assessee wanted to argue only on grounds no.5, 6 and 7 and expressed his intention not to press the other grounds. Hence, all other grounds except the aforementioned grounds are dismissed.

The only issue raised in grounds no.5, 6 and 7 is with regard to disallowance of gratuity payable amounting to ` 1,78,35,353.

Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has debited an amount of ` 1,78,35,353, towards gratuity and terminal benefits payable to employees / workers called upon the assessee to explain why such deduction claimed should not be disallowed as the assessee did not have any business activity during the relevant previous year. Though, the assessee filed a detailed submission objecting to the proposed disallowance and stating why the deduction claimed should be allowed, however, the Assessing Officer rejecting the explanation of the assessee disallowed assessee’s claim of deduction referring to section 40A(7) of the Act, as according to him it is only in the nature of a provisions and assessee did not have any business activity. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals).

The learned Commissioner (Appeals) after considering the submissions of the assessee, though, disagreed with the findings of the Assessing Officer that the assessee was not carrying on any business activity, however, he upheld the disallowance by referring to section 40A(7) and on the ground that the amount debited to the 3 Seth Industries Pvt. Ltd.

We have heard rival submissions and perused material on record. The only submission made by the learned Authorised Representative is the payment of gratuity should be allowed as a deduction in the year of actual payment. The learned Departmental Representative submitted, since the gratuity was not paid in the impugned assessment year deduction claimed was rightly disallowed. Having considered the submissions of the parties and examined the relevant statutory provisions, we are of the view that the payment of gratuity should be allowed as deduction to the assessee in the assessment year, wherein, it was actually paid. Therefore, we direct the Assessing Officer to verify the year of actual payment of gratuity by the assessee and allowed the deduction accordingly. These grounds are allowed for statistical purposes.

In the result, assessee’s appeal is partly allowed for statistical purposes. Order pronounced in the open Court on 28.02.2018