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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
ORDER
Per Shri A.T.Varkey, JM
This appeal has been filed by the revenue against the order of Ld. CIT(A)-1, Kolkata dated 13.05.2016 for AY 2009-10 on the following sole ground:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has in deleting the addition of Rs.2,32,27,159/- and allowed the claim of gratuity liability in the computation of total income through the same was not debited in the P&L A/c.
The only issue in this appeal relates to the addition made by the AO of R.2,32,27,159/- and deleted by the Ld. CIT(A) on account of gratuity liability. The AO in the assessment order observed that the assessee has not debited the gratuity liability for Rs.2,32,27,159/- in respect of retired employees to the P&L Account for the year ended on 31.03.2009. According to AO, the assessee is regularly following the mercantile system of accounting and since entry regarding the gratuity was not made in the books of account there is no accrual of such liability relevant to AY 2009-10 and hence, the same is not allowed as deduction. As such, the claim of deduction of gratuity liability for Rs.2,32,27,159/- in respect of retired employees not debited to the P&L Account, in the computation of total income, it was disallowed by the AO as per the provisions of section Reliance Jute Mills International Ltd., AY: 2009-10 36(1)(v), 43B and 40A(7) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). On appeal, the Ld. CIT(A) following the decision of coordinate bench of this tribunal in assessee’s own case in for AY 2004-05 vide order dated 21.09.2007 directed the AO to delete the said disallowance of Rs.2,32,27,159/-. Aggrieved, revenue is in appeal before us.
We have heard rival submissions and carefully considered the material available on records. We note that the facts as stated above are undisputed. We note that the issue is squarely covered in favour of the assessee by the decision of coordinate bench in assessee’s own case in for AY 2004-05 vide order dated 21.09.2007, wherein the Tribunal vide para 7 of its order has held as under:
“7. We have considered the rival submissions. We found that there was no dispute that the assessee was following mercantile system of accounting. There was also no dispute that the gratuity claimed in the computation of total income was on account of the employees who were actually superannuated during the year. The only dispute raised by the AO was that since no entry was made in the accounts it cannot be said that the liability has actually accrued. The Ld. CIT(A) has in fact in so far as the accrual of liability is concerned has not disputed the same. The Ld CIT(A) has also not supported the reasoning of the AO that no liability can be said to have accrued simply because no entry was made in the account books. It is also clear from the findings of the authorities below that the liability claimed related to the employees who retired during the year itself. Therefore the liability has accrued during the year itself and under the mercantile system of accounting the liability which has accrued during the year is allowable even if the assessee has not made any entry in the books of account and has claimed the same while computing the total income. Apart from the judgements cited above, Allahabad High Court in the case of Kanpur Textile Ltd. reported in 276 ITR page 140 and U P Electronics Corporation Ltd. reported in 282 ITR page 470, following Kedarnath's case have held that if under the mercantile system of accounting a liability has accrued, the same is to be allowed irrespective of the fact that the assessee did not make any entry in the books of accounts. In fact if under the provisions of the I.T.Act some deduction is allowable the AO should allow it as has been accepted by the CBDT in its circular as back as on 11.4.55 being circular No. 14(XI-35). The view is also supported by the judgement in the case of Nathmal Bankatlal Parakh & Co. 122 ITR page 168 (AP FB) (SLP rejected by SC in 140 ITR St. page 5) and Easter Cold Storage Pvt Ltd. 139 ITR page 664(Cal). Moreover there cannot be two views in the proposition that if the mercantile system of accounting is followed the assessee is entitled to the deduction of the accrued liability even if no entry is made in the account books. Therefore the assessee is entitled to the deduction of the liability claimed by it while computing the total income in the return.”
Since the issue is squarely covered in favour of the assessee by the decision of coordinate Bench of this Tribunal in assessee’s own case, cited supra, relying on the aforesaid decision and since the Ld. DR could not point out any change in facts or law at the time of hearing,
Reliance Jute Mills International Ltd., AY: 2009-10 we confirm the order of Ld. CIT(A) deleting the disallowance of Rs.2,32,27,159/- on account of gratuity liability. The appeal of the revenue is dismissed.