DCIT, CHENNAI vs. AJUBA SOLUTIONS INDIA P LTD., CHENNAI

Both the appeals of the Revenue are directed against respective orders of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 19.01.2016 and pertain to assessment years 2009- 10 and 2010-11. Since common issue arises for consideration in both the appeals, we heard both the appeals together and disposing of the same by this common order.

The only issue arises for consideration is provision for Gratuity not allowable under Section 40A(7) of the Income-tax Act, 1961 (in short 'the Act') was taken as income of the assessee.

Shri Supriyo Pal, the Ld. Departmental Representative, submitted that for the assessment year 2009-10, provision for Gratuity, which was not allowable under Section 40A(7) of the Act, was claimed as expenditure to the extent of `26,68,379/-. Similarly, for assessment year 2010-11, a sum of `20,13,939/- was claimed as income derived from undertaking for the purpose of exemption under Section 10A of the Act. The CIT(Appeals) allowed the claim of the assessee on the ground that disallowance made under Section 40A(7) of the Act needs to be reconsidered while arriving at profit for the purpose of deduction under Section 80-IA of the Act. Referring to the decision of Ahmedabad Bench of this Tribunal in DCIT v. Rameshbhai C. Prajapati (2013) 140 ITD 488, the Ld. D.R. submitted that one of the Members, namely, the Ld. Accountant Member, is a party to the order. On identical set of facts, this Tribunal found that the disallowance made under Section 40(a)(ia) of the Act cannot be taken as profit for the purpose of deduction under Section 80-IB(10) of the Act. This decision of Ahmedabad Bench of this Tribunal was not brought to the notice of both the authorities below.

On the contrary, Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that provision for Gratuity, which was not allowable under Section 40A(7) of the Act, has to be necessarily treated as profit for the purpose of deduction under Section 10A of the Act. The Ld.counsel further submitted that the Assessing Officer has disallowed the penalty paid under the Customs Act for the purpose of claiming deduction under Section 10A of the Act.

We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer disallowed the interest paid under Section 201(1A) of the Act, provision for Gratuity which was not allowable under Section 40A(7) of the Act, provision for leave encashment, donations, amount paid on fringe benefit tax, wealth tax, redemption fine under Customs Act and penalty under Customs Act. This was not taken as profit for the purpose of computing deduction under Section 10A of the Act. However, the CIT(Appeals) allowed the claim of the assessee. As rightly submitted by the Ld. D.R., both the authorities below did not consider the decision of Ahmedabad Bench of this Tribunal in Rameshbhai C. Prajapati (supra). As rightly submitted by the Ld. D.R., one of us, the Ld. Accountant member is a party to this order. Therefore, this Tribunal is of the considered opinion that the Assessing Officer has to examine the claim of the assessee in the light of the decision taken by Ahmedabad Bench of this Tribunal in Rameshbhai C. Prajapati (supra). Accordingly, the orders of the authorities below are set aside and all the issues are remitted back to the file of Assessing Officer. The Assessing Officer shall re- examine the issues in the light of the decision of Ahmedabad Bench of this Tribunal in Rameshbhai C. Prajapati (supra) and thereafter decide the issues, in accordance with law, after giving a reasonable opportunity to the assessee.

In the result, both the appeals of the Revenue are allowed for statistical purposes.