FLEETGUARD FILTERS PRIVATE LIMITED,PUNE vs. DY COMMISSIONER OF INCOME TAX CIRCLE 1(1), PUNE

ORDER

PER DR. DIPAK P. RIPOTE, AM:

b. I he learned Commissioner of Income Tax (Appeals) failed to take into account that the Assessee Company had not claimed any deduction for provision and has been consistently following the practice of claiming deduction on payment basis. c. The learned Commissioner of Income tax (Appeals) ought to have allowed deduction of Rs.28.28,922/- for payment of gratuity to its employees as expenses were incurred wholly & exclusively for the purpose of the assessee’s business. d. The learned Commissioner of Income Tax (Appeals) erred in relying on the judgement by Apex Court in case of Shree Sajjan Mills Ltd vs CIT [ 1985J 156 ITR 585 (SC). e. The learned Commissioner of Income Tax (Appeals) made mistake in not considering that Assessee had claimed deduction towards actual payment of the Gratuity and not towards the provision of the Gratuity.” Findings and Analysis : 2. We have heard both the parties and perused the records. It is observed that assessee had claimed Rs.1,67,46,860/- as deduction towards Group Gratuity Fund of LIC. In the computation of income, the assessee also claimed Rs.28,28,922/- as payment made for Group Gratuity directly paid to one of its employees on retirement. Assessee submitted that during the assessment proceedings that assessee had paid Rs.28,28,922/- directly to one of its employees on retirement. The Assessing Officer(AO) observed the since assessee has claimed deduction of Rs.1,67,46,860/- as contribution towards Group Gratuity Fund of LIC, which has been allowed by the AO; therefore, AO held that the amount of Rs.28,28,922/- was not an allowable expenditure as Fleetguard Filters Private Limited [A] “provision for gratuity fund has already been allowed”. Also as per section 40A(7), direct payments to the employee through profit and loss account is not allowable when the payment to gratuity fund was allowed as deduction. Therefore, the AO disallowed an amount of Rs.28,28,922/-. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A).

3.1 The ld.CIT(A) upheld the addition following the Hon’ble Supreme Court’s decision Shree Sajjan Mills Ltd., Vs. CIT [1985] 156 ITR 585 (SC).

3.2 Aggrieved by the order of the ld.CIT(A), the assessee filed appeal before this Tribunal.

3.3 The ld.AR submitted that assessee had directly paid Rs.28,28,922/- to one of its employees. Ld.AR also submitted that the amount of Rs.28,28,922/- was not withdrawn from LIC Group Gratuity Fund. Thus, assessee discharged the liability directly on its own. Hence, ld.AR pleaded that the disallowance made by the AO was incorrect.

3.4 Ld.AR has not filed any documentary evidence to prove that said amount of Rs.28,28,922/- was not withdrawn from LIC’s Fleetguard Filters Private Limited [A] approved group gratuity fund. Also, it is a fact that the AO has allowed deduction of Rs.1,67,46,860/-which was paid to Group Gratuity Fund of LIC.

3.5 Though in the ground of appeal the Assessee claimed that Assessee has been claiming the deduction only on payment basis and not on the basis of provisions. However, the assessee has not filed any document to prove the same. The onus is always on the assessee to substantiate his pleadings by documentary evidence.

3.6 Section 40A of the Income tax Act is reproduced here under : Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". ****************** (7) (a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason.

(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.

Explanation.—For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason has been Fleetguard Filters Private Limited [A] allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.

3.7 As per Explanation to Section 40A(7) of the Act, any sum which was allowed as deduction in any earlier years on account of provision made for payment towards approved Gratuity Fund then any sum actually paid to the employee by way of gratuity shall not be allowed as deduction.

3.8 In this case the Assessee has been making payment to Approved gratuity Fund of the LIC. The Assessing Officer has allowed deduction of such sum paid towards Approved gratuity Fund. In this scenario allowing the amount of Rs. 28,28,922/- will be double deduction. Section 40A(7) prohibits deduction of amounts which have been directly paid to the employee by way of gratuity.

3.9 Therefore, for all the reasons discussed above, we uphold the disallowance of the amount of Rs.28,28,922/-.

3.10 Accordingly, the grounds of appeal raised by the assessee are dismissed in above terms. Fleetguard Filters Private Limited [A]