2014 (9) TMI 1087 - AT - Income Tax

Disallowance of payment of gratuity - Held that - A.R. has submitted that it was maintaining gratuity fund with LIC of India in accordance with guidelines of RBI and when the payment was made to LIC of India Assessee had not claimed the deduction but had claimed the same when the actual payment of gratuity was made to the concerned employee and therefore it is not a case of claim of double deduction. Before us Revenue has not placed any material on record to controvert the submissions of the Assessee. Further Revenue has also not placed any material on record to show that Assessee has claimed the deduction of expenses when the amount was placed with LIC. In view of the aforesaid facts we are of the view that the Assessee is entitled to deduction in the year under review and we therefore delete the addition made by the A.O. Disallowance on depreciation on investment - Held that - The issue in the present case is with respect to the loss in value of investment in mutual funds arising on account of the difference between the cost of units and the NAV on the last day of the accounting year on account of valuation. Before us the ld. A.R. has submitted that the issue is covered in favour of the Assessee in view of the decisions cited by the ld. A.R. We find that the aforesaid decisions were not before CIT(A) when the issue was decided by him. We therefore feel that the issue needs to be re-looked at his end in view of the various decisions cited by ld. A.R. We therefore remit the issue back to the file of CIT(A) to decide the issue afresh in the light of decisions cited by AR and in accordance with law. Needless to state that CIT(A) shall granted adequate opportunity of hearing to both the parties. In the result this ground of Assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of gratuity payment
2. Disallowance on depreciation of investment

Issue 1: Disallowance of Gratuity Payment

The appellant, a Co-operative Bank, filed its original return of income for A.Y. 08-09, later revising it to show a lower total income. The assessment framed under section 143(3) resulted in a higher total income, contested by the Assessee before CIT(A). The CIT(A) partially upheld the disallowances related to gratuity payment and loss on the valuation of shares. The Assessee appealed against this decision, challenging the disallowance of gratuity payment of &8377; 3,15,933. The A.O disallowed the claim as the amount was not routed through regular books of accounts and was not shown under expenses in the Profit and Loss account. The CIT(A upheld this disallowance, emphasizing that the payment was made by the Life Insurance Corporation of India, not the Assessee. However, the ITAT allowed the Assessee's appeal, noting that the Assessee was entitled to the deduction as the payment was made to the employee and not claimed twice.

Issue 2: Disallowance on Depreciation of Investment

Regarding the disallowance on depreciation of investment of &8377; 45,49,019, the A.O disallowed the claim as the mutual funds had not been redeemed, matured, or terminated, and the loss could only be recognized after such events. The CIT(A upheld this disallowance, stating that the investments were not made as per statutory requirements and were for better returns, not for statutory compliance. The Assessee appealed, citing various decisions in their favor. The ITAT remitted the issue back to the CIT(A for fresh consideration in light of the decisions cited by the Assessee, emphasizing the need for a reevaluation in accordance with the law. The appeal was allowed for statistical purposes.

In conclusion, the ITAT Ahmedabad ruled in favor of the Assessee regarding the disallowance of gratuity payment, allowing the deduction as the payment was made to the employee. However, the disallowance on the depreciation of investment was remitted back to the CIT(A) for reevaluation based on the decisions cited by the Assessee. The judgment highlighted the importance of proper accounting practices and adherence to legal provisions in determining the allowability of expenses and losses.