2015 (6) TMI 1204 - AT - Income Tax

Allowability of provision for gratuity debited to the Profit Loss Account - applicability of provisions of section 43B and 40A(7) - HELD THAT - We find that the issue adjudicated by the Tribunal for the assessment year 2007-08 2014 (12) TMI 1356 - ITAT CHENNAI is identical in principle to the one raised in this appeal. It is the decision of the Tribunal that provisions of section 40A(7) take precedence over the provisions of section 43B of the Act. Therefore, respectfully following the said decision of the Tribunal, we find that the order of the CIT(A) is fair and reasonable and it does not call for any interference. - Decided against revenue.

Summary

Issues:
Allowability of provision for gratuity debited to the Profit & Loss Account and the applicability of provisions of section 43B and 40A(7) of the Act.

Analysis:
The appeal by the Revenue was against the order of the Commissioner of Income-tax (Appeals)-III, Chennai, for assessment year 2005-06. The main issue raised was the allowability of provision for gratuity debited to the Profit & Loss Account and the interpretation of sections 43B and 40A(7) of the Act. The Assessing Officer disallowed a provision for gratuity of Rs. 20,95,266/- under section 43B, despite the assessee creating a provision of Rs. 50,95,266/- towards gratuity fund, with Rs. 30 lakhs already paid before the due date. The CIT(A) relied on various decisions, including CIT vs Commonwealth Trust (I) Ltd, to support the assessee's claim under section 40A(7). The Tribunal found in favor of the assessee, citing that section 40A(7) takes precedence over section 43B based on previous decisions. The Tribunal upheld the order of the CIT(A) in deleting the disallowance made for approved gratuity funds.

The Tribunal considered the detailed findings of the CIT(A) and the decisions cited, including those in the assessee's own case for assessment year 2007-08. The Tribunal noted that the issue adjudicated for 2007-08 was similar to the one raised in the current appeal. Relying on precedents such as CIT vs Commonwealth Trust (P) Ltd and CIT vs Bechtel India (P) Ltd, the Tribunal concluded that section 40A(7) takes precedence over section 43B. The Tribunal dismissed the Revenue's appeal and upheld the order of the CIT(A) in favor of the assessee. The decision was based on the principle that provisions of section 40A(7) override those of section 43B, emphasizing the special treatment given to provisions made for payment towards an approved gratuity fund.

In conclusion, the Tribunal found in favor of the assessee, dismissing the Revenue's appeal and upholding the order of the CIT(A) in deleting the disallowance of the provision for approved gratuity funds. The decision was based on the precedence of section 40A(7) over section 43B, as established in previous judgments and the specific provisions of the Act.