2019 (1) TMI 1861 - AT - Income Tax

Addition u/s 36(1) or 37(1) - Disallowance made in respect of payment to unapproved gratuity fund - HELD THAT - As decided in own case 2017 (6) TMI 1342 - ITAT PUNE amount paid towards unapproved gratuity fund can be deducted under section 37(1) of the Act, though not under section 36(1)(v) of the Act. The amount which has been paid by the assessee towards an unapproved gratuity fund is duly allowable as deduction under section 37(1) of the Act though the assessee is not entitled to claim the deduction under section 36(1)(v) of the Act. Accordingly, the ground of appeal No.1 raised by the assessee is allowed

Summary

Issues:
1. Disallowance of payment to unapproved gratuity fund.
2. Failure to consider recent legal precedents.
3. Allowability of deduction under section 37(1) of the Act.

Issue 1: Disallowance of payment to unapproved gratuity fund
The appeal arose from the order of Ld. CIT(Appeals)-9, Pune, where the assessee contested the disallowance of the contribution made to an unapproved gratuity fund. The Assessing Officer rejected the claim as the gratuity fund lacked approval from the Principal Commissioner of Income Tax, citing section 36(1)(v) of the Income Tax Act, 1961. The Ld. CIT(Appeals) upheld the decision, noting the absence of approval despite the assessee's application. The Co-ordinate Bench of the Tribunal, Pune reviewed a similar issue from a prior assessment year and allowed the deduction under section 37(1) of the Act, following relevant legal precedents. Consequently, the order disallowing the contribution to the unapproved gratuity fund was set aside, and the appeal was allowed for the current assessment year.

Issue 2: Failure to consider recent legal precedents
The assessee argued that the Ld. CIT(Appeals) erred in not considering a recent decision by the Hon'ble Rajasthan High Court, which favored the appellant in a similar case. Despite the assessee's plea to highlight the distinction in the cases, the Ld. CIT(Appeals) relied on the predecessor's decision and dismissed the appeal. However, the Co-ordinate Bench of the Tribunal, Pune, in the assessee's previous case, provided relief based on applicable legal principles. The Tribunal, in the current judgment, emphasized the relevance of legal precedents and set aside the Ld. CIT(Appeals)'s order for the assessment year 2013-14.

Issue 3: Allowability of deduction under section 37(1) of the Act
The Co-ordinate Bench of the Tribunal, Pune, referred to a previous case where the deduction for an unapproved gratuity fund was allowed under section 37(1) of the Act, even though disallowed under section 36(1)(v). Citing relevant judgments, the Tribunal held that the amount paid towards an unapproved gratuity fund is deductible under section 37(1) of the Act. Relying on this precedent, the Tribunal set aside the Ld. CIT(Appeals)'s order and allowed the appeal for the assessment year 2013-14.