2018 (12) TMI 1913 - AT - Income Tax

Disallowance of payment of Gratuity to the employees - application for approval of gratuity scheme pending - HELD THAT - The assessee has paid a submission that its application for the approval for the gratuity trust with life insurance Corp of India is pending since 12/02/2013. Several reminders have been placed on record before us submitted to the principal Commissioner of income tax. However, till to date the above trust has not been registered. In such peculiar circumstances where assessee has already done what he could have done and still facing disallowance for no approval of the about trust which is according to the standard format with life insurance Corp of India. In such circumstances, we do not inclined to uphold the disallowances made by the lower authorities despite the fact that approval has not been granted to the gratuity trust of the assessee as per the standard deed entered into with life insurance Corp of India. We set aside this ground of appeal back to the file of the learned assessing officer with a direction to the learned AO and the concerned CIT to examine the application of the assessee and if it is found in accordance with the law to grant the registration so that assessee can get the deduction of the expenditure which assessee is rightfully incurring for the gratuity of the employees of the company. - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against disallowance of gratuity payment without approval from competent authority.

Analysis:
The appeal was filed by the assessee against the order of the ld CIT (A) for the AY 2013-14, specifically challenging the disallowance of INR 3,46,000 representing payment of Gratuity to the employees. The case involved a cooperative bank engaged in banking business. The assessment under section 143(3) of the Income Tax Act resulted in several additions by the assessing officer, with the disallowance of gratuity payment being the only addition in dispute. The disallowance was based on the lack of approval from the competent authority for the gratuity fund. The CIT (A) confirmed the disallowance, emphasizing the mandatory condition of approval under the provisions of the act for such deductions. However, the assessee contested that the correct disallowance amount should be INR 3,00,000 instead of INR 3,46,000.

The authorized representative argued that the assessee had applied for approval of the gratuity scheme before the Commissioner of Income Tax, with reminders sent regarding the pending approval. Despite repeated reminders, the approval was still pending, leading to the disallowance of the amount. The departmental representative supported the lower authorities' orders. After considering the contentions and orders, the Tribunal noted that the application for approval of the gratuity trust with Life Insurance Corp of India had been pending since 2013, with no registration granted despite the submission of required documents. The Tribunal found it unfair to uphold the disallowance when the assessee had taken all necessary steps and the trust was in accordance with standard procedures. Therefore, the Tribunal set aside the disallowance and directed the assessing officer to examine the application and grant registration if found in accordance with the law, allowing the deduction for the expenditure incurred on gratuity. The decision was to be made after the principal Commissioner's decision on the application.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, pronouncing the order on 20/12/2018.