2019 (7) TMI 78 - AT - Income Tax

Contribution paid to the LIC of India towards group gratuity - AO held that no deduction is allowable for contribution made to an unapproved fund - payment made to LIC of India is not a provision but it is actual expenditure claimed under the gratuity contribution - HELD THAT - The very same issue came up before the Tribunal for the Assessment Years 2007-08 2008-09 in assessee s own case 2018 (4) TMI 553 - ITAT VISAKHAPATNAM wherein the Tribunal has held that the group gratuity premium paid to the LIC of India is allowable and accordingly allowed the assessee s appeals.

Issues Involved:
1. Condonation of delay in filing appeals.
2. Allowability of contributions to unapproved gratuity funds under sections 36(1)(v), 40A(7), and 40A(9).
3. Allowability of vehicle hire charges without TDS under section 40(a)(ia).
4. Tax effect considerations for filing Revenue appeals.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Revenue filed appeals with a delay of 12 days and submitted affidavits for condonation. The Tribunal found sufficient cause for the delay and condoned it, allowing the appeals to proceed.

2. Allowability of Contributions to Unapproved Gratuity Funds:
The primary issue was whether contributions made by the assessee to an unapproved gratuity fund, specifically to the LIC, are allowable as deductions under sections 36(1)(v), 40A(7), and 40A(9) of the Income Tax Act.

- Revenue's Argument: The contributions were to an unapproved gratuity fund and thus not allowable. They cited the Apex Court decision in M/s. Sri Sajjan Mills, which held that gratuity payments are not allowable under general principles after the insertion of section 40A.

- Assessee's Argument: The payments were made to meet annual gratuity liabilities and complied with CBDT's mandatory accounting standards. The assessee relied on previous ITAT decisions in their own case, which allowed such deductions.

- CIT(A)'s Decision: The CIT(A) allowed the deductions, stating that the payments were genuine and made directly to LIC under a Group Gratuity Scheme, thus aligning with CBDT standards. The CIT(A) referenced the ITAT's decisions in similar cases, including the Eluru Dist. Co. Op. Central Bank case.

- ITAT's Decision: The ITAT upheld the CIT(A)'s decision, emphasizing that the issue was covered by previous ITAT decisions in the assessee's favor. The Tribunal noted that the contributions to LIC were actual expenditures and not mere provisions, thus allowable under section 37 if not under section 36(1)(v).

3. Allowability of Vehicle Hire Charges Without TDS:
The CIT(A) directed the AO to allow vehicle hire charges of ?3,75,761/- despite the assessee's failure to make TDS on such expenditure, which usually warrants disallowance under section 40(a)(ia).

- Revenue's Argument: The CIT(A) erred in allowing these charges without appreciating the TDS requirement.

- ITAT's Decision: The ITAT did not specifically address this issue in detail in the provided text, focusing primarily on the gratuity fund contributions.

4. Tax Effect Considerations for Filing Revenue Appeals:
The Revenue noted that although the tax effect for one assessment year was below the monetary limit prescribed by CBDT, the combined tax effect for both years exceeded the threshold, justifying the appeal.

- ITAT's Decision: The ITAT did not find this argument sufficient to overturn the CIT(A)'s decision on the primary issue of gratuity fund contributions.

Conclusion:
The ITAT dismissed the Revenue's appeals and the assessee's cross objections. The Tribunal upheld the CIT(A)'s decision, allowing the deductions for contributions to the LIC under the Group Gratuity Scheme, considering them genuine expenditures. The vehicle hire charges issue was not specifically addressed in the final decision. The appeals and cross objections were dismissed, affirming the CIT(A)'s comprehensive order.

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