2021 (7) TMI 1219 - AT - Income Tax

Addition u/s 40A(7) - contribution towards the gratuity funds - HELD THAT - It is the case of the assessee that the assessee had made contribution towards the gratuity funds during the assessment year under consideration and therefore the assessee is entitled to the dedication liable under section 40A(7) of the Act. Once the assessee had made the payment during the year under consideration then the same is required to be allowed. However, the above said fact have not been considered by the lower authorities and therefore we deem it appropriate to remand back the matter to the file of the concerned AO to verify whether the contribution towards the gratuity funds were paid by the assessee during the year under consideration or not. If on verification the AO comes to the conclusion that the contribution were made in the year under consideration then the AO is directed to allow the benefit of 40A(7) to the assessee - while verifying above set back of contribution the AO shall afford the opportunity to the assessee and also permit him to support the contention on the basis of the documents/evidence may be advised. Accordingly, the appeal of assessee is allowed for statistically purposes.

Summary

Issues:
1. Disallowance of gratuity contribution under section 40A(7) for A.Y. 2017-18.

Analysis:
The appellant challenged the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals) claiming that they were not in line with the facts of the case and were legally unsustainable. The appellant specifically contested the disallowance of ?19,52,659 under section 40A(7) of the IT Act, 1961, which was confirmed by the CIT(A). The appellant argued that the gratuity account position showed that the claimed expenditure of ?22,59,445 included an amount of ?19,95,569 paid during the year, with the balance added to the income computation. The appellant contended that the disputed amount of ?2,63,876 had already been taxed considering the opening and closing balance difference. The appellant asserted that there was no justification for the additional disallowance of ?19,52,569, which was not warranted under sections 143(1) or 143(3) of the IT Act.

The CIT(A) disallowed the gratuity contribution based on the CPC's observation that the payment was not allowable under section 40A(7). However, the appellant presented a Chartered Accountant's certificate confirming the payment during the relevant year. The Appellate Tribunal noted that if the payment was made during the assessment year, it should be allowed as a deduction under section 40A(7). The Tribunal decided to remand the matter to the Assessing Officer for verification of the payment made by the assessee during the relevant year. The Tribunal directed the AO to grant the benefit of section 40A(7) if the contribution was indeed made during the assessment year. The AO was instructed to provide the assessee with an opportunity to present supporting documents during the verification process.

In conclusion, the appeal was allowed for statistical purposes, and the order was pronounced on 14.07.2021.