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2012 (10) TMI 664 - AT - Income TaxDisallowance of Education fund - Held that - Assessee-bank in the Cooperative sector was required to contribute 2% of profits subject to maximum limit of Rs. 2.00 lakhs towards education fund which is of statutory nature. Since the payment is of statutory nature the expenses has to be allowed on the basis of the provision - Order of the ld. CIT(A) is set aside and direct the Assessing Officer to allow Rs. 2.00 lakhs as expenses - in favour of assessee. Provision for Gratuity - Section 40A - Held that - Plain reading of the provisions clearly shows that restrictions had been made in clause (a) that no deduction will be allowed in respect of provisions made towards payment of gratuity. - However, this restriction is subject to exceptions provided in clause (b). Clause (b) clearly steps that wherever the provisions is made for the purpose of payment of contribution towards approved gratuity fund then this clause (a) is not applicable. - It is not disputed that the payment to LIC was towards approved gratuity. Therefore, the provision towards gratuity could not have disallowed under clause (a) of Section 40A(7) of the Act. - in favour of assessee.
Issues:
1. Disallowance of Education fund payment to HARCO Fed Chandigarh 2. Addition of gratuity provision Issue 1 - Disallowance of Education fund payment to HARCO Fed Chandigarh: - The Assessing Officer disallowed the provision of Rs. 2.00 lakhs made by the assessee-bank towards education fees paid to HARCO. - The ld. CIT(A) affirmed the disallowance stating that the actual expense of Rs. 1,33,884/- was incurred in the next year, hence disallowing the provision. - The appellant argued that as a Cooperative Bank, the assessee was required to contribute 2% of profits subject to a maximum of Rs. 2.00 lakhs towards education fees, as per Rule 73 of Haryana Cooperative Societies Rule 1989. - Referring to a communication from the Registrar Cooperative Societies, it was highlighted that the payment was a statutory obligation and should be allowed based on the provision. - The ITAT held that since the payment was of a statutory nature, the expenses should be allowed, setting aside the CIT(A)'s order. Issue 2 - Addition of gratuity provision: - The Assessing Officer disallowed the provision of Rs. 70.00 lakhs made by the assessee towards gratuity, based on the tax auditor's statement in Form 3CD. - The ld. CIT(A) confirmed the disallowance despite details of actual payments made by the assessee to employees and LIC. - The appellant argued that since actual payments were made before the due date, the expenses should be allowed under section 43B. - The ITAT referred to Section 40A(7) which restricts deductions for provisions made towards gratuity, but exceptions are provided for contributions towards approved gratuity funds. - As the payment to LIC was towards an approved gratuity fund, the provision for gratuity could not be disallowed under Section 40A(7), leading to the ITAT allowing the appeal filed by the assessee. This judgment highlights the importance of understanding statutory obligations and approved fund contributions in determining the allowability of expenses such as education fees and gratuity provisions. The ITAT's decision provides clarity on the treatment of such expenses under relevant provisions of the Income Tax Act.
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