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2015 (4) TMI 51 - AT - Income TaxDisallowance of gratuity paid of employees for non common cadre promoted to common cadre and ceased to be employees of bank - Held that - It is pertinent to mention that the employees themselves demanded the gratuity and the letters of demand are on record at paper book 26 to 34 where it has been mentioned by each employee that he ceased to be employee of the assessee-bank with effect from the date mentioned in the letter and therefore, the assessee-bank was requested that the amount of gratuity of the service rendered by that employee in the assessee-bank be paid to the Punjab State Co-op. Bank Ltd., Chandigarh as per letter No.10983 dated December 29, 2006. The letter No. 10983 dated December 29, 2006, is a letter of the Punjab State Co-op. Bank Ltd., Chandigarh on record, where it has been asked by that bank to remit the amount of gratuity and leave salary contribution of non-cadre period in respect of non common cadre employees who were promoted as managers in the common cadre available at paper It is also pertinent to mention that the said employees ceased to be employees of the assessee-bank and therefore, the argument of the learned Departmental representative that the employees have not retired cannot be accepted. The assessee-bank and Punjab State Co-op. Bank Ltd., Chandigarh are different persons having separate permanent account number cards and separate legal entity and separately assessed to the Income-tax Department. Moreover, the Punjab State Co-op. Bank Ltd., Chandigarh vide letter dated July 27, 2001 has issued a letter to the manager of the Central Co-operative Banks of Punjab State to remit the said amount, which is available at paper book 15 and 16. In the facts and circumstances of the case, the assessee had not made the provisions for the gratuity to his employees which became payable during the year on their retirement and has been paid during the impugned year and therefore, the Commissioner of Income-tax (Appeals) is not justified in confirming the action of the Assessing Officer on this account. We reverse the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to allow the claim of the assessee with respect to gratuity paid amounting to ₹ 22,03,792. Accordingly, grounds of the assessee are allowed. - Decided in favour of assessee. Addition on interest was less charged from the customers - accrual of interest - Held that - It was explained before the authorities below by the assessee that this is a consistent practice being followed by the assessee since beginning that any interest extra charged or lesser charged has to be adjusted in the next year. The assessee has submitted the details of interest lesser charged or over charged which has been accepted by the Department in the preceding year and consistent practice is being followed in the impugned year as well. Even there is no tax effect as incidence of tax in the impugned year as well as in the following year and in the preceding year is the same. In the present facts and circumstances, the right to receive has accrued only in the following year and the same has been charged in the following year itself. Therefore, the said charge cannot be made during the impugned year. The assessee has been following consistent method of practice and right to accrue the income had arisen in the following year which has been charged in the following year which is not under dispute. Accordingly, AO is directed to allow the claim of the assessee - Decided in favour of assessee.
Issues Involved:
1. Disallowance of gratuity payments amounting to Rs. 29,73,044. 2. Addition of Rs. 1,61,572 due to alleged less interest charged from customers. Issue-wise Detailed Analysis: 1. Disallowance of Gratuity Payments Amounting to Rs. 29,73,044: The primary issue revolves around the disallowance of Rs. 29,73,044 by the Deputy Commissioner of Income-tax, comprising Rs. 22,03,792 for gratuity paid to employees promoted to a common cadre and Rs. 7,69,252 for gratuity paid to common cadre staff of the Punjab State Co-op. Bank who worked with the assessee. Arguments by the Assessee: - The assessee argued that the gratuity payments were made as per the service rules and were actually incurred and paid during the year, thus should be allowable under section 40A(7)(b) of the Income-tax Act. - It was contended that the provisions of section 40A(7)(a) were misinterpreted by the Assessing Officer, and the actual payments should be considered under section 40A(7)(b). - The payments were made to the Punjab State Co-op. Bank Ltd., Chandigarh, upon the cessation of employment of the concerned employees from the assessee bank. - The assessee relied on various judicial precedents, including decisions of the Supreme Court and High Courts, to support the claim that actual payments of gratuity are allowable deductions. Tribunal's Findings: - The Tribunal noted that the assessee had not made any provision for gratuity but had actually paid the amounts during the year. - It was observed that the employees had ceased to be employees of the assessee bank and had requested the gratuity payments to be remitted to their new employer, the Punjab State Co-op. Bank Ltd., Chandigarh. - The Tribunal emphasized that the payments were made as per the service rules and with the consent of the employees. - The Tribunal referred to section 40A(7)(b), which allows deductions for actual gratuity payments made during the year, and concluded that the Assessing Officer had wrongly applied section 40A(7)(a). - Judicial precedents cited by the assessee, such as W. T. Suren and Co. Ltd. v. CIT and CIT v. Bitoni Lamps Ltd., supported the Tribunal's view that actual payments of gratuity are allowable deductions. - Consequently, the Tribunal directed the Assessing Officer to allow the claim of Rs. 29,73,044 for gratuity payments. 2. Addition of Rs. 1,61,572 Due to Alleged Less Interest Charged from Customers: The second issue pertains to the addition of Rs. 1,61,572 made by the Assessing Officer on the grounds that the assessee had charged less interest from customers. Arguments by the Assessee: - The assessee contended that the interest charged was accounted for on a day-to-day basis, and any discrepancies found during audits were adjusted in the ensuing year. - It was argued that this practice had been consistently followed and accepted by the Department in previous years. - The assessee relied on judicial precedents, including CIT v. A. Gajapathy Naidu, to argue that income should be assessed in the year it accrues and not related back to an earlier year. Tribunal's Findings: - The Tribunal acknowledged that the assessee had been following a consistent practice of adjusting interest discrepancies in the subsequent year. - It was noted that there was no tax effect as the tax incidence was the same in both the impugned year and the following year. - The Tribunal referred to the decision in CIT v. A. Gajapathy Naidu, which held that income should be assessed in the year it accrues. - The Tribunal concluded that the right to receive the interest had accrued in the following year and had been accounted for accordingly. - Therefore, the addition of Rs. 1,61,572 was unjustified, and the Tribunal directed the Assessing Officer to allow the claim of the assessee. Conclusion: The appeal filed by the assessee was allowed, with the Tribunal directing the Assessing Officer to: - Allow the claim of Rs. 29,73,044 for gratuity payments. - Allow the claim of Rs. 1,61,572 for less interest charged. The order was pronounced in the open court on August 26, 2013.
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