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2017 (9) TMI 1585 - AT - Income TaxDisallowance of contribution towards Gratuity Fund(GF)maintained by Life Insurance Corporation (LIC) - Held that - We find that the assessee was making payment to LIC towards Employees Group cum Life Assurance Scheme after creating a trust deed that it had made an application to the CIT for approval. Thus there is no doubt that payments had been made by the assessee to LIC in a particular Scheme. The granting of approval for a GF is not in the hands of the assessee. It could only make an application and deposit the money. We find that in the case of Baroda Gujarat Gramin Bank similar issue had arisen and the Tribunal referring to the case of Bitoni Lamps Ltd. (2004 (9) TMI 74 - PUNJAB AND HARYANA High Court) as held that if payments towards funds were made no disallowance should be made even if approval was pending and had decided the issue in favour of the assessee
Issues:
1. Disallowance of contribution towards Gratuity Fund. 2. Approval of Gratuity Fund by the CIT. 3. Interpretation of section 40A(7) of the Act. Issue 1: Disallowance of contribution towards Gratuity Fund: The Assessing Officer disallowed the deduction claimed by the assessee for a sum of &8377; 19.30 lakhs towards Gratuity Fund maintained by LIC, as the assessee failed to prove the GF was a recognized fund under section 40A(7) of the Act. The First Appellate Authority upheld the AO's decision, stating that the GF had not been approved by the CIT, and mere filing of an application did not meet the statutory requirement. The AR argued that the assessee had made the necessary application and payments to LIC, emphasizing that the approval process was beyond their control. The Tribunal referred to similar cases and decided in favor of the assessee, stating that disallowance should not be made if payments were actually made towards the fund, even if approval was pending. Issue 2: Approval of Gratuity Fund by the CIT: The FAA held that approval of the GF by the CIT was crucial for it to be considered an approved fund under the Act. Despite the assessee's application for approval, the CIT had not granted approval till the disposal of the appeal. The Tribunal emphasized that the approval process was not within the assessee's control, and making payments to LIC as directed was sufficient. The Tribunal relied on previous judgments to support the decision that disallowance should not be made solely based on pending approval if actual payments towards the fund were made. Issue 3: Interpretation of section 40A(7) of the Act: Section 40A(7) of the Act prohibits deductions for provisions made by the assessee for gratuity payments unless certain conditions are met. The Tribunal analyzed previous cases and held that actual payments made towards the fund should not be disallowed solely due to pending approval. The Tribunal cited judgments emphasizing that disallowance under section 40A(7) should not apply when actual payments were made, even if the fund approval was pending. Consequently, the Tribunal decided in favor of the assessee, partially allowing the appeal. In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that disallowance of contributions towards the Gratuity Fund should not be made solely based on pending approval if actual payments were made towards the fund. The decision highlighted the distinction between provisions and actual payments under section 40A(7) of the Act, ultimately resulting in the partial allowance of the appeal.
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