2023 (10) TMI 192 - AT - Income Tax

Disallowance of gratuity while processing return u/s 143(1) - actual payment during the assessment year under consideration, which is allowable u/s 37(1) - CIT(A) observed that auditor is required to call for and verify the details of contribution to gratuity fund, etc.- HELD THAT - If the assessee has charged gross provision for gratuity to the profit as per profit loss account, thereafter the assessee deducted actual gratuity payment assessee s claim cannot be disallowed in principle. On the other hand, if the assessee has debited actual payment of gratuity in the account provision for gratuity, then the payment of gratuity already gets subsumed, thereafter, the assessee cannot once again claim actual payment of gratuity in the return of income as it would amount to double deduction. To verify this, we remit this issue to the file of AO to examine the provision for gratuity account along with payment of gratuity. After satisfying the treatment given by the assessee in his books of accounts, the claim of assessee to be examined. Accordingly, the issue is remitted back to the file of AO for fresh consideration. Denial of carried forward current year loss - contention of the ld. AR is that though AO quantified the carried forward of current year loss at the tune of Rs. 53,87,78,963/- in the end in Annexure- Schedule CFL as computed u/s 143(1) in column no.(xiv) current year losses to be carried forward (xiv-xv) mentioned as 0 , which is incorrect - In our opinion, the claim of assessee to carry forward current year loss to be Rs. 53,87,78,963/- without prejudice to our findings in earlier ground. Accordingly, the error crept in the intimation u/s 143(1) of the Act is to be corrected as current year loss to be carried forward at Rs. 53,87,78,963/- which is subject to our findings in ground no. 1. Ordered accordingly.

Summary

Issues:
1. Disallowance of gratuity under section 37(1) of the Income-tax Act, 1961.
2. Denial of carried forward current year loss.

Issue 1: Disallowance of Gratuity:
The appellant contested the disallowance of gratuity at Rs. 55,74,555/- despite actual payment during the assessment year, claiming it as allowable under section 37(1) of the Act. The dispute arose from the treatment of the provision for gratuity in the books of accounts and its reporting in the Tax Audit Report. The ld. CIT(A) emphasized the importance of accurate reporting in Form 3CD and highlighted the necessity for revised Tax Audit Reports in case of corrections. The CIT(A) concluded that the adjustment made by CPC under section 143(1)(a) was consistent with the law and factual records, thus upholding the disallowance.

Issue 2: Denial of Carried Forward Loss:
The second issue raised was regarding the denial of carrying forward the current year loss. The appellant argued that the amount of unabsorbed depreciation to be carried forward was not correctly reflected in the intimation issued by CPC. The ld. CIT(A) dismissed this ground as nonmaintainable, stating that the mention or non-mention of the amount in the schedules does not affect the allowance of the loss to be carried forward. The Tribunal corrected the error in the intimation, allowing the current year loss to be carried forward at Rs. 53,87,78,963/-, subject to the findings in the first ground.

In the case of disallowance of gratuity, the Tribunal remitted the issue back to the AO for further examination of the provision for gratuity account and payment of gratuity to determine the validity of the appellant's claim. Regarding the denial of carried forward current year loss, the Tribunal corrected the error in the intimation, allowing the carry forward at Rs. 53,87,78,963/-. The appeal was partly allowed for statistical purposes.