MADHUBAN MOTORS PRIVATE LIMITED , Mumbai V. ASSISTANT DIRECTOR OF INCOME TAX, CPC, Mumbai

ITA 2553/MUM/2022

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Madhuban Motors Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the disallowance of Rs.12,16,766 under section 43B of the Income Tax Act, 1961, related to a provision for gratuity. The company argued that this amount was inadvertently included in a larger disallowance of Rs.12,86,458 under section 40A(7), leading to a double disallowance. The tax auditor had suggested the disallowance under section 43B because the gratuity payment was not made by the due date for filing the return. The Income Tax Appellate Tribunal found merit in the company's argument and remanded the case for further examination to ensure no double disallowance occurred.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125860 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-01-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 03-10-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Revised return
• Section: 43B; 143(1); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.2553/Mum./2022 (Assessment Year : 2020–21) Madhuban Motors Pvt. Ltd. 16, LBS Marg, Kurla (West) Mumbai 400 070PAN – AADCM9124H ................ Appellant v/s Asstt. Commissioner of Income Tax Central Processing Centre, Bangaluru ................Respondent Assessee by : Shri Mahesh O. Rajora Revenue by : Smt. Mahita Nair Date of Hearing – 10/01/2023 Date of Order – 12/01/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned order dated 12/08/2022, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), Pune–11, Pune, [“learned CIT(A)”], for the assessment year 2020– 21. 2. In this appeal, the assessee has raised the following grounds:– “(a) The Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [CM(A)'] erred in confirming disallowance of Rs.12,16,766/- us 43B of the IT Act on account of Provision for Gratuity, made by the Assistant Director of Income Tax(CPC), Banglore (AO) holding it as disallowance of Madhuban Motors Pvt. Ltd. ITA no.2553/Mum./2022 Page | 2 expenditure indicated in the tax audit report but not taken into account in computing the total income in the return of income. The Appellant submits that it has already made disallowance of Provision of Gratuity of Rs. 12,86,458/- [i.e. Rs.12,16,766+ Rs.69,692] in its return of income although inadvertently u/s 40A(7) of the Act as against us 43B of the IT Act as indicated by the Tax Auditor in Tax Audit Report, thus disallowance made by the AO would amount to double disallowance and same shall be deleted. (b) The Appellant submits that out of total disallowance of Rs. 12,86,458/- made by the Appellant in its return of income, sum of Rs.69,692/- was already paid by the Appellant during the year and same ought not to have been disallowed, however, while filing its return of income the Appellant inadvertently disallowed the gratuity paid during the year of Rs.69.692/- u/s 40A(7) of the Act; hence the AO shall be directed to allow the same as deductible expense.” 3. The brief facts of the case as emanating from the record are: The assessee is a private limited company and is an authorised dealer of Toyota, engaged in the business of trading in vehicles. For the year under consideration, the assessee filed its return of income on 15/02/2021, declaring a total loss of Rs.3,05,78,700. The return filed by the assessee was processed vide intimation issued under section 143(1) of the Act determining a total loss at Rs.16,44,390, inter-alia, after disallowing Rs.12,16,766, under section 43B of the Act. 4. In further appeal, the learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue, by observing as under: “17. I have considered this contention of the appellant. A perusal of Tax Audit Report suggests that in column 26(1)(B)(b) of Form 3CD, the Tax Auditor has suggested a disallowance of Rs. 12,16,766/- u/s 438 of the Act because the said amount payable for gratuity was not paid on or before the due date of filing of return of income. Once, a Tax Auditor suggests some disallowance u/s 43B of the Act, it is incumbent on the assessee to make that disallowance while filing the return of income. However, the appellant has not done so. The appellant has now submitted that this amount is included in the disallowance of Rs. 12,86,458/- already made by him. The appellant has submitted that this amount of Rs. 12,86,458/- consist of two amounts i.e. provision for gratuity of Madhuban Motors Pvt. Ltd. ITA no.2553/Mum./2022 Page | 3 Rs. 12,16,766 and gratuity payment of Rs. 69,692/- made to Mr. Mayur Thakur who left the organization during the year and in this manner, the appellant itself disallowed an amount of Rs. 12,86,458/- as per the provisions of sec. 40A(7) of the Act while filing the return and the disallowance of Rs. 12,16,766/- by the Assessing Officer has resulted in double disallowance. This contention of the appellant is self-contradictory. As per the appellant's submission, it made a provision for gratuity of Rs. 12,16,766/- during the year and made a gratuity payment of Rs. 69,692/- to one of the employees. In that situation the total disallowance under sec. 40A(7) cannot be sum of these two amounts, because, once a payment of gratuity has actually been made to the employee, no disallowance for same is required to be made. Also, the sections 40A(7) and 438 of the Act operate in separate territories. Sec. 40A(7) deals with provisions for gratuity made during the year and sec. 43B deals with the payments of gratuity required to be made by the employer but not actually made during the year before the filing of return. In the present case, the Auditor has categorically certified that an amount of Rs. 12,16,766/- is disallowable u/s 43B of the Act. While processing the return of income u/s 143(1) of the Act, the disallowance u/s 43B on account of 'gratuity payable' was made on the basis of Tax Audit Report and no fault can be find in the said action of the Assessing Officer. Accordingly, the disallowance to the extent of Rs. 12,16,766/- is upheld. To sum up, out of a total disallowance of Rs. 2,71,51,391/-, a disallowance amounting to Rs. 12,16,766/- is upheld. The ground no. 3 raised by the appellant is PARTLY ALLOWED.” Being aggrieved, the assessee is in appeal before us. 5. During the hearing, the learned Authorised Representative (‘learned AR’) submitted that the tax auditor in its report did not disallow any amount under section 40A(7) of the Act. However, inadvertently the assessee while filing its return of income mentioned an amount of Rs.12,86,458, as provision for payment of gratuity disallowable under section 40A(7) of the Act. Further, the learned AR submitted that as regards the sum not paid on or before the due date for furnishing the return of income for the purpose of section 43B of the Act, the auditor in its report mentioned the amount of Rs.12,16,766. However, inadvertently the assessee while filing its return of income mentioned nil against the amount debited to profit and loss account but disallowable under section 43B of the Act. It was submitted that the assessee has already made disallowance to an extent of Rs.12,86,458 though under the wrong provision Madhuban Motors Pvt. Ltd. ITA no.2553/Mum./2022 Page | 4 i.e. section 40A(7) of the Act. The learned AR also submitted that out of the aforesaid amount, an amount of Rs.69,692 has already been paid by the assessee during the year, therefore the same is allowable under section 43B of the Act. Insofar as Rs.12,16,766 is concerned, since the same has already been disallowed by the assessee, the impugned addition will result in a double disallowance. 6. On the contrary, the learned Departmental Representative by vehemently relying upon the impugned order submitted that the assessee did not file any revised return of income even after becoming aware of the mistake in its return of income. 7. We have considered the rival submissions and perused the material available on record. The only grievance of the assessee is against disallowance of a sum of Rs.12,86,458. From the perusal of the tax audit report, we find that in clause 21(e), the tax auditor has mentioned nil against provision for payment of gratuity not allowable under section 40A(7) of the Act. Further, in clause 26(i)(B)(b), the auditor has mentioned an amount of Rs.12,16,766, against the amount not paid on or before the due date for furnishing the return of income for the purpose of section 43B of the Act. From the perusal of the return of income, we find that the assessee disallowed an amount of Rs.12,86,458 as the provision for payment of gratuity under section 40A(7) of the Act and mentioned nil against the amount disallowable under section 43B of the Act. Since the disallowance indicated in the audit report in respect of section 43B of the Act was not taken into account in computing the total income in the return by the assessee, vide intimation issued under section Madhuban Motors Pvt. Ltd. ITA no.2553/Mum./2022 Page | 5 143(1) of the Act disallowance under section 43B of the Act was, inter-alia, made. It is the plea of the assessee that the disallowance as reported in the tax audit report was not taken into account while filing the return of income due to inadvertence. Further, as per the assessee, it has already disallowed a sum of Rs.12,86,458, under section 40A(7) of the Act due to inadvertence, though no disallowance was indicated in the tax audit report by the auditor. Thus, further disallowance of Rs.12,16,766, under section 43B of the Act will result in a double disallowance. It is also the submission of the assessee that out of the aforesaid sum of Rs.12,86,458 an amount of Rs.69,692 has been paid by the assessee during the year and thus the disallowance under section 40A(7) of the Act to this extent is due to inadvertence. After careful perusal of the documents forming part of the paper book and the orders under consideration, we are of the considered opinion that this issue be remanded to the jurisdictional Assessing Officer for de novo adjudication after necessary verification/examination of all the details. If upon verification, it is found that the amount of Rs.12,16,766 has already been disallowed on account of the provision for gratuity under section 40A(7) of the Act then to that extent the disallowance under section 43B of the Act be deleted, otherwise the same will result in double disallowance of the same amount. Similarly, as regards the sum of Rs.69,692, if it is found that the amount has been paid by the assessee during the year then relief be granted to the assessee as per law. Needless to mention that no order shall be passed without affording reasonable opportunity of being heard to the assessee. As a result, the grounds raised by the assessee are allowed for statistical purposes. Madhuban Motors Pvt. Ltd. ITA no.2553/Mum./2022 Page | 6 8. In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 12/01/2023 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 12/01/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai