Valsad District Central Co-operative Bank Ltd., Valsad V. The Asst. Commissioner of Income Tax, Valsad Circle, Valsad, Valsad

ITA 309/SRT/2022

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The case involves Valsad District Central Co-operative Bank Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of a deduction of Rs.89,632/- for gratuity expenses. The Assessing Officer had disallowed the deduction on the grounds that the gratuity fund was not approved by the Commissioner of Income Tax as required under section 36(1)(v) of the Income Tax Act, 1961. The Tribunal noted that the Bank had been consistently claiming this deduction since 1976, and the payments were made to LIC under a Master Policy, which was managed by LIC and not a provision for gratuity. The Tribunal referenced several precedents and the principle of consistency in tax assessments to allow the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301843 (ITAT-SURAT)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: AllowedAllowed
• Bench Allotted: DB
• Next Hearing Date: 07-02-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 19-10-2022
• Other Referred Cases: District Co-Operative Central Bank v. ITO, DCIT v. Baroda Gujarat Gramin Bank, Radhasaomi Satsang, Textool Co. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business expenditure; Rule of consistency
• Section: 148; 37; 144; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.309/SRT/2022 Ǔनधा[रण वष[/Assessment Year: (2015-16) (Physical Court Hearing) Valsad District Central Co-operative Bank Ltd., Azad Chowk, Halar Road, Valsad – 396001 (Gujarat). Vs. The ACIT, Valsad Circle, Valsad. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAV0539L Assessee by Shri Akshay Modi, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 08/02/2023 Date of Pronouncement 27/02/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2015-16, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT”], National Faceless Appeal Centre (in short ‘NFAC’) which in turn arises out of an assessment order passed by Assessing Officer under section 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 22.12.2018. 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals)-I, Surat erred in confirming the action of the ACIT, Valsad Circle, Valsad (for the sake brevity "The AO") in initiating the proceedings u/s 147 of the Act and issuance of notice u/s 148 of the Act and hence, the assessment completed u/s 144 r.w.s. 147 of the Act making disallowance to the extent of Rs.89,632/- purely on change of opinion is bad in law, without jurisdiction, illegal and therefore, liable to be annulled in toto. 2. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals) erred in confirming the order of the of the ACIT, Valsad Circle, Valsad making disallowance of expenditure of Rs.89,632/- being the premium actually paid to LIC under the Group Gratuity-cum-Life Insurance Scheme u/s 36(l)(v) of the Act and hence, not justified. Page | 2 ITA 309/SRT/2022/AY.2015-16 Valsad Dist. Cent. Co-op. Bank Ltd. 3. On the facts and in the circumstances of the case and in law, both the lower authorities have grievously failed to consider in the right and proper perspectives the claim of expenditure of Rs.89,632/- being the premium actually paid to LIC under the Group Gratuity-cum-Life Insurance Scheme, fully allowable u/s 37(1) of the Act and therefore, the disallowance of premium expenditure under the misconstruction and misapplication of the provisions of 36(1)(v) of the Act is without jurisdiction, illegal bad in law and not justified. 4. On the facts and in the circumstances of the case as well as in law, the learned CIT(Appeals) has passed order without considering the written submission filed by the assessee is without jurisdiction, perverse, invalid, arbitrary, bad in law and hence, liable to be stuck down. 5. Your appellant further reserves its rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.” 3. Brief facts qua the issue are that during the course of assessment proceedings of AY.2015-16, it was observed by Assessing Officer that the assessee had debited Rs.89,632/- as gratuity expenses in its profit and loss account. However, the assessee did not have approval of the Commissioner of Income Tax for its gratuity fund, expenses claimed towards gratuity fund for AY.2015-16 needs to be disallowed in terms of section 36(i)(v) of the Income Tax Act. In view of the specific provision of section 36(i)(v) of the Act found to be violated by the assessee. The assessee was asked to furnish party wise details of expenses on account of Group Gratuity Insurance premium of Rs.89,632/- debited to profit and loss account and its allowability in view of provision of section 36(1)(v) of the I.T. Act. 4. In response to this the assessee vides reply dated 15.12.2018 has submitted before Assessing Officer, the written submission which is reproduced as under: “In respect of Group Gratuity Insurance Premium paid to LIC under the Master Polity for the purposes, for amount of Rs.89,632/-, receipt for payment of premium under the scheme, copy of cheque deposited as also the ledger of Group Gratuity-cum-Life Insurance premium expenses account are also enclosed herewith. You will appreciate the very fact that the assessee bank has claimed the said business expenditure on actual payment of premium valued by the LIC under the scheme and not the provision for gratuity and therefore, it is fully allowable under section 36(1)(v) or in the alternative under section 37(1) of the I.T. Act.” 5. However, Assessing Officer rejected the contention of the assessee and held that as the assessee did not have approval of the commissioner of Income Page | 3 ITA 309/SRT/2022/AY.2015-16 Valsad Dist. Cent. Co-op. Bank Ltd. Tax for its gratuity fund, expenses claimed towards gratuity fund for AY.2015- 16 needs to be disallowed in terms of 36(1)(v) of I.T. Act. Section 2(5) of the I.T. Act, 1961 defines “the approved gratuity fund”. Further, section 36(1)(v) of the I.T. Act, 1961, provides that any sum paid by the assessee as an employer by way of contribution towards an approved gratuity allowed as a deduction. All these statutory provisions refer to an “approved gratuity fund”. The approval referred to in the provisions is the approval of the Commissioner of Income Tax, which is required to be obtained in terms of the rules contained in part C of Fourth Schedule to the I.T. Act, 1961 which deals with ‘approved gratuity fund’. Rule 4(1) of Part C of Fourth Schedule to the I.T. Act, 1961 provides for an application being made for approval. Rule 6 provides that if a gratuity fund for any reasons ceases to be an approved gratuity fund, the trustees of the fund shall, nevertheless, remain liable to tax and gratuity paid to any employee. The conditions of approval are set out in Rule 3. The approval is to be granted by the Chief Commissioner of Income Tax, who has been vested with that power under rule 2(1) of Part C of Fourth Schedule. Further, the assessee’s claim of allowing the same under section 37 is not acceptable as when there is a specific provision for specific expenditure/expenses, the specific provisions would apply/prevail. Therefore, there is no question of provision of section 37(1) being applicable in this case. Since, further if the contention of the assessee that the gratuity deduction be allowed under section 37(1) is accepted, it would rendered the provisions of section 36(1)(v) of the Income Tax Act otiose. Therefore, the contention of the assessee is not as per law. When the specific provision of section 36(1)(v) of the IT Act was violated by the assessee and the assessee’s claim of allowing the same under section 37 is not acceptable, therefore entire amount of Rs.89,632/- paid towards unapproved Gratuity Fund was disallowed by Assessing Officer. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer. 7. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. Page | 4 ITA 309/SRT/2022/AY.2015-16 Valsad Dist. Cent. Co-op. Bank Ltd. 8. The Ld. Counsel for the assessee submits that issue under consideration is squarely covered by the judgment of Co-ordinate Bench of ITAT, Surat in assessee’s own case in ITA No.842/AHD/2015, ITA Nos. 826/AHD/2016 & 827/AHD/2016, dated 13.05.2019, wherein it was held as follows: “7. We have heard the rival submissions and perused the relevant material on record. We find that the AO has disallowed a sum of Rs. 16,18,050 towards gratuity expenses being claim of the assessee on the ground that the gratuity scheme was not approved as per the requirement of section 36(1)(v) of the Act and the assessee has failed to produce necessary certificate in support of the same. However, it is seen that the Gratuity scheme was being managed by the LIC for which an agreement was entered in to between the trustees of the fund and LIC on 31.03.1976 as per Master Policy No. GGI/16073 (PB-22). The assessee has not made provision but made payment before filing of return of income. This claim of the assessee has been allowed in earlier years since inception of fund. The assessee has contended that since the payments has been made to LIC of India is allowable deduction as it was made as per Master Policy Scheme. The assessee has relied on the decision of Co-ordinate Bench of Vishakhapatnam in the case of District Co-Operative Central Bank v. ITO [IT Appeal No. 49 & 50/Vizag/2012 dated 25.01.2018 wherein after discussing various case laws including Co-ordinate Bench of Ahmedabad in the case of DCIT v. Baroda Gujarat Gramin Bank [I.T. Appeal No. 1479/Ahd/2010 dated 6.8.2010] deduction claim was allowed on the ground that payment made to LIC is not a provision, but actual expenditure claimed under gratuity scheme. Since the assessee has claimed the expenditure same is therefore, liable to be allowed. We further observe that Hon'ble Gujarat High Court in the case of the assessee in its order dated 05.02.2018 in SCA No. 20801 of 2017 [copy filed PB-l2-to 19] in para 5 observed as: "In such objection, it was inter-alia pointed out that the gratuity scheme was being managed by LIC for which, an agreement was executed between the trustees of the fund and LIC on 31.03.1976. These documents were produced during the course of original assessment proceedings. The LIC accepted the responsibility to manage the fund only after verifying the Commissioner of Income-Tax duly approved that scheme. After examining of such aspects, the petitioners claim for deduction was accepted. It was also pointed out that this is not the first year in which, such claim was made and accepted. The bank has been paying premium under the said scheme year after year since the year 1976." Thus, this observation of the Hon'ble High Court means that the plea of the assessee that gratuity fund was approved by the Commissioner of Income tax. However, since the scheme was framed back in 1976 itself, the assessee has does not have the order so passed by the Commissioner of Income-Tax. Accordingly, the Hon'ble High Court has quashed the reopening of assessment as there was no failure on the part of the assessee. We find that the Department has been allowing such claim year after year and in some years, the assessment has been made under scrutiny. It is just because the assessee is not able to prove the copy of the approval, the claim has been denied to the assessee. We are of the view that this claim of the assessee is allowable on the plea of consistency. The Hon'ble Supreme Court in the case of Radhasaomi Page | 5 ITA 309/SRT/2022/AY.2015-16 Valsad Dist. Cent. Co-op. Bank Ltd. Satsang (supra) held that the assessments are quasi-judicial and each assessment year being a unit, what is decided in one year may not apply in the following year, but where a fundamental aspect permeating through the different A.Y.s has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The Hon'ble Supreme Court in the case of Textool Co. Ltd. (supra) observed as "7. Learned counsel appearing on behalf of the Revenue has submitted before us that the provisions of Section 36(1)(v) of the Act have to be construed strictly and for claiming deduction, conditions laid down in Section 36(1)(v) of the Act must be fulfilled. It is urged that since during the relevant previous year the contribution by the assessee towards the gratuity fund was not in an approved gratuity fund the High Court was not justified in affirming the view taken by the Commissioner as also by the Tribunal while answering in favour of the assessee. However, on a query by us as to whether the contribution made by the assessee in the approved gratuity fund credited by the LIC for the employees of the assessee and ultimately the entire amount deposited with the LIC came back to the fund created by the assessee for the benefit of its employees and approved by the Commissioner w.e.f. 25th February, 1983, or not, learned counsel is not in a position to make a categorical statement in that behalf. 8. Having considered the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. See Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC). From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High Court, warranting our interference. 8. Since in the present case, the facts as identical as the employer bank does not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees and that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Bank Employees Gratuity Fund. The assessee has also obtained the policy in favour of the bank. Therefore, the facts of the case of the assessee are squarely covered by the above decisions cited (supra). Therefore, respectfully following the ratio laid down by various High Court as well as Page | 6 ITA 309/SRT/2022/AY.2015-16 Valsad Dist. Cent. Co-op. Bank Ltd. Hon'ble Supreme Court and Co-ordinate Bench as discussed above, we hold that the assessee is entitled for deduction for payment of gratuity scheme to LIC accordingly, we allow this ground No. 3 of appeal of the assessee.” 9. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 10. We have heard both the parties and perused the material available on record. We note that assessee is making payment to the LIC Department in the gratuity scheme which was approved earlier by Commissioner of Income Tax. However, the assessee has not produced the necessary certificate before the lower authorities as it would not available with him, therefore, deduction was denied. We note that the said deduction has been claiming by assessee since a long, therefore by following the principle of consistency and considering the facts and circumstances of the case, deduction should be allowed to the assessee. Therefore, we direct the Assessing Officer to allow deduction of Rs.89,632/-. 11. In the result, appeal filed by the assessee is allowed. Order pronounced on 27/02/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 27/02/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat