The Banarsi Co.op Agriculture Service Society Limited, Khanauri V. I.T.O. Ward, Sunam

ITA 522/CHANDI/2022

AI Insights

The case involves The Banarsi Co. Op Agriculture Service Society Ltd., a cooperative society engaged in selling fertilizers and pesticides, which appealed against the NFAC's decision regarding the disallowance of a gratuity provision and the claim under Section 80P of the Income Tax Act. The society argued that the gratuity provision was a statutory obligation as per the directions of the Registrar of Cooperative Societies, Punjab, and thus should not be disallowed under Section 40A(7) of the Act. The NFAC had initially disallowed the gratuity provision based on the Chartered Accountant's certificate and the lack of evidence of an approved gratuity fund. The Tribunal agreed with the NFAC's decision on the gratuity provision but acknowledged the society's eligibility for deductions under Section 80P, which would keep the tax impact neutral.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115347 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 29-01-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 21-06-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: STATUS IS A
• Keywords: Search and seizure
• Section: 143(1); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH “SMC”, CHANDIGARH BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.522/Chd/2022 A.Ys. 2019-20 Income Tax OfficeR, Ward – Sunam, HQ at Sangrur Vs. The Banarsi Co. Op Agriculture Service Society Ltd., Khanauri. C/o Man Manohar Gupta, Advocate, Guru Nanak Colony, Sector 17, Sangrur, 148001 Punjab PAN AAAAT 9934B (Respondent) (Appellant) Shri Sudhir Sehgal, Advocate Appellant by Shri Akashdeep, JCIT, Sr. DR Respondent by 30/01/2023 Date of hearing 24 /04 /2023 Date of pronouncement O R D E R This appeal has been preferred by the assessee against the order dated 30.04.2020 passed by National Faceless Appeal Centre (NFAC), Delhi for A.Y. 2019-20. 2. The brief facts of the case are that the assessee by status is a multipurpose Cooperative Agriculture Service Society which came into existence on 25.03.1958. The Society is duly registered with the Registrar of Cooperative Societies, Punjab. The object of the Society is to sell fertilizers, pesticides and consumer goods to its members on subsidized rates. The return of income was filed within the stipulated time and the assessee claimed 2 ITA No. 522/Chd/2022 deduction u/s. 80P (2)(VI) of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The return was processed u/s. 143(1) of the Act but the assessee’s claim of deduction u/s. 80P(2)(VI) was not allowed. The assessee had also claimed deduction of statutory expenditure of Rs.4,00,000/- on account of gratuity which was not allowed. 3. Aggrieved, the assessee preferred an appeal before the NFAC who gave a finding that the assessee society operated within the Taluka of Sunam. It was observed by the NFAC that since the area of operation of the assessee was confined to a taluka as required by the provisions of Section 80P(4) of the Act, the assessee qualified for claim of deduction u/s. 80P of the Act. The NFAC held that the disallowance of deduction claimed u/s.80P by the Central Processing Centre, Bengaluru was not correct and the same was to be allowed. However, it was further noted by the NFAC that as far as disallowance of Rs.4,00,000/-, being provision for payment of gratuity u/s.40A(7) of the Act was concerned, the same was based on the Certificate of the Chartered Accountant who had disallowed the provision for payment of gratuity. This disallowance by the CPC was held to be correct. The NFAC also observed that the assessee had not furnished the copy of approval granted by the department approving the gratuity fund of the society and, therefore, it was held that since the evidence of gratuity fund being approved was not furnished, and also based on the disallowance by the Chartered Accountant, the disallowance was to be upheld. 4. Aggrieved, the assessee has now approached this Tribunal, challenging the dismissal of grounds by raising the following grounds of appeal: “1. That the Worthy Commissioner of Income Tax (Appeals) has erred in dismissing the appeal filed by the assessee, in part. 2. That the Worthy CIT(A) has erred in dismissing the ground of appeal by not allowing the statutory deduction of gratuity 3 ITA No. 522/Chd/2022 of Rs. 4,00,000/ and on that deduction u/s 80P(2) (a) (iv) was also not allowed in a surmise manner. 3. That the Worthy CIT(A) has erred in not properly considering the ground no.3 appeal raised in Form no. 35. 4. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 5. At the outset, it was submitted that the assessee was pressing only Ground No.2 in the present appeal. Accordingly, Grounds No. 1, 3 and 4 are being dismissed as not pressed. 6. Vis-à-vis, Ground No.2, the ld. AR submitted that the Chartered Accountant had wrongly made the disallowance of Rs.4,00,000/- as being inadmissible u/s. 40A(7) of the Act for the reason that the gratuity provision was made as per the directions of Registrar of Cooperative Societies and, therefore, the directions issued by the Regulator have to be followed and thus, it was a statutory liability to maintain gratuity fund. My attention was also drawn to the CBDT Circular No.169 dated 23.06.1975 and it was reiterated that the provision for gratuity was being made as a statutory obligation of law and that as per the above mentioned Circular, the provisions made under statutory compliance could not be added back u/s. 40A(7). It was prayed that the assessee’s appeal be allowed. 7. Per contra, ld. Sr. DR, supported the order of the authorities below and also placed his reliance on the Certificate furnished by the Chartered Accountant, wherein, the provision for gratuity had been disallowed. 8. I have heard the rival submissions and have also gone through the material on record. A perusal of the order of the NFAC shows that the NFAC has upheld the disallowance on two grounds. The first reason is the certificate of the Chartered Accountant, wherein, the Chartered Accountant has 4 ITA No. 522/Chd/2022 disallowed the provision for payment of gratuity and the second reason is that assessee had not furnished a copy of approval granted by the Income Tax Department approving the said gratuity fund. It is the assessee’s contention before me that where provision for gratuity is made under statutory direction, no disallowance can be made u/s.40A(7) of the Act. My attention was also drawn to the English translation of the directions issued by the Registrar of Co- operative Societies, Punjab, wherein, it has been directed that a decision has been taken with regard to the payment of gratuity amount to the employees and that there should be provision in the balance sheet of the societies as per the Rules for the payment of gratuity to the employees. 9. It is not in doubt that the impugned payment has been made in terms of a direction issued by the Registrar of Co-operative Societies, Punjab. However, admittedly, the assessee has not been able to demonstrate that the gratuity fund of the society is an approved gratuity fund. Further, Section 40A(7)(a) specifically provides that no deduction shall be allowed in respect of any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason and further that this clause (a) shall not apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the previous year. Thus, in effect, if the gratuity fund is approved, the contribution to the same is deductible. But if the same is not approved, then the deduction cannot be permitted. Moreover, the Certificate issued by the Chartered Accountant has also specifically disallowed the same and since, admittedly, the gratuity fund is not approved, I am afraid that the order of the NFAC has to be sustained on this issue. 10. However, the fact also remains that the assessee Society is eligible for claim of deduction u/s.80P of the Act so even if the disallowance of provision 5 ITA No. 522/Chd/2022 for Society is upheld, the effect of the same will be tax neutral as such enhanced income, after disallowance, shall still be eligible for exemption. It is so ordered accordingly. 11. In the result, appeal of the assessee stands partly allowed. (Order pronounced in the open court on 24/04/2023) Sd/- (SUDHANSHU SRIVASTAVA) JUDICIAL MEMBER Aks – Dtd. 24/04/2023 Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) Departmental Representative (5) Guard File By order Assistant Registrar