Unity Hospital P. Ltd, Thrissur V. ACIT, Thrissur

ITA 69/COCH/2021

AI Insights

Unity Hospital P. Ltd. appealed against the order of the CIT(Appeals), which upheld the disallowance of a deduction for contributions made to a Group Gratuity Fund pending approval by the Commissioner. The Tribunal noted that the assessee had applied for the fund's approval as early as 1991 and had followed up with reminders, yet the approval was still pending. The Tribunal referenced decisions from the Rajasthan and Karnataka High Courts, which supported the allowability of such deductions even when approval was pending, provided the assessee had complied with the necessary conditions for the fund's establishment. The Tribunal criticized the CIT(Appeals) for relying on a jurisdictional Tribunal decision that was not in line with the High Court's decisions, which are binding under the doctrine of Stare Decisis.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 115273 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-12-0000
• Assessment Year: misc
• Appeal Filed On: 17-06-2021
• Other Referred Cases: PCIT v. English Indian Clays Ltd. [2018] 89 Taxman.com 134 (Kerala), CIT v. Jaipur Thar Gramin Bank [2016] 388 ITR 228 (Raj), M/s. Dinesh Textiles Ltd. in ITA No.167/Cochin/2013 dated 22.11.2013
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Competent authority
• Section: 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH : COCHIN BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA No.69/Coch/2021 Assessment Year : 2013-14 Unity Hospital P. Ltd., XV/634, Kanippayyur, Kunnamkulam, Thrissur - 680 517. PAN : AAACU 2888 H Vs. The Assistant Commissioner of Income Tax, Circle 1(1), Thrissur. APPELLANT RESPONDENT Assessee by : Shri B. Mohan, CA Revenue by : Smt. J M Jamuna Devi, Sr. AR Date of hearing : 05.12.2022 Date of Pronouncement : 19.12.2022 O R D E R Per Padmavathy S, Accountant Member: This is an appeal by the assessee directed against the order dated 03.03.2021 of the CIT(Appeals), National Faceless Assessment Centre, Delhi [NFAC] in relation to Assessment Year 2013-14. 2. The only issue arising out of the various grounds raised by the assessee is that the allowability of contributions by the assessee to the LIC Group Gratuity Trust which is pending for approval with the Commissioner. 3. The assessee runs a hospital under the name, Unity Hospital Pvt. Ltd. The assessee filed the return of income for AY 2013-14 on ITA No.69/Coch/2021 Page 2 of 7 27.09.2013 declaring total income of Rs.88,01,400. The case was selected for scrutiny through CASS and accordingly a notice u/143(2) was duly served on the assessee. During the assessment proceedings, the AO noticed that the assessee has claimed Group Gratuity Insurance of Rs.4,00,000. The AO called on the assessee to furnish the proof to indicate that approval was obtained from the Commissioner for the Employees Gratuity Fund. The assessee submitted that the assessee has applied for approval of Gratuity Fund long back in 1991 and that there was no response from the department in spite of reminders sent n 21.2.2018 and 27.12.2019. The AO did not accept the submissions of the assessee by holding that that since the Gratuity Fund created by the assessee is not approved by the commissioner and therefore the allowance of deduction towards contributions made cannot be allowed. The AO relied on the Cochin Tribunal’s case in M/s. Dinesh Textiles Ltd. in ITA No.167/Cochin/2013 dated 22.11.2013 to hold that the fund created by the assessee with LIC was not an approved fund and accordingly disallowed the claim and brought the amount to tax. 4. Before the CIT(Appeals), the assessee submitted that the assessee had applied for recognition of its Group Gratuity Fund with the Commissioner way back in 1991, but there was no response and the assessee cannot be penalized for inaction of the department. Reliance was placed on the decisions in the cases of PCIT v. English Indian Clays Ltd. [2018] 89 Taxman.com 134 (Kerala) and CIT v. Jaipur Thar Gramin Bank [2016] 388 ITR 228 (Raj). ITA No.69/Coch/2021 Page 3 of 7 5. The CIT(Appeals) observed that the gratuity fund has to be an approved fund as per Income Tax Rules 103 & 104, whereas in the case of the assessee approval was not received for the fund. He distinguished the first decision relied on by the assessee. As regards the second decision relied upon by the assessee, the CIT(A) had stated that as per the decision of the Hon’ble High Court in the case of was of the view that the Cochin Tribunal in the case of Jaipur Thar Gramin Bank (supra) it appears that the payment of Rs.4,00,000 should be allowed since the assessee’s application for recognition of the gratuity was pending with the Commissioner. However the CIT(A) proceeded to confirm the disallowance since the AO has relied on jurisdictional Tribunal decision in the case of Dinesh Textiles (supra) where it is held that the approval for the fund was a mandatory requirement. Accordingly, the CIT(Appeals) rejected the assessee’s ground. 6. The ld AR reiterated the submissions made before the lower authorities. The ld AR submitted that the application is pending with the revenue for a long time and the assessee cannot be put in hardship for the inaction of the revenue. The ld AR drew our attention to the observations of the CIT(A) in para 4.3 of his order where he himself has admitted that the expense is allowable as per the ratio laid down by the Hon’ble Rajasthan High Court in the case of Jaipur Thar Gramin Bank (supra) whereas he has confirmed the disallowance based on jurisdictional Tribunal decision. ITA No.69/Coch/2021 Page 4 of 7 7. We have considered the rival submissions and perused the material on record. We notice that the A.O. disallowed the payments made to LIC of India towards group gratuity scheme since the same is not to an approved fund. We further notice that the CIT(A) though has accepted that the assessee’s claim should be allowed but has denied the claim by placing reliance on decision of the jurisdictional Tribunal. This in our view is not correct, when the CIT(A) himself has stated that claim of the assessee is allowable as per the decisions of the High Courts which are binding as per the doctrine of Stare Decisis and accordingly the CIT(A)’s decision is not tenable. We notice that the Rajasthan High Court in the case of Jaipur Thar Gramin Bank (supra) has considered the issue of allowability of contribution towards gratuity fund where the assessee has made application before the competent authorities and has held that – 9. On perusal of the above, it appears that hearing on the subject was going on in the aforesaid case and with reference to certain queries raised by the competent authority, two of the officers of the assessee company namely K.C. Gupta and Mrs. Ruchi Bhargava were deputed to discuss on the subject and this letter also contained some information sought by the competent authority. The claim of the learned counsel for the Revenue that the said letter was not received on 4.9.2000 but then admittedly we notice that there is a seal of Joint Commissioner of Income Tax, Special Range-1 st , Jaipur, with date of receipt being 4.9.2000, but learned counsel contends that this letter on information was not found on records. We fail to understand the submission of the learned counsel for the Revenue. It was for the Revenue to have taken remedial measures in case the said letter was not available on record, which bears certainly seal of the receipt clerk with date bearing 4.9.2000. Merely denying that this letter is not on records, in our view, ITA No.69/Coch/2021 Page 5 of 7 is not proper particularly when hearing was going on and two officers of assessee appeared in person for discussion and placed additional material before the Joint Commissioner of Income Tax, in furtherance of the earlier proceedings going on, on the same subject. It was for the Revenue to put its affairs in order rather than denying/disallowing a just and reasonable claim. The doubt raised by the learned counsel for Revenue is contrary to the material on record. Be that as it may, the assessee is sponsored by UCO Bank, a Govt. of India Undertaking and duly complied with the conditions laid down for approval under Section 36(1)(v). At-least the AO when this factum was brought to his notice that the assessee has filed copy of the trust-deed, application to the competent authority on 4.9.2000 then even the said letter could have been forwarded to the concerned Commissioner who ought to have taken recourse of either rejecting or approving the Gratuity Scheme created by the assessee. The assessee cannot suffer for the inaction of the Revenue authorities and the AO ought not to have disallowed the claim merely because the Commissioner has not granted approval of the Gratuity Scheme. Once the assessee fulfills the condition laid down for approval having created a trust with the Life Insurance Corporation of India, and it is not the case of Revenue that assessee has not deposited money in terms of creation of the trust, therefore, in our view the Tribunal on such facts is well justified in holding that the claim is just, proper and allowable. A just and reasonable claim deserves to be allowed. We find that both the appellate authorities have found it allowable on the facts found and is essentially a finding of fact based on material and evidence on record. No substantial question of law can be said to emerge out of the order of the Tribunal, so as to call for interference of this Court. We also do not find any perversity in the order impugned. The appeals are dismissed. 8. In assessee’s case the application for approval was made long back and on perusal of records it is noticed that the assessee has sent reminders to the revenue with regard to the pending approval. The assessee has entered into a Group Gratuity Scheme with LIC and has ITA No.69/Coch/2021 Page 6 of 7 made contributions to the same. Given these facts in our considered view the above decision of the Hon’ble Rajasthan High Court is clearly applicable in assessee’s case. 9. Besides the above, the Hon’ble Karnataka High Court in the case of Chief Commissioner (Admn.) and another Vs. Karnataka Electricity Board 197 ITR 48 (Karn.) and ADIT Vs. Karnataka State Warehousing Corporation 125 ITR 136 (Karn.) has also taken a view that actual payment to gratuity fund of employees is allowable as deduction u/s.37(1) of the Act. 10. In view of the aforesaid decisions, we are of the view that the deduction claimed by the Assessee should be allowed. We direct accordingly and allow the appeal of the Assessee. 11. In the result, the appeal by the assessee is allowed. Pronounced in the open court on this 19 th day of December, 2022. Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, the 19 th December, 2022. /Desai S Murthy / ITA No.69/Coch/2021 Page 7 of 7 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar, ITAT, Bangalore/Cochin.