MAKCUR LABORATORIES LIMITED,GANDHINAGAR V. THE INCOME TAX OFFICER,WARD-1, GANDHINAGAR

ITA 1443/AHD/2024

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Makcur Laboratories Limited appealed against the order of the CIT(A), which had confirmed the disallowance of Rs. 17,99,901 under Section 43B of the Income-tax Act, 1961, related to the provision for unfunded gratuity. The Assessing Officer had initially made this disallowance in an intimation under Section 143(1). The CIT(A) upheld this decision, stating that the provision for unfunded gratuity did not meet the criteria under Section 40A(7) and 43B(b) of the Act, as it was not earmarked for gratuity payment. The Tribunal, however, noted the potential for double disallowance and directed the Assessing Officer to review the documents to prevent this.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47213 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVAN LIMBASIYA
• Assessee Lawyers: RUPESH R. SHAH
• Section: 250; 143(1); 43B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A. No. 1443/Ahd/2024 (Assessment Year: 2019-20) Makcur Laboratories Limited, 46/5-6-7, Zak Ind. Estate, Dehgam Road, Post: ZAK, Gandhinagar-382325 [PAN : AABCM 0523 C] Vs. The Income-Tax Officer, Ward 1, Gandhinagar (Appellant) .. (Respondent) Appellant by : Shri Rupesh R. Shah, AR Respondent by: Shri Kavan Limbasiya, Sr DR Date of Hearing 11.03.2025 Date of Pronouncement 08.04.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:- This appeal has been filed by the Assessee against the order of the learned ADDL/JCIT(A), Indore (in short ‘the CIT(A)’) dated 24.06.2024 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as \"the Act\" for short], for Assessment Year (AY) 2019-20. 2. The Assessee has taken following grounds of appeal:- “1. Both the lower authorities have erred in confirming the disallowance of Rs. 17,99,901/- under S.438 while passing an intimation u/s.143(1) of the Income-tax Act, 1961 though it is not an adjustment as prescribed u/s. 143(1)(a) of the Act and it is a ITA No. 1443/Ahd/2024 Makcur Laboratories Ltd Vs. ITO Asst. Year : 2019-20 - 2– debatable issue on the facts and circumstances of the case and in law. 2. Both the lower authorities have erred in law and on facts made addition of Rs.17,99,901/- under S.43B for unfunded gratuity which is not falling under S.43B may be deleted in the interest of justice.” 3. The brief facts of the case are that the assessee-company is a closely held Limited company which filed its return of income belatedly on 31.01.2020 against the extended due date of filing of return i.e. 31.10.2019. The intimation u/s 143(1) of the Act was completed by the Assessing Officer on 02.06.2020 after making disallowance of Rs.17,99,900/- u/s 43B of the Act, on account of disallowance of provision for unfunded gratuity. 4. Aggrieved by the action of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee by observing as under:- “Ground No. 1 is related to addition of Rs. 17,79,491/- on account of disallowance of provision for unfunded gratuity. I have carefully considered Statement of Facts, Grounds of Appeal and submissions furnished by the appellant and observed that the appellant's matter falls under provision of 40A(7) and 43B of the Act Appellant's matter is different from the matters of Case Law cited by him as appellant's provision for gratuity is unfunded, therefore cited case law is not applicable in this case Section 40A(7) of the Act is reproduced for ready reference: ITA No. 1443/Ahd/2024 Makcur Laboratories Ltd Vs. ITO Asst. Year : 2019-20 - 3– \"(7)(a)(Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason (2)Nothing in clause (a) shall 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 Explanation. - For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.] From the above provision of Section 40A(7)(b) of the Act, it can be observed that if \"purpose\" of payment of gratuity is established then deduction of such provision of gratuity can be allowed. In other words, if intention of the assessee is established that it has made provision of gratuity for actually paying it to the eligible employees, then deduction of such provision of gratuity can be allowed. But, in present case, the appellant has not shown such intention or purpose. The appellant has made provision in form of unfunded Gratuity. It has created provision of gratuity without earmarking separately the funds for gratuity payment Therefore, provision in form of unfunded Gratuity does not fall under Section 40A(7) (b) of the Act Moreover, the appellant has not actually paid the amount in any gratuity fund as it was unfunded, therefore it is rightly disallowed by the AO U/s 43B(b) of the Act. In view of above facts and circumstances, I am of the view that appellant's matter is related the provision for unfunded Gratuity which falls under Section 40A(7)(a) and 43B(b)of the Act and AO has correctly disallowed the same. Thus, Ground No. 1 is dismissed.” ITA No. 1443/Ahd/2024 Makcur Laboratories Ltd Vs. ITO Asst. Year : 2019-20 - 4– 5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal. 6. We find that the assessee has added amount disallowable u/s 40A of Rs.17,99,901/- to the net profit being the provision for unfunded gratuity. At page no. 42 of the paper-book the same has been shown at Column No. 9 of the return. The same has been disallowed at Column No. 11(h) at page no. 133 of the paper-book. Hence, the Assessing Officer is directed to consider the all the three documents mentioned hereinabove and see that no double disallowance is made in respect of the same amount. 7. In the result, the appeal of the assessee is allowed for statistical purposes. The order is pronounced in the open Court on 08.04.2025 Sd/- Sd/- (SUCHITRA KAMBLE) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 08/04/2025 Btk ITA No. 1443/Ahd/2024 Makcur Laboratories Ltd Vs. ITO Asst. Year : 2019-20 - 5– आदेश की \u0007ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0007 / The Appellant 2. \b थ\u0007 / The Respondent. 3. संबंिधत आयकर आयु\u0015 / Concerned CIT 4. आयकर आयु\u0015(अपील) / The CIT(A)- 5. िवभागीय \bितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, True Copy उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ……….….. 2. Date on which the typed draft is placed before the Dictating Member … …… 3. Other Member… ……………… 4. Date on which the approved draft comes to the Sr.P.S./P.S … . …………. 5. Date on which the fair order is placed before the Dictating Member for pronouncement ........ 6. Date on which the fair order comes back to the Sr.P.S./P.S ………………. 7. Date on which the file goes to the Bench Clerk ……….…. 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order 10. Date of Dispatch of the Order…………………………………… "