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December 6, 2022

Merely for inconsistent entries in explanation of section 143(1)(a)gratuity cannot be disallowed

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Merely for inconsistent entries in explanation of section 143(1)(a)gratuity cannot be disallowed

Facts and issue of the case

The facts of the case assessee has remitted the employees contribution to PF and ESI amounting to Rs. 5,15,978/- after the due date as prescribed under the respective statutes i.e., Provident Fund Act and ESI Act. The A.O while processing return u/s. 143(1) of the Act made a disallowance. The CIT(A) also confirmed the disallowance. Aggrieved, the assessee is in further appeal before the Tribunal.

The assessee has made these payments before the due date of filing of return of income u/s. 139(1) of the Act, but after the due date as prescribed under the respective acts of Provident Fund and ESI Act. Once this is a factual position, the issue is covered by the decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. v. CIT in Civil Appeal No.2833/2016 dated 12.10.2022, wherein it was held that the employees contribution of ESI and PF has to be remitted on or before the due date as prescribed under the respective statutes and not after that for making a claim. Respectfully following the decision of Hon’ble Supreme Court, supra, we dismiss the claim of the assessee. This issue of assessee’s appeal is dismissed.

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the A.O in disallowing the inconsistency in total amount claimed u/s. 37 of the Act i.e., difference in reporting in ITR and claimed in Form No.3CD amounting to Rs. 8,24,846/-.

We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that as per clause 21(e) of the tax audit report i.e., (TAR) the total amount reported as disallowed u/s. 37 of the Act is Rs. 21,02,846/-, whereas the disallowance made by the assessee u/s. 37 of the Act in the return of income is Rs. 12,78,000/-. The assessee explained before us that the difference of Rs. 8,24,846/- has been added by the A.O while processing return of income u/s. 143(1) of the Act.

It was explained before the court  that the assessee has already carried out the disallowance, but in the return the A.O has further disallowed interest on TDS, interest on income tax u/s. 37 of the Act instead of disallowance made by assessee under s. 40(a)(ii) of the Act under clause 21(a) of the tax audit report. The Ld. counsel explained that there is no specific clause in tax report to report the amount to be considered for disallowance u/s. 40(a)(ii) of the Act. Even the Ld. counsel for the assessee stated that nothing has been disallowed while completing the scrutiny assessment u/s. 143(3) of the Act by the A.O vide order dated 27.08.2021

Observation of the Court

The assessee has made a disallowance under the provisions of s. 37 of the Act, because there is no specific clause in tax audit report to report the amount to be considered for disallowance u/s. 40(a)(ii) of the Act. We find that there is some problem in the tax audit form or in the processing of return through CPC. But, in any case from the facts it is clear that these amounts are already disallowed by the assessee and nothing more is to be disallowed, because total disallowance practically comes to Rs. 21,02,846/- and for that purpose no separate disallowance u/s. 143(1) of the Act can be made for an amount of Rs. 8,24,846/-. We direct the A.O to allow the same. This issue of assessee’s appeal is allowed.

The next issue in this appeal of assessee as regards to the order of CIT(A) confirming the action of the A.O in not considering the difference pertaining to payment made for gratuity to the employees which is of allowable expenditure as per Explanation 2 to s. 40A(7) of the Act.

After hearing to both the parties, the court observed that the CPC while processing the return u/s. 143(1) of the Act made disallowance of gratuity amounting to Rs. 42,36,722/- being inconsistency in amount disallowed u/s. 43B of the Act in processing previous year, but allowable during previous year. We noted that the assessee has claimed deduction for an amount of Rs. 42,36,722/- being payment made for gratuity to the employees during the year as per s. 40A(7) r/w s. 37 of the Act and the same was disclosed at Sr. No.10B of the ITR i.e., Page No.30 of ITR u/s. 43B of the Act in the absence of specific field for disclosure in the ITR. It was claimed that the payment made for gratuity during the A.Y 2017-18 was not disclosed in the tax audit report in the clause for reporting as per s. 43B of the Act. We are of the view that this position led to inconsistency in the column as per ITR and the tax audit report that the amount disallowed u/s. 43B of the Act in any preceding previous year, but allowable during the previous year The assesse also submitted the documentary evidence before the court

Conclusion

The decision of the court is in favour of assesse. The deduction of gratuity is available in substantive law and it cannot be disallowed merely by the reference of inconsistent entries in explanation of s. 143(1)(a) of the Act being a procedural provisions, it shall not take away the right confirmed in s. 37 r/w s. 40A(7) and s. 36(1)(v) of the Act. We direct the A.O to delete this disallowance. This issue of assessee’s appeal is allowed.

Athena-health-Technology-Pvt.-Ltd.-Vs-DCIT-ITAT-Chennai

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