Gratuity premium payments to LIC are permitted as business expenses
Fact and issue of the case
The above appeal has been filed by the Revenue against the order passed by the ld.CIT(A), National Faceless Appeal Centre, Delhi dated 28.09.2022under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), for the assessment year 2014- 15.
The grounds raised in the Revenue’s appeal read as under:
‘Whether on the facts of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs.2, 12,55,043/- made by the AO on account of restricting the commission expenses to 2% of total sales without appreciating the fact that the assessee could not provide the basis of debiting the commission expenses which were not corresponding to monthly sales.
Whether on the facts of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs.2, 12,55,043/- made by the AO despite the fact that the assessee could not establish with documentary evidences that commission expenses were wholly and exclusively incurred for business purposes and actual services were rendered by the commission agents and also that the assessee failed tojustify its own argument with documentary evidences that commission expenses differ on case to case basis, on customer to customer basis and on product to product basis.”
Whether on the facts of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 7,04,541/- made by the AO on account of disallowance of gratuity paid towards the fund which was not approved by income-tax Authority?”.
Whether on the facts of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 1,99,156/- made by the AO on account of disallowance of deduction u/s.35(2AB) of the Act without appreciating the fact that deduction was claimed in respect of employees who were not fulfilling eligibility criteria as laid down by DSIR?”
The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”
Brief facts relating to the case are that, the assessee is engaged in the business of manufacturing of high performance industrial coatings and specialized paints, and the assessee was the only Indian company selected by Indian Space Research Organization (ISRO) to supply special paints to coat for space research and was awarded contract to supply special paints for “Mission Mars”.
For the impugned year, the assessee filed return of income declaring total income at Rs.2,71,37,030/-. The case was selected for limited scrutiny and order under section 143(3) of the Act was passed, assessing income at Rs.4,92,95,770/- after making disallowance of Rs.2, 12,55,04/- on account of sales commission expenses, Rs.7,04,541/- on account of gratuity expense and 1,99,156/- on account of R&D expenses under section 35(2AB) of the Act. Aggrieved bythe same, the assessee carried the matter in appeal before theld.CIT(A) who deleted all the disallowance. Aggrieved by this order, the Department has come in appeal before the Tribunal.
Observation of the court
We have heard contention of the both the parties. We are in agreement with the contentions of the ld. counsel for the assessee. The undisputed fact being the assessee’s in-house R&D facility was approved by the prescribed authority, DSIR, and the quantum of expenditure incurred in relationton four employees was certified by the DSIR, as having incurred for R&D facility, we completely agree with the Ld.Counsel for the assessee that there was no locus standi with the AO to question the certification of the DSIR. Section 35(2AB) is an incentive provision for promoting research and development activities in the Country, and for this purpose, weighted deduction is given for all expenditure incurred on revenue and capital account on in-house R&D facility. R&D being a technical subject, the approval of such facilities is required tobe given by authorities prescribed in the section which are considered competent for the said purpose, in the present case being Department of Scientific and Industrial Research, DSIR. When the authority considered competent by the legislature for R&D approvals itself has approved the quantum of expenditure incurred by the assessee, we fail to understand how the AO can sit in judgment over the certification givenby the prescribed authority so as to deny the benefit of weighted deduction to the assessee. When the DSIR itself found no fault in the expenses incurred on the four employees, the AO surely had no locus standi to treat the same as not incurred for R&D facility. We completely agree with the Ld.CIT(A) that in the aforesaid facts and circumstances there was no case for making any disallowance u/s 35(2AB) of the Act. In view of the above, we confirm order of the ld.CIT(A) deleting the disallowance of R&D expenses to the tune of Rs. 1,99,156/- and ground no.3 raisedby the Revenue is also rejected.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 3rd October, 2023 at Ahmedabad.
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from here
ACIT-Vs-Grand-Polycoats-Company-Pvt.-Ltd.-ITAT-Ahmedabad2
