Himatnagar Nagrik Sahakari Bank Ltd. Vs ACIT (ITAT Ahmedabad)
Introduction: The recent case of Himatnagar Nagrik Sahakari Bank Ltd. vs. ACIT, decided by the ITAT Ahmedabad, revolves around the denial of deduction for staff ex-gratia and benefits under section 43B of the Income Tax Act. The Assessee challenged the disallowance made by the Commissioner of Income Tax (Appeals), asserting that the expenses were paid during the year and should be allowed as per section 43B.
Background: The Assessee, a cooperative bank, claimed deductions for staff-related expenses without debiting the same in the profit and loss account for the relevant year. The claimed expenses included staff ex-gratia, leave encashment, staff benefit, and staff gratuity. The Assessee argued that these expenses were appropriated from the profit in earlier years but were not claimed as deductions until actual payment.
AO’s Disallowance: The Assessing Officer (AO) disallowed the deductions, emphasizing that the claimed expenses were not debited in the profit and loss account. The AO also pointed out that the Assessee had not made provisions for these expenses on the date of finalization of books of accounts. The total disallowance amounted to Rs. 1,12,87,989.
CIT(A) and NFAC Decision: The Commissioner of Income Tax (Appeals) confirmed the disallowance, stating that certain amounts were appropriations from the profit and not actual expenditures debited to the profit and loss account. The National Faceless Appeal Center (NFAC) upheld this decision, adding that for any expenditure to be allowable under section 43B, it should be in the nature of expenditure debited to the profit and loss account in the current or preceding years.
ITAT Decision: The ITAT acknowledged certain payments made by the Assessee in the current year and held that they were allowable as deductions under section 43B. The ITAT disagreed with the CIT(A)’s finding that staff ex-gratia and staff benefit were appropriations from profit and should not be allowed as deductions.
The ITAT directed the restoration of the issue to the AO for fresh adjudication, considering the documents filed by the Assessee, which were not presented before the authorities below.
Conclusion: The Himatnagar Nagrik Sahakari Bank case highlights the importance of proper documentation and adherence to tax provisions. While the Assessee succeeded in challenging the disallowance, the case underscores the need for accurate quantification and matching of entries in books of accounts to ensure fair play. The restoration of the issue to the AO for further verification emphasizes the importance of a thorough examination of facts for a just decision.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income tax (Appeals), Ahmedabad, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2017-2018.
2. The assessee has raised following grounds of appeal:
1. The Hon’ble CIT(A) NFAC, Delhi has grievously erred in confirming the disallowance of the expenditure which is paid during the year following the provision of section 43B of the IT Act. The details are as under:
