Case Law Details
BDH Industries Limited Vs ACIT (ITAT Mumbai)
Mumbai ITAT Allows Gratuity Trust Contribution & Export Commission Deduction; Subsequent Trust Approval Removes Disallowance
Summary: The Mumbai ITAT allowed the assessee’s appeal for Assessment Year 2018-19 by deleting the disallowance of ₹65,00,000 contributed to the Employees’ Group Gratuity Cash Accumulation Scheme (Gratuity Trust) and the disallowance of ₹8,48,000 towards export commission. The Tribunal noted that although the Gratuity Trust lacked approval at the time of assessment, the Pr. CIT, Mumbai-4 subsequently granted approval with effect from 01.04.2017 by order dated 23.08.2021, which had been furnished before the CIT(A). Accordingly, it held that the disallowance of the gratuity trust contribution could not be sustained. Regarding export commission, the Tribunal observed that the assessee had produced Memoranda of Understanding with individual commission agents and relied on the Tribunal’s order in its own case for Assessment Year 2005-06, where commission paid to one of the same parties had been allowed. Holding that the assessee had established the business connection between export sales and commission payments, the Tribunal found no justification for disallowing the commission paid to individuals and directed the Assessing Officer to delete the addition. It also noted that the ground relating to initiation of penalty proceedings under Section 270A was premature.
The Mumbai ITAT allowed the assessee’s appeal by deleting the disallowance of ₹65 lakh contributed to an Employees’ Group Gratuity Cash Accumulation Scheme (Gratuity Trust) as well as the disallowance of ₹8.48 lakh towards export commission. The AO had denied deduction for the gratuity contribution on the ground that the Gratuity Trust had not received approval from the Principal CIT at the time of assessment. However, during appellate proceedings, the assessee produced the subsequent approval granted by the Pr. CIT with effect from 01.04.2017. The Tribunal held that once the Gratuity Trust stood approved, the contribution could not be disallowed merely because the approval was granted after completion of the assessment, and accordingly directed the AO to delete the disallowance.
With regard to the export commission, the Tribunal observed that the AO had accepted commission payments made to corporate entities but disallowed similar payments made to individual agents based in Mozambique and Sri Lanka, alleging lack of evidence regarding the services rendered. The assessee, however, had produced Memoranda of Understanding (MOUs) with the agents and demonstrated the nexus between the export sales and the commission payments. It also relied on the Tribunal’s own decision in the assessee’s case for AY 2005-06, where commission paid to one of the same agents from Mozambique had been allowed.
Following its earlier decision and noting that the assessee had established the business connection through the MOUs, the ITAT held that there was no justification for disallowing the export commission paid to the individual overseas agents. The Tribunal directed the AO to delete both the gratuity trust contribution disallowance and the export commission disallowance. The ground challenging initiation of penalty u/s 270A was held to be premature. Accordingly, the assessee’s appeal was allowed.
Cases Discussed:
- BDH Industries Limited Vs ACIT (ITAT Mumbai)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals), NFAC (“Ld. CIT(A)”) dated 20.01.2026 for the Assessment Year 2018-19.
“1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as CIT(A)], has erred in facts and in the circumstances of the case and in law in dismissing the appeal and thereby confirming addition made by the Assessing Officer (AO) of Payment to Income Tax approved Gratuity Trust with LIC of India of 65,00,000/- during the year under consideration.
2. The learned CIT(A), has erred in facts and in the circumstances of the case and in law in dismissing the appeal and thereby confirming addition made by the Assessing Officer (AO) of Export Commission of 8,48,000/- on account of Export Sales made during the year under consideration.
3. On the facts and in the circumstances of the case and in law, the order of Ld. CIT(A) dismissing the appeal of the Appellant is not proper, therefore the appellant request you to kindly allow the appeal on above grounds.
4. The Learned AO / CIT (A) has grossly erred in initiating penalty proceeding u/s. 270A of the Income Tax Act.”
3. Ld. Counsel for the assessee, at the outset, submitted that the Assessing Officer, while completing the assessment, denied deduction for the contribution made to the Gratuity Trust with LIC of India for want of approval by the Pr. CIT for the Gratuity Trust. Ld. Counsel for the assessee submitted that though, at the time of completion of the assessment, no approval had been granted, the application for approval was pending before the Ld. Pr.CIT, which was later approved w.e.f. 01.04.2017 by order dated 23.08.2021. The said approval was also furnished before the Ld. CIT(A), which was omitted to be considered while deciding the appeal of the assessee. Ld. Counsel for the assessee, referring to the copy of the approval placed at page 5 of the paper book, submitted that since the assessee had obtained approval for the Employees’ Group Gratuity Cash Accumulation Scheme (Gratuity Trust), the contribution paid to such scheme be directed to be allowed.
4. Coming to ground No. 2 of the grounds of appeal, which is in respect of disallowance of export commission paid by the assessee, Ld. Counsel submitted that the assessee had furnished all the details of the export commission paid and the nexus between the export sales and the necessity to pay export commission was established. Ld. Counsel for the assessee, referring to pages 32 and 33 of the paper book, submitted that the assessee had entered into MOUs with the parties for exporting the goods of the assessee through commission agents on payment of commission ranging from 5% to 10%, depending on the individual project. The MOUs entered into by the assessee with Shri S. Kumar is dated 10.04.2012, with Jagdish Araquechand from Mozambique, and with Dr. Renato Ronda are dated 05.04.2013. Ld. Counsel submitted that these MOUs were furnished before the Assessing Officer, however, the commission payment was disallowed.
5. Ld. Counsel for the assessee, further referring to page 24 of the paper book, relied upon the decision of the Tribunal for the assessment year 2005-06 and submitted that in an identical situation, the Tribunal in assessee’s own case deleted the disallowance of export commission paid for the export business conducted by the assessee. Ld. Counsel referring to the said decision also submitted that Jagdish Araquechand from Mozambique, to whom the commission was paid had also provided business to the assessee during the assessment year 2005-06. The assessee had paid commission to Jagdish Araquechand from Mozambique, both in the assessment year 2005-06 as well as in the current year on the export sales. Therefore, Ld. Counsel submitted that there is no justification for denying the export commission paid to various parties.
6. On the other hand, Ld. DR strongly supported the orders of the authorities below.
7. We have heard the rival submissions and perused the orders of the authorities below. Insofar as the contribution to the Group Gratuity Cash Accumulation Scheme (Gratuity Trust) is concerned, in view of the approval granted by Pr. CIT, Mumbai-4, vide order dated 23.08.2021, which is post-assessment, the disallowance cannot be sustained. Thus, the Assessing Officer is directed to delete the disallowance made in respect of the contribution to the Group Gratuity Cash Accumulation Scheme (Gratuity Trust) of the assessee. Ground No. 1 of the grounds of appeal is allowed.
8. Coming to the commission paid on export sales, we observe that the assessee paid commission to various parties on export sales, which includes individuals as well as companies, as noted by the Assessing Officer at page 4 of the assessment order. The Assessing Officer, however, allowed the export commission paid by the assessee to the companies but disallowed similar commission paid by the assessee to individuals who were based in Mozambique and Sri Lanka on the ground that the assessee had not furnished any justification regarding the business done by the individuals. However, the assessee relied on the Memoranda of Understanding entered into with the individual parties and also on the Tribunal’s order for the assessment year 2005- 06, wherein the Tribunal considered the commission paid to one of the parties, namely, Jagdish Araquechand from Mozambique, and allowed the commission payment. We are of the view that the assessee had proved the business connection between the export sales and the commission paid to the individuals as per the MOUs. Further, since the issue had already been considered by the Tribunal in the assessee’s own case for the assessment year 2005-06, we hold that there is no justification for disallowing the export commission paid to the individuals. Accordingly, the Assessing Officer is directed to delete the addition/disallowance made in respect of the commission paid by the assessee on export sales.
9. Ground No. 3 is general in nature and does not require adjudication.
10. Ground No. 4 is in respect of initiation of penalty proceedings u/s 270A, and the same is premature.
11. In the result, the appeal of the assessee is allowed as indicated above.
Order pronounced in the open court on 10/07/2026
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