Payment of gratuity premium to LIC is allowable as business expenditure

ACIT Vs Grand Polycoats Company Pvt. Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that gratuity premium paid to LIC was to be treated as business expenditure and the same is allowable under section 37(1) of the Income Tax Act.

Facts- The assessee is engaged in the business of manufacturing of high performance industrial coatings and specialised 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”.

The case of the assessee 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 u/s. 35(2AB) of the Act. Aggrieved by the same, the assessee carried the matter in appeal before the ld.CIT(A) who deleted all the disallowance. Aggrieved by this order, the Department has come in appeal before the Tribunal.

Conclusion- Held that the ITAT in the immediately preceding year, A.Y 2013-14, confirmed the order of the CIT(A) passed on identical lines holding that Gratuity amount paid towards a fund which was not approved by the Income Tax Authority. This issue has been settled by the High Court of Gujarat in the case of Valsad District Central Co Op. Bank Ltd. Vs. ACIT in favour of the assessee. Hon’ble High Court concluded that as contribution made towards the fund was to be treated as business expenditure and the same was allowable u/s. 37(1) of the Act, even though the said fund was unapproved by the Income Tax Department.

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