Adani Tracks Management Vs AO-CPC (ITAT Delhi)
ITAT Delhi Allows Gratuity Deduction on Transfer of Employee Liability—Journal Entry Constitutes Discharge under Sections 40A(7) & 43B
The Delhi Bench of the ITAT allowed the appeal of Adani Tracks Management Services Ltd. for AY 2020-21, holding that gratuity expenditure relating to an employee transferred to another group entity is allowable even where the liability is discharged through a transfer of obligation rather than direct cash payment to the employee.
The Tribunal noted that while the CIT(A) had allowed gratuity to the extent of actual cash payment made to one employee, he disallowed the balance pertaining to another employee on the ground that the assessee had merely passed a journal entry transferring gratuity liability to the transferee company. The ITAT held that the assessee had incurred a real and crystallised gratuity liability for services rendered by the employee during his tenure with the assessee. Upon transfer of the employee, the corresponding gratuity obligation was also transferred to the new employer through a proper debit note and accounting entry, thereby effectively discharging the assessee’s liability.
The Tribunal observed that section 43B requires discharge of liability and does not mandate payment only in cash to the employee in every situation. Where the liability is genuinely transferred and settled with another concern as part of employee transfer arrangements, the condition of “payment” stands satisfied. Accordingly, the disallowance was deleted and the assessee’s claim for gratuity deduction was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
