Fujiya Restaurant vs Dy. Commissioner Of Income Tax

O R D E R

“8.1.3

In the instant case, the appellant admittedly does not maintain or contribute to any approved gratuity fund. The payment claimed is directly made to an employee and, therefore, does not fall within the ambit of section 36(1)(v). Further, the contention that such payment qualifies under section 37 or section 43B is untenable, since section 37 operates only as a residuary provision and excludes expenses which are specifically covered under sections 30 to 36. As gratuity is specifically governed by section 36(1)(v), deduction cannot be claimed under section 37 or section 43B in contravention of statutory mandate. The claim of denial of natural justice is also not sustainable, as sufficient opportunities were afforded during the course of assessment, and the final show cause notice was part of due process. The failure of the assessee to file an effective reply cannot invalidate the assessment. In view of the above, the disallowance of Rs.2,98,953/- made by the Assessing Officer is correct, legally justified, and calls for no interference. Accordingly, the grounds No.1 to 4 raised by the appellant are dismissed.”

“we would like to clarify that gratuity is being accounted for by the assessee firm only at the time of actual payment to employee and no provision or contribution is being made to gratuity fund during the year i.e. gratuity expense is being claimed and booked only on actual payment basis. During the year ended 31.03.2020 only one payment of Gratuity of Rs.2,98,953/- as appearing in the profit & Loss account was made by cheque on 20.01.2020 to Mr. Tham Bahadur (Cook) PAN: BFFPB5420L for his services of 36 years (01.06.1984 to 01.01.2020) on his last drawn basic monthly salary of Rs.14,394/- (15 days basic salary for each year of service i.e. R.14,394 X 15/26 x 36 = Rs.2,98,953). This payment of gratuity of Rs.2,98,953/- was actually made to the employee during the year and is as per provisions of the Income Tax Act.”

“We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that at the time of incorporation, some of the employees from Bharti, Vodafone and Idea group companies were transferred to the assessee and were enrolled as full time employees. The assessee was required to pay "ex-gratia/gratuity" amount in terms of the terms and conditions of appointment for such employees. Sample employment contracts, details of all the employees transferred from Bharti, Vodafone and Idea group companies, period of employees continuous service and the amount of gratuity paid were duly furnished before CIT (A). The CIT (A) called for the remand report and the Assessing Officer has not pointed out any fault with the evidence produced by the assessee. In present case, gratuity was actually paid. The Ld. AR relied upon the decision of the Hon'ble Madras High Court in case of Premier Cotton Spg Mills Ltd. (supra) wherein it was held that if the entire amount is not allowable under section 36(1)(v), the balance amount would necessarily have to be allowed as a business expenditure under section 37 of the Act and also that section 40A(7) of the Act h application when there was an actual payment to an approved gratuity fund. Thus, Ground No. 1 of Revenue's appeal is dismissed.”