Under Section 43B of the Income Tax Act, of 1961 the disallowance of the expenses could not be refused when the ex-gratia and employee advantages have been represented under the appropriation of funds, the Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) stated. The taxpayer is a cooperative bank and has a business related to banking.
The taxpayer in the calculation of income availed the deduction of specific expenses without debiting that in the profit and loss account for the year under the acknowledgement. The expenses in question were initially recorded by the assessee by adjusting them against profits in prior years. Yet, they were not claimed as deductions since the actual payments hadn’t been made.
However, Section 43B of the Income Tax Act prohibits claiming deductions for expenses without actual payment. The Assessing Officer disagreed with the assessee’s explanation, stating that the claimed expenditure wasn’t debited in the profit and loss account, which is a requisite.
Consequently, the Officer disallowed the claimed expenditure of Rs. 1,12,87,989/-, which was based on payment but not reflected in the profit and loss account, thereby adding it to the assessee’s total income. Later, the Authorized Representative submitted ledger accounts for all four funds, providing the accounting entries that were previously missing. These documents were unavailable earlier due to unavoidable circumstances.
These records support the expenses and demonstrate the payments, which align with the provisions of Section 43B of the Income Tax Act, making them eligible for deduction. Therefore, the request was made to reexamine the matter by returning it to the Assessing Officer for a fresh review. The Departmental Representative didn’t oppose the transfer of the appeal to the Assessing Officer for a fresh review, following the law.
The bench, consisting of Waseem Ahmed (Accountant member) and TR Senthil Kumar (Judicial member), noted that the issue of disbursing payments for staff ex-gratia and benefits pertains to the employees and management of the assessee. The salaries and remunerations of these individuals hadn’t been disallowed by the authorities. The ex-gratia and staff benefits were determined based on the existing salary structure.
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Recognizing a clear link between these payments and the assessee’s operations, the bench concluded that denying the deduction available under the Act wouldn’t be justified. Even though these were shown as fund appropriations, the entitlement of the assessee to this benefit couldn’t be disregarded. Consequently, the order of the Commissioner of Income Tax (Appeal) was overturned, and the assessee’s appeal was upheld.
