I.T.A. NO.6658/KB OF 1991-9Z, DECIDED ON 19TH APRIL, 1999. VS I.T.A. NO.6658/KB OF 1991-9Z, DECIDED ON 19TH APRIL, 1999.
1999 P T D (Trio.) 3899
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Daud Khan, Accountant Member and Syed Kabirul Hasan, Judicial Member
I.T.A. No.6658/KB of 1991-9z, decided on 19/04/1999.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.24(g) & 16---Deduction---Admissibility---Gratuity---Actual and genuine payments on account of gratuity constitute lawful business expenditure and allowable under the law even if a particular establishment did not have an approved gratuity fund or scheme---Amount of gratuity was allowable as salary expenses being included in definition of the term.(salary) as per S.16, Income Tax Ordinance, 1979---Section 24(g), Income Tax Ordinance, 1979 relates to contributions to unrecognised funds and not actual payments as per legal requirements of labour laws.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.62, 16 & 24(g)---Assessment on production of accounts, evidence etc. ---Gratuity--Admissibility---Assessing Officer disallowed expenses of gratuity on the ground that all material evidence was not produced and there were even discrepancies in the amount provided against certain names which were more than the actual amount so paid-- -Contention of assessee was that Assessing Officer was not justified to disallow the full amount just on the basis of few instances wherein payments were actually made although in lesser amount ---Assessee furnished complete details of persons and of amount due and paid and other evidence; etc. ---Income-tax Appellate Tribunal remanded matter to the Assessing Officer with the instructions to examine the genuineness of details of payment etc. and if he could not establish them to be un genuine, the amount in question should be allowed being an allowable business expenditure.
M. Javed Zakaria for Appellant.
Uproar Farooq, D. R. for Respondent.
Date of hearing: 17th April, 1999.
ORDER
MUHAMMAD DAUD KHAN (ACCOUNTANT MEMBER).---In this appeal the assessee has agitated against CIT' s(A) confirmation of the disallowance of Rs.10,00,876 on account of provision for gratuity.
2. Mr. M. Javed Zakaria, Advocate appeared for the assessee appellant
while department's case was represented by the learned D.R. Mr. Umar Farooq. We have heard both the parties to appeal and perused the assessment as well as appellate orders. The assessee derives income from manufacture of soap and cosmetics. In the original assessment under section 62 this amount was disallowed-but the, assessment order was set aside by the learned CIT(A) vide his appellate order dated 26-10-1991 in which he had issued directions to I.T.O. to verify if the amount provided was on account of definite and ascertained liability and had been paid. in the next year. In compliance to CIT(A). order the I,T.O. required the assessee to produce the necessary details. and evidence for the payment of the amount in subsequent year. However, as per assessment order the .assessee failed to produce all the material evidence required by the I.T.O. and there were even discrepancies insomuch as amounts provided against certain names were more than the amounts shown paid. He has cited such instances on page 2 of his re assessment order. The assessee filed appeal against this order but the CIT(A i vide his order dated 30-3-1992 upheld that re-assessment order and dismissed assessee's appeal.
3. Mr. Zakaria, Advocate p ea ed before us that the amount of gratuity was a lawful business expenditure had actually been paid to the genuine employees of the company some of whom had rendered 20 years or so of the service and the amount claimed on this account was, thus, properly allowable under the law. It is, however, an admitted position that the gratuity scheme or fund is not approved and that no contract had been made with the employees union etc. for the purpose. It was, however, claimed that the gratuity was paid under the law and that retrenchment of the employees was in the interest of business and helped the company to earn good profits in the succeeding year. He reiterated that the I.T.O. was not justified to disallow the full amount just on basis of few instances quoted in the order in which cases too payments were actually made although of lesser amounts than provided for as per observations made in the order. The gratuity amounts were provided for and paid as per requirement of law. Learned D.R. on the other hand supported the orders of the I.T.O. and the learned CIT(A).
4. We have carefully considered the issue involved. Actual and genuine payments on account of gratuity do constitute lawful business expenditure and allowable under the law even if a particular concern does not have an approved gratuity fund or scheme. The amounts are allowable as salary expense being included in definition of the term (salary) as per section 16. It is also not hit by any specific provision of law. Section 24(g) relates to contributions to unrecognised funds and not actual payments as per legal requirements of labour laws etc. However, doubts arise on account of the facts mentioned in the assessment order by the I.T.O. who has stated that the payments are not by cheques and that many such payment are supported only by self-made vouchers and do not contain necessary particulars of the employees and there are discrepancies between the figures provided for and actually paid subsequently. Learned D.R. has not produced the assessment records from which position would be verified in greater details. The assessee on its part, however, has furnished complete details of persons and of amounts due on this score and paid afterwards. Full names, designations of the 'employees and accounts on which payments are made i.e. ex-gratin and gratuity, the computation, copies of payment acknowledgments bearing revenue stamps, the cheque numbers and dates are all elaborately mentioned in the chart submitted. The assessee even furnished copies of employment letters, dating back to 60's and in some cases even the promotion orders during their service. We therefore, remand the matters to the Assessing Officer with the instructions to examine the genuineness of these details and if he cannot establish them to be ungenuine the amount in question should be allowed being a lawful business expenditure allowable under the law.
C.M.A./M.A.K./80/Tax (Trib.) Case remanded.