Section 40A(7)(b) overrides section 43B for approved gratuity fund provisions; specific prevails over general.

आदेश/ORDER 

PER INTURI RAMA RAO, ACCOUNTANT MEMBER:

This is an appeal filed by the Revenue directed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (herein after the ‘CIT(A)’) dated 24.07.2025 for the assessment year 2017-18.

2. Brief facts of the case are that, the assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of PVC Resins, Caustic Soda, Chiromethanes and Refrigerant Gases etc. The return of income for the assessment year 2017-18 was filed on 29.11.2017 disclosing total income of Rs.348,62,24,143/- under normal provisions and also returned book profit u/s.115Jb of the Act of Rs.305,76,23,229/-. Against said return of income, assessment was completed by the AO vide order dated 27.12.2019 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) determining total income of Rs.355,92,80,286/- and the same was set-off against the brought forward business loss and determined ‘nil’ income. However, assessed the book profits u/s. 115JB of the Act at Rs.311,77,00,807/-. While doing so, the AO made the following disallowances:-

i. Disallowance of Provision for Gratuity claimed u/s. 40A(7)- Rs. 1,75,37,548/-.

ii. Disallowance of Contribution to the Benevolent fund u/s. 40A(9) of the Income Tax Act, 1961- Rs. 14,565/-.

iii. Disallowance u/s. 14A - Rs. 1,29,64,000/-.

iv. iv). Disallowance of CSR expenses- Rs. 1,29,64,000/-

3. The AO also made the following additions to book profit determined u/s.115JB of the Act 

i. Disallowance u/s. 14A- Rs. 4,25,40,030/-

ii. Provision for Gratuity- Rs. 1,75,37,548/

4. Being aggrieved by the above assessment order, an appeal was filed before the CIT(A), who vide impugned order allowed the provision for gratuity of Rs.1,75,37,548/- following the decision of the Tribunal in assessee’s own case for assessment years 2008-09 to 2014-15. The Ld.CIT(A) deleted the addition made u/s.14A of the Act accepting the contention of the assessee company that in the absence any expenditure incurred to earn exempt income, no disallowance u/s.14A can be made. The CIT(A) also directed the AO to allow addition made on account of CSR expenses following the decision of the Hon’ble High Court of Madras in the case of CIT vs. Madras Refineries Ltd., 266 ITR 170. Lastly, the CIT(A) directed the AO not to add the provision for gratuity for the purpose of book profit u/s.115JB of the Act following the Tribunal’s order in assessee’s own case for assessment years 2008-09 to 2014-15. Similarly, the CIT(A) deleted the addition made u/s.14A of the Act to the book profits u/s.115JB of the Act.

5. Being aggrieved by the order of CIT(A), Revenue is in appeal before us in the present appeal. The Revenue raised eight grounds of appeal. Grounds Nos.1 and 8 are general in nature and do not require any adjudication. Ground No.2 challenges the correctness of the direction of CIT(A) to delete the addition made on account of provision of gratuity of Rs.1,75,37,548/-. The AO was of the opinion that the provision made towards gratuity fund of Rs.1,75,37,548/- requires to be disallowed under the provision of section 43B of the Act, rejecting the contention of the respondent assessee company that the provision for gratuity fund is governed by the provision of section 40A(7) of the Act and the provision of se