The Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘E’ deliberated on ITA No. 731/Del/2021 concerning the assessment year 2016-17. The dispute centered around the tax exemption claims by Orient Fashion Exports India Pvt Ltd Employees Group Gratuity Scheme, against Pr. CIT-10, New Delhi.
The appellant, Orient Fashion Exports, represented by Sh. Swadanjit Singh, Advocate, contested additions made by the Pr. CIT-10, totaling Rs. 2,00,98,058 on contributions and Rs. 78,99,838 on interest earned. These additions were initially deemed non-exempt due to issues surrounding the approval status of their Employees Group Gratuity Scheme.
The scheme had been applied for approval in 2005 and was granted by the Commissioner of Income Tax-V, New Delhi. Despite this, discrepancies arose leading to the disallowance of claimed exemptions.
The proceedings on November 29, 2022, led by Dr. B. R. R. Kumar, Accountant Member, and Sh. Yogesh Kumar US, Judicial Member, carefully examined the records. The assessment initially accepting a nil return was later enhanced under section 263 by the Pr. CIT, challenging the exempt status under section 10(23AAA).
The tribunal concluded that the Orient Fashion Exports’ Employees Group Gratuity Scheme was indeed approved appropriately under Part “C” of the Fourth Schedule of the Income Tax Act, 1961. Thus, it was determined that the scheme’s income from contributions and interest should remain exempt from tax. As such, the previous order enhancing the income was overturned, and the appeal was allowed in favor of the assessee.
This case underscores the importance of maintaining clear records and timely approval documentation for schemes like gratuity funds. It highlights how bureaucratic errors can lead to significant tax disputes, affecting the financial operations of businesses. The tribunal’s decision reaffirmed the rights of taxpayers to rely on granted approvals for claiming tax exemptions.
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