2014 (8) TMI 1127 - AT - Income Tax

Tribunal allows deductions for expenses and dismisses revenue's appeal on disallowances and additions

Jhalawar Kendriya Sahakari Bank Ltd. Versus The A.C.I.T., Circle-1, Kota and vice-versa

The tribunal allowed the assessee's appeal on all grounds, including the disallowance of provision for gratuity, salary expenses, PACS Manager Fund, and ... Allowable deduction u/s 36(1)(v) - Payment made by the assessee directly to LIC for group gratuity fund - Held that:- The disallowance has been made by lower authorities holding that the necessary registration of scheme was not obtained by the assessee, in our considered view, the controversy stands squarely covered in favour of the assessee by the Hon'ble Supreme Court judgment in the case of CIT Vs. Textool Co. Ltd. [2009 (9) TMI 66 - SUPREME COURT] wherein the similar payment made by the assessee directly to LIC for group gratuity fund was held to be allowable deduction U/s 36(1)(v) of the Act. We are inclined to hold that the assessee is entitled to deduction of payment of gratuity to the LIC. Deduction of provision of wage settlement - Amount of payment of arrears of salary - Held that:- There is no dispute on the facts that the amount of payment of arrears of salary in question was made consequent to the 13th wage settlement with all the stake holders. The genuineness of the payment is not challenged. The assessee is governed by regulatory laws of Rajasthan Cooperative Societies Act. The assessee’s liabilities towards wage revision having accrued and cryslatised by way of agreed settlement, the same is an allowable business expenditure as per Income Tax Act. The AS-I and II further supports the accounting done by the assessee in this behalf. Thus we hold that the assessee is eligible for deduction of provision of wage settlement Addition of bad debts - Liability for PACS - claim of PACS Manager Fund payment as expenditure - Held that:- The learned CIT(A) considered it to be a bad debt for which no reasons are given. In our considered view the PACS payment cannot be held to be a bad debt, therefore, what is relevant for us is the Assessing Officer’s order. The liabilities have been created by statutory rule which assessee is bound to follow. This provision has been created for amicability with the employees and is for the commercial benefit of the assessee bank and is to be held as wholly and exclusively for the purpose of business. In this eventuality, the payment is even otherwise allowable U/s 37 of the Act. Any perceived method of calculation by the Assessing Officer cannot be held as a tool to disallow the assessee’s claim. The revenue’s interest is safeguarded by a fact that if at all there is any mistake in the calculation, the access are short calculation will be given suitable treatment in books of account in subsequent years. This being so in our considered view, the assessee is eligible for claim of PACS Manager Fund payment as expenditure Issues Involved:1. Validity of the assessment order under Section 143(3).2. Disallowance of provision for gratuity.3. Disallowance of salary expenses.4. Disallowance of PACS Manager Fund.5. Addition on account of excess cash reserve.6. Charging of interest under Section 234B.7. Initiation of penalty proceedings under Section 271(1)(c).8. Deletion of disallowance on account of provision for Pension Leave Salary.Detailed Analysis:Issue 1: Validity of the Assessment Order under Section 143(3)The assessee argued that the assessment order passed under Section 143(3) was bad in law and against the principles of natural justice. However, this issue was not discussed in detail in the judgment, implying that the tribunal did not find substantial grounds to address it separately.Issue 2: Disallowance of Provision for GratuityThe assessee contended that the provision for gratuity paid to LIC under a Group Gratuity Scheme Policy amounting to Rs. 5,23,036/- should be allowed as a deduction. The lower authorities disallowed it due to the lack of necessary registration. The tribunal referenced the Supreme Court judgment in CIT Vs. Textool Co. Ltd. and the ITAT Delhi Bench decision in Keihin Penalfa Ltd. Vs. ACIT, which allowed similar deductions. Consequently, the tribunal allowed the assessee's claim for deduction under Section 36(1)(v).Issue 3: Disallowance of Salary ExpensesThe assessee challenged the disallowance of Rs. 20,00,000/- related to salary expenses due to a wage revision settlement. The tribunal noted that the wage revision was a result of a settlement approved by the Finance Department of the State Government and was in line with Accounting Standards AS-I and AS-II. Citing several judicial precedents, including the Supreme Court decision in Bharat Earth Movers v. CIT, the tribunal held that the provision for wage settlement was an allowable business expenditure. Thus, the disallowance was deleted.Issue 4: Disallowance of PACS Manager FundThe assessee argued against the disallowance of Rs. 37,88,000/- for the PACS Manager Fund, which was mandated by statutory rules under the Rajasthan Cooperative Societies Act. The tribunal found that the Assessing Officer had incorrectly calculated the contribution and that the CIT(A) had misapplied Section 36(1)(viia). The tribunal held that the PACS Manager Fund was created for the commercial benefit of the bank and was wholly and exclusively for business purposes, making it allowable under Section 37. The tribunal, therefore, allowed the assessee's claim.Issue 5: Addition on Account of Excess Cash ReserveThe assessee explained that the excess cash reserve of Rs. 10,631/- was shown as a liability in the balance sheet and represented amounts to be repaid to legitimate claimants. The tribunal accepted this explanation, noting that the excess cash was not income but a liability, and thus should not be added to the assessee's income. The addition was deleted.Issue 6: Charging of Interest under Section 234BThe issue of charging interest under Section 234B was deemed consequential and was not discussed in detail, implying that it would be adjusted based on the outcomes of the other issues.Issue 7: Initiation of Penalty Proceedings under Section 271(1)(c)This issue was not elaborately discussed in the judgment, suggesting that the tribunal did not find immediate grounds to address it separately.Issue 8: Deletion of Disallowance on Account of Provision for Pension Leave SalaryThe Revenue's appeal contested the deletion of Rs. 40,00,000/- for provision of Pension Leave Salary. The tribunal noted that the assessee had taken a policy from LIC for leave encashment, which ensured timely payments to employees and was akin to EPF/ESI contributions. Citing the Supreme Court decision in Textool Co. Ltd. and ITAT Delhi Bench's decision in Nainital Bank Ltd., the tribunal held that the payment to LIC was an allowable expenditure. The Revenue's appeal was dismissed.Conclusion:The tribunal allowed the assessee's appeal on all grounds, finding that the disallowances and additions made by the lower authorities were unjustified. The Revenue's appeal was dismissed, upholding the CIT(A)'s deletion of the disallowance for Pension Leave Salary. The order was pronounced in open court on 14/08/2014.