2012 (12) TMI 327 - AT - Income Tax

Tribunal allows deductions for salary provision and government securities premium under Income Tax Act

The Tribunal upheld the decision to delete the additions made by the Assessing Officer regarding the provision paid as salary to employees before filing ... Provision paid as salary to the employees before filing of the return - addition to income deleted by CIT(A) - Held that:- The addition was made by the AO on the plea that the assessee debited the impugned amount as provision for cadre staff salary whereas the claim of the assessee, during assessment proceeding that the provision for cadre staff salary was paid to District Cooperative Bank and that since payments could not be paid before 31.3.2008, the impugned amount of Rs.1.20 crores was debited in the p & L account towards provision for cadre staff salary. A sum of Rs.1,19,49,383/- was paid before filing the return of income, therefore, as per provision of Sec. 43B, salary paid to the employees, before filing the return of income, is an allowable deduction - in favour of assessee. Premium paid on government securities - Addition to income deleted by CIT(A) - Held that:- As decided in American Express International Banking Corporation Versus Commissioner Of Income-Tax [2002 (9) TMI 96 - BOMBAY HIGH COURT] that trading of securities is a banking business - as the assessee bank used to buy and sell securities to maintain statutory liquidity ratio, however, this buying and selling resulted into business income or loss was subjected to income-tax - in favour of assessee. Issues:1. Deletion of addition made on account of provision paid as salary to employees before filing the return.2. Deletion of addition made on account of premium paid on government securities.Analysis:1. The first issue pertains to the deletion of an addition made by the Assessing Officer on account of provision paid as salary to employees before filing the return. The Tribunal referred to a previous decision dated 19.10.2011, where it was established that any actual payment made before filing the return is an allowable expenditure under Section 43B of the Income Tax Act. The Tribunal found that the provision for cadre staff salary was indeed paid before filing the return, and since the amount was debited to the profit and loss account, it was considered an allowable deduction. The Tribunal relied on various precedents to support this decision, including CIT v. Amco Batteries and other relevant cases. Therefore, the Tribunal affirmed the decision to delete the addition of Rs.1,20,00,000 made by the Assessing Officer.2. The second issue concerns the deletion of an addition made on account of premium paid on government securities. The Tribunal again referenced a previous decision dated 19.10.2011, where a similar issue was discussed. In this case, the premium paid on government securities was considered a revenue expenditure as it was related to the regular business activity of the assessee bank. The Tribunal held that since the trading of securities is part of banking business activities, the premium paid on government securities should be treated as a revenue expenditure. The Tribunal cited relevant case law, including the decision in American Express International Banking Corporation vs. CIT, to support this conclusion. As there was no contrary decision brought to their notice, the Tribunal affirmed the decision of the CIT(A) to delete the addition of Rs.7,50,000 made by the Assessing Officer.In conclusion, the Tribunal found no merit in the appeal of the Revenue and dismissed it, upholding the decisions to delete the additions made on both the salary provision and premium paid on government securities.