Tribunal Decision: Disallowed Gratuity Fund, Allowed Leave Encashment Premium

The Tribunal confirmed the disallowance of Rs. 46,77,792 for unapproved gratuity fund payments. The Tribunal allowed the premium paid for leave encashment. The addition of interest accrued on FDRs under the ASIDE scheme was deleted as it did not belong to the assessee. The Tribunal ruled that development costs should only be apportioned to marketable land, deleting the additional profit calculated by including non-marketable portions. The final orders resulted in the partial allowance of the assessee's appeal and the dismissal of the Revenue's appeal.

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Issues Involved:
1. Disallowance of payment of premium for group gratuity made to LIC.
2. Disallowance of premium paid for leave encashment.
3. Addition of interest accrued on FDRs under ASIDE scheme.
4. Apportionment of development cost on marketable land.

Detailed Analysis:

Issue 1: Disallowance of Payment of Premium for Group Gratuity Made to LIC
Facts and Circumstances:
The assessee paid Rs. 68,34,365 towards premium for gratuity but failed to provide the approval certificate for the Gratuity Fund. The AO allowed Rs. 21,56,573 already paid to employees but disallowed Rs. 46,77,792.

Tribunal's Analysis:
The Tribunal referenced its earlier decisions for assessment years 2005-06 and 2007-08, which confirmed the disallowance due to the fund not being approved. The Delhi High Court's interpretation in Sony India P. Ltd V CIT emphasized that deductions under Section 36(1)(iv) and (v) are only permissible for contributions to approved funds, and Section 37 cannot be invoked to claim deductions for unapproved funds. The Tribunal upheld the disallowance, noting that the Supreme Court's decision in CIT vs. M/s Textool Co. Ltd. was not applicable as the fund in that case was approved, unlike the current case.

Conclusion:
The Tribunal confirmed the disallowance of Rs. 46,77,792, as the gratuity fund was not approved.

Issue 2: Disallowance of Premium Paid for Leave Encashment
Facts and Circumstances:
The AO disallowed the premium paid for leave encashment, considering it not allowable.

Tribunal's Analysis:
The Tribunal referred to its earlier decision, which allowed such payments under clause (f) of Section 43B, provided they are paid and not just provisioned. The Supreme Court's decision in Bharat Earth Movers V. CIT supported the allowance of leave encashment provisions based on a particular scheme.

Conclusion:
The Tribunal deleted the addition and allowed the premium paid for leave encashment.

Issue 3: Addition of Interest Accrued on FDRs Under ASIDE Scheme
Facts and Circumstances:
The AO added Rs. 60,29,838 as interest accrued on FDRs, which was confirmed by the CIT(A).

Tribunal's Analysis:
The Tribunal cited the government's terms for the ASIDE scheme, which required interest to be utilized for the scheme's purposes, not for the assessee's benefit. The Karnataka High Court's decision in a similar case involving government funds and interest supported the view that such interest does not belong to the assessee and is not taxable.

Conclusion:
The Tribunal deleted the addition, ruling that the interest income does not accrue to the assessee and is not taxable.

Issue 4: Apportionment of Development Cost on Marketable Land
Facts and Circumstances:
The AO apportioned the development cost across the entire land, including non-marketable portions, leading to an increased average cost and additional profit.

Tribunal's Analysis:
The CIT(A) found that only 229,511 sq. mtrs. of the total 320,803 sq. mtrs. were developed and that 88,292 sq. mtrs. were non-marketable due to government land patches. The development cost should only be apportioned to the marketable area. The Tribunal agreed with the CIT(A) that the AO's method of apportioning cost to the non-marketable land was illogical and unsupported by evidence.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision, deleting the addition of Rs. 6,41,11,013 and ruling that the development cost should only be apportioned to the marketable land.

Final Orders:
- The appeal of the assessee (ITA No.1036/Chd/2012) is partly allowed.
- The appeal of the Revenue (ITA No.1308/Chd/2012) is dismissed.

Order pronounced in the Open Court on 10.7.2015.

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