Tribunal grants deduction for gratuity, remands PF contribution issue, allows Employees Pension Fund, and remands interest disallowance.

The Tribunal partly allowed the assessee's grounds by directing the AO to grant a deduction for the actual payment of gratuity. The issue regarding the disallowance of contribution to the Provident Fund was remanded back to the AO for further examination. The Tribunal allowed the disallowed contribution to the Employees Pension Fund, stating it should be treated as an expenditure. The disallowance of interest paid on Members' Welfare Funds and Staff Provident Fund was also remanded back to the AO for fresh adjudication.

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Issues Involved:
1. Disallowance of Contribution of Gratuity Fund
2. Disallowance on account of Contribution to Provident Fund
3. Disallowance of Contribution to Employees Pension Fund paid to Aviva Life Insurance Ltd.
4. Disallowance of Interest paid on Members’ Welfare Funds
5. Disallowance of Interest paid on Staff Provident Fund

Detailed Analysis:

1. Disallowance of Contribution of Gratuity Fund:
The assessee, a registered Co-operative Bank, made a provision for gratuity of Rs. 22 lacs, which was disallowed by the AO under section 40A(7) of the Income Tax Act. The actual payment of gratuity during the year was Rs. 16,95,886/-. The Tribunal found merit in the assessee's argument that the actual settlement of gratuity should be treated as a deduction. Consequently, the AO was directed to grant a deduction of Rs. 16,95,886/- towards the actual payment of gratuity. Thus, the assessee's grounds were partly allowed.

2. Disallowance on account of Contribution to Provident Fund:
The AO observed that the bank collected provident fund contributions from employees amounting to Rs. 4,04,636/- and invested it with the West Bengal State Co-operative Bank. The AO invoked section 2(24)(x) read with section 36(1)(va) and section 40A(9) of the Act, disallowing the sum. The Tribunal noted the lack of findings on whether the assessee falls under the Employees’ Provident Fund and Miscellaneous Provision Act, 1952. The issue was remanded back to the AO for de novo adjudication.

3. Disallowance of Contribution to Employees Pension Fund paid to Aviva Life Insurance Ltd.:
The assessee contributed Rs. 2,34,000/- towards employees' pension policy with Aviva Life Insurance, which was disallowed by the AO under section 80CCD for lack of evidence of approval by the Central Government. The Tribunal found that the contribution was for the welfare of employees and should be allowed as an expenditure under section 37(1) of the Act. Therefore, the grounds for both assessment years were allowed.

4. Disallowance of Interest paid on Members’ Welfare Funds:
The AO disallowed Rs. 25,20,700/- interest on members' welfare fund, arguing that the members, being owners, cannot be considered as an expenditure incurred wholly and exclusively for business purposes. The Tribunal found that the members' welfare fund was utilized for business and derived taxable interest income. The issue was remanded back to the AO for de novo adjudication, considering the specific earmarked investments and their utilization.

5. Disallowance of Interest paid on Staff Provident Fund:
The AO disallowed Rs. 18,38,333/- interest on staff provident fund, noting that the employer kept the fund and claimed the deduction. The Tribunal observed that the staff provident fund was utilized for business and derived taxable interest income. The issue was remanded back to the AO for de novo adjudication, considering the specific earmarked investments and their utilization.

Conclusion:
The Tribunal allowed the appeals of the assessee for statistical purposes, remanding several issues back to the AO for fresh adjudication with specific directions. The order was pronounced on 04.07.2018.

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