2016 (5) TMI 1634 - AT - Income Tax

Actuarially valued post-retirement medical benefits provision treated as accrued employee liability; deduction allowed u/s37(1), appeal dismissed

The dominant issue was whether a provision for post-retirement medical benefits, quantified on actuarial valuation, was deductible under s.37(1). Applying ... Addition under the head of ‘post retirement benefits’ - Allowable deduction u/s 37(1) or not? - CIT(A) allowed claim - HELD THAT:- As correctly held by CIT(A) Supreme Court decision in the case of M/s Bharat Earthmovers [2000 (8) TMI 4 - SUPREME COURT] is clearly applicable to the facts of this case, while the case laws mentioned by the AO are clearly distinguishable. AO had allowed in this assessment year itself similar liabilities based on actuarial valuation on gratuity and leave encashment provisions - on the principle of consistency this provision needs to be allowed as similar provision for post retirement medical benefits was allowed in scrutiny assessments for A.Y. 2006-07 and 2007- 08. Therefore, this provision towards post retirement medical benefits is also an allowable deduction u/s 37(1) - Revenue’s appeal is dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the amount provided in the profit and loss account towards 'Post Retirement Medical Benefits', computed on actuarial valuation and representing an increase in the liability as at year-end, constitutes an ascertained liability allowable as a deduction, or a non-allowable contingent provision. (ii) Whether, on materially identical facts, the Tribunal should follow its earlier decision in the assessee's own case on the same issue and uphold deletion of the disallowance. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Allowability of actuarially determined provision for Post Retirement Medical Benefits Legal framework (as discussed in the judgment): The Court examined the claim in the context of deduction principles applied to employee-related liabilities where the provision is based on actuarial valuation, and proceeded on the footing that an ascertained liability is allowable, whereas a contingent liability is not. The reasoning proceeded by applying the approach earlier adopted in the assessee's own case, including reliance on the principle that actuarial valuation supports ascertainment. Interpretation and reasoning: The expenditure represented the year-on-year increase in the Post Retirement Medical Benefit liability, arrived at on actuarial valuation at the end of the financial year. The appellate authority had treated the liability as ascertained and allowable, and the Tribunal noted that in the assessee's own earlier year the same kind of provision, being based on actuarial valuation, was accepted as not warranting interference. The Tribunal treated the actuarial basis as sufficient to characterize the provision as an ascertained liability rather than a mere contingent estimate. Conclusion: The provision for Post Retirement Medical Benefits, to the extent computed on actuarial valuation and representing an ascertained liability, was held allowable; the deletion of the disallowance was upheld. Issue (ii): Applicability of consistency and binding effect of prior Tribunal decision on identical facts Legal framework (as discussed in the judgment): The Tribunal applied the principle of following its own earlier decision in the assessee's case on the same issue where the facts remain unchanged. Interpretation and reasoning: The Tribunal noted that for an earlier assessment year, it had already upheld allowance of the same category of actuarially valued provision and dismissed the revenue's challenge. Since the factual position for the year under consideration was found to be the same, the Tribunal saw no reason to depart from the earlier view and therefore declined to interfere with the appellate authority's deletion of the addition. Conclusion: The Tribunal followed its prior decision on the same issue and, finding no distinguishing facts, affirmed the deletion of the disallowance; the revenue's appeal was dismissed.