TaxTMI 
TaxTMI 
2024 (8) TMI 622
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....t your appellant is bound to follow Accounting standard 15, according to which appellant has to show the fund value as per actuarial valuation. Valuation of the assets has nothing to do with taxability of Income. 3. Your Honour's Appellant craves leave to add, amend, alter or withdraw any or more grounds of Appeal before hearing of Appeal." 3. The brief facts of the case are that the Appellant, a Regional Rural Bank engaged in the business of banking filed its Return of Income for A.Y. 2015-16 on 30.09.2015 by declaring the total Income at Rs. 31,52,72,750/-. It has adjusted its books during the year as per AS-15, wherein it had reconciled the fund value as per its books and books of fund houses (SBI and LIC). On such reconciliation it was found that, the fund houses showed excess payment by the assessee, over a period of various years, the assessee had made excess payments towards gratuity and had debited its books from time to time. Now in order to adjust such excess payment, it had credited its books to that extent. However, in the computation of income, it again reduced its taxable profit on the ground that, this is neither its income nor its expenditure and, he....
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....ion of income, thereby nullifying the credit it had made in its books during the year. Hence, the same is required to back be added back. 3.2 Secondly, as admitted by the assessee, the same does not pertain to the year under consideration only. This can be seen from the submission reproduced supra. The same pertains to various years. Therefore, this claim made is anyway not allowable as it does not pertain to the year under consideration. That the assessee challenged the validity of order dated 22.12.2017 by moving an appeal before Ld.CIT(A). The Ld.CIT(A), had disposed of the appeal on 26.05.2023 with the following findings: "5.3 Having considered the factual matrix of the case, I find that the AO is correct in saying that the amounts deducted do not pertain to the year under consideration as the same pertains to earlier years. Therefore, they can not be deducted in the year under consideration, as each assessment year is separate. Under the circumstances. I do not see any reason to interfere with the well reasoned order of the AO." 3.3. That the assessee is in appeal before us, appeal is related with addition of Rs. 7,09,71,733/- by making allegation on the assesse....
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....ployee benefits. The Standard requires an enterprise to recognize either asset or liabilities with respect to accounting employee benefits. In view of this situation, the Ld.AR for the assessee submitted a chart showing the difference of Rs. 5,61,84,048/- in provision for group gratuity, as under: "As on 31-03-2015 Balances are as under in books As per books : LIC 27,19,40,279/- + (paper book at page 13) SBI 2,38,78,013/- (paper book at page 14) Total 29,58,18,292/- (B) As per actual valuation: Total 23,96,34,244/- (Page No. 19-20 of paper-book) Excess Balance in books: (A) 29,58,18,292 - (B) 23,96,34,244 = 5,61,84,048/- Difference of Rs. 1,47,87,684/- in provision for leave encashment As on 31-03-2015 Balances are as under in books: (A) LIC 14,58,93,287/- (Paper book at page 16) SBI 3,08,12,965/- (Paper book at page 17) Total 17,67,06,252/- (B) As per Accrual valuation 16,19,18,568/- (paper book at page no. 21-22) Excess Balance in books Difference: (A)17,67,06,252 - (B)16,19,18,568 = 1,47,8....
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....ere is not any tax effect of these entries. 4.7. The ld.AR for the assessee has submitted the details of difference in valuation of group gratuity fund and leave encashment fund. Assessee has deducted Rs. 7,09,71,732.80 from his "expenses head" it means that assessee has increased his net book profit. Actually, we are not supposed to pay the tax on this Rs. 7,09,71,732.80 as this is not an income, but adjustment entries to bring our fund balances in accordance with obligation as per AS- 15. Therefore, the effect of Rs. 7,09,71,733/- is nullified in our taxable income. Therefore, the same should not be a part of disallowance. 4.8. The Ld. CIT-DR, on the other hand, submitted that whatever the amount increase in the books of accounts of the assessee should be routed through P&L Account of the assessee and relied upon the provisions of section 36(va) of the Act. The Ld. CIT-D.R. relied upon that according to order, all expenses of income must be routed that the profit & loss account. That, in this case, nothing has been routed from the P&L account. Hence, Ld.CIT-DR strongly relied on the CIT(A)'s order. 5. We have heard both the parties and perused the material available on r....
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....he assessee bank on year to year basis in the gratuity fund, maintained with Life Insurance Corporation of India (LIC). Therefore, instead of making the payment by the employee bank himself, at the time of retirement, gratuity is being paid to the employee directly from the Life Insurance Corporation of India (LIC) out of the gratuity fund maintained by the assessee bank. Therefore, this mechanism is like as if the assessee bank is to pay gratuity out of its own fund. 5.3 As we have explained above that the assessee bank makes the provision for gratuity considering the total strength of employees every year and this provision, the bank never treats as expenses in the books of accounts. What the bank is doing is every year, the bank makes the provision for leave encashment and the provision of gratuity and debited to the employee's benefit (employees expenses), which is schedule 16 before us. In the above schedule 16, the real expenses incurred by the assessee bank as well as provision on account of gratuity payment and provision on account of leave encashment etc. are debited. However, at the end of year, the bank claims only actual payment made to the employee on account of gra....
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....educed by the assessee bank and net expenses are being shown by the assessee in its profit and loss account. Therefore, the real expenses pertain to the assessment year under consideration are taken into account only. Therefore, the findings of the A.O. that the same amount does not pertain to the year under consideration does not match with accounting treatment made by the assessee bank, which we have explained with factual data mentioned above. The AO also noted that the assessee cannot reduce the said amount from the profit and loss account as it does not pertain to the assessment year under consideration. We find that this findings of the A.O. is perverse in nature and does not have any connection with the issue under consideration. As we have explained that the real expenses and provisions mentioned in schedule 16 pertains to the assessment year under consideration i.e. assessment year 2015-16 and do not pertain to earlier year. Hence, there is no question arises to reduce the earlier year provisions from the current profit and loss account. Therefore, the findings given by the A.O. are not acceptable in the light of the facts narrated above. 5.5 Now coming to the provision....
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....the assessee under consideration has not included the notional provision of gratuity and notional provision for leave encashment. Therefore, we note that assessee is not taking into consideration the hypothetical expenditure to reduce its income, we have gone through the schedule 16 is reproduced above and noted that no notional expenses are being debited by the assessee in order to reduce its profit. Therefore, considering the above facts and circumstances, we find that the addition made by the assessing officer needs to be deleted. Accordingly, we delete the addition of Rs. 7,09,71,733/- 11. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 10-07-2024 ============= Document 1 BIFURCATION OF PAYMENT OF EMPLOYEES IN SCHEDULE -16 FOR THE F.Y. 2014-15 Sr. CGL No. DESCRIPTION 48 8401505038 CLERK CUM CASHIER PQA 49 8401505039 CLERK CUM CASHIER PQA DA 50 8401505045 CCA - Officers 51 8401505046 CCA-CLERICALS 52 8401505047 CCA-SUBORDINA 53 8401505048 PQA - OFFICER 54 8401505049 PQA-CCC 55 8401505051 SALARY AND ALLOWNCES 56 8402505001 OFFICER PQA DA 57,8402505010 COMPENSTN-STAFLOMPSUM) PAID 58....