TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 525
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.... of the Judgement and Order dated 10.07.2024 passed by the Income Tax Appellate Tribunal, Rajkot (for short 'the Tribunal') in ITA No. 227/RJT/2023 for the Assessment Year 2015-16. "[A] Whether on facts of the case as well as in law, the Appellate Tribunal was justified in deleting the disallowance of Rs.7,09,71,733/- being the difference in valuation of group gratuity and leave encashment funds as per books of accounts and actuarial valuation of the fund made by LIC and SBI Life Insurance Companies? [B] Whether the findings of the Appellate Tribunal is perverse and contrary to the established principles of tax law, which require that only actual and not merely anticipated or notional expenses should be considered in computing the taxa....
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....ccounts and actuarial valuation of the fund made by the LIC and the SBI Life Insurance Company. 3.4 Being aggrieved, the assessee challenged the Assessment Order before the CIT(Appeals). The CIT(Appeals) also rejected the appeal filed by the assessee. Being aggrieved, the assessee preferred an appeal before the Tribunal. The Tribunal, after considering the submissions made by the learned advocates of both sides, allowed the appeal on the ground that the amount of Rs. 70,71,733/- which was disallowed by the Assessing Officer was required to be considered and not be considered as part of taxable income by observing as under: "5.2 We note that assessee under consideration maintaining gratuity fund and leaves encashment fund. On order to mai....
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....rement, gratuity is being paid to the employee directly from the Life Insurance Corporation of India (LIC) out of the gratuity fund maintained by the 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 use. In the above schedule 16, the real expenses incurred by the ....
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....ss account is after excluding the provisions of gratuity and leave encashment. Therefore, we find that the amount debited in the profit and loss account is purely expenditure incurred by the assessee bank and paid by the assessee bank during the financial year 2014- 15 relevant to the assessment year 2015-16. Hence, by no stretch of imagination, there is debit of provisions in the profit and loss account. 5.4 Therefore, in this scenario, we find that the findings of the assessing officer to the effect that in contributing these two funds namely; gratuity fund and leave encashment fund, the assessee bank claims the expenses which does not pertain to the year under consideration. In para 4.2, the assessing officer observed that the assesse....
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....A.O. are not acceptable in the light of the facts narrated above. 5.5 Now coming to the provisions for gratuity and leave encashment, we find that these are two provisions made by the assessee bank and assessee bank has to make provision every year because the assessee bank would have an obligation to pay the gratuity to employees at the time of retirement. Had the bank does not make provision for gratuity and leave encashment, as per accrual system of accounting, then in that situation immediate financial burden may come on the assessee bank and in order to avoid this situation, the bank, by following accrual basis of accounting recorded the expenses based on the accrual system of accounting and makes the provision based on the accrual ....
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....see. 4.1 It was, therefore, submitted that the reference made by the Tribunal to Schedule 16 of the Balance-Sheet clearly shows that it includes the provision on account of the leave encashment as well as for the gratuity and it also includes the prior period expenses of gratuity and leave encashment which is rightly disallowed by the Assessing Officer and the CIT(Appeals) as the excess funding made as per AS-15 amounting to Rs. 7,09,71,733/- could not have been claimed as deductions by the assessee. 5. Having heard the learned advocate for the revenue it appears that the Tribunal, after considering the facts of the case, arrived at a finding of fact to the effect that the gratuity payment as well as the leave encashment actually paid by ....