TaxTMI 
TaxTMI 
2026 (4) TMI 1617
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....55,999 pertaining to disallowance of provision made for Bhavishya Kalyan Yojana and Rs 2,06,94,371 pertaining to provision of expenses). Disallowance of provision made for Bhavishya Kalyan Yojana: 2. erred in upholding the order of the learned assessing officer on the basis that the liability under the Bhavishya Kalyan Yojana is contingent upon the occurrence of a future event and not yet crystallized and therefore, the same is not allowable under section 37(1) of the Act. 3. failed to appreciate that the provision has been recognized basis an independent actuarial valuation report prepared using scientific methods and therefore, the provision is an ascertained liability allowable under section 37(1) of the Act. 4. the Appellant had inadvertently claimed provision for Bhavishya Kalyan Yojana of Rs. 28,55,999, whereas some part of the provision (i.e. negative provision of Rs. 6,05,000) was charged to the other comprehensive income and therefore, claim for the net provision of Rs. 22,50,999 [Rs. 28,55,999 (-) Rs. Rs. 6,05,000) should be allowed: Disallowance of provision of expenses: Rs. 2,06,94,371: 5. erred in upholding the orde....
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....come' and which has inadvertently not claimed by the Appellant." 3. The relevant facts in brief are that the Assessee is a company engaged in the manufacture and sale of bus bodies including spare parts and was initially formed as a Joint Venture between Tata Motors Limited from India and Marcopolo, SA of Brazil. For the Assessment Year 2017- 2018, the Assessee filed return of income on 09/11/2017 declaring 'Nil' income under the normal provisions of the Act after claiming set-off of losses of earlier years. The Assessee also disclosed 'Nil' Book Profits under the section 115JB of the Act. The aforesaid income tax return filed by the Assessee was selected for scrutiny and assessment was completed under Section 143(3) of the Act vide Assessment Order, dated 21/12/2019. The Assessing Officer assessed the total income of the Assessee at INR.25,61,32,711/- after making, inter alia, the following disallowances - (a) Disallowance of INR.28,55,999/- rejecting Assessee's claim for deduction in respect of provision made for BKY, and (b) Disallowance of INR.2,06,94,371/- rejecting Assessee's claim for deduction for provision created for business expenses. 4. The grounds raised by the A....
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....he expenses debited to the Profit & Loss Account (as opposed to the aggregate/net amount of the provisions to be created as per the actuarial valuation report). Therefore, by way of Ground No. 4 raised in the present appeal, the Assessee has now revised downwards its claim for provisions for BKY expenses from INR.32,83,000/- to INR.26,78,000/- by taking into account the negative provision amounting to INR.6,05,000/- recognized under the head 'Other Comprehensive Income'. The Assessee had also raised additional ground vide Letter, dated 04/11/2025, to make additional claim for deduction in respect of provisions of INR.21,39,000/- for Medicare Scheme expenses recognized under the head 'Other Comprehensive Income'. There is no dispute as to the facts relevant for adjudication of additional ground now raised by the Assessee and the same form part of the record. It is not disputed by the Revenue that the actuarial valuation reports were filed before the Learned CIT(A) and the same were admitted as additional evidence. Accordingly, keeping in view of the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT: 229 ITR 383we admit the additional ground....
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....ade before the Assessing Officer and made submissions [which have been reproduced by the Learned CIT(A) at Page 11 to 13 of the order impugned]. The Learned CIT(A) did not find merit in the aforesaid submissions and concluded that the provision for BKY created by the Assessee was in respect of unascertained liability since the amount payable to the employees covered by BKY was contingent upon the future event being death or permanent disablement of employee. The Learned CIT(A) distinguished the judgment of Hon'ble Supreme Court in the case of Metal Box Co. of India Ltd. (73 ITR 53) and Bharat Earth Movers Ltd. (245 ITR 428) observing that the same dealt with the provisions for gratuity and leave encashment where, unlike the present case, the liabilities were certain to arise upon retirement/resignation of the employee. 9.3. Being aggrieved by the above order of the Learned CIT(A), the Assessee has carried the issue in appeal before this Tribunal. 9.4. The Learned Authorized Representative for the Assessee reiterated the stand taken before the authorities below and placed on record decisions of the Tribunal rendered in the cases of group companies wherein the Tribunal was plea....
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....nses created by the assessee in that case holding as under: "18. Assessee is also aggrieved for disallowance of provision for post retirement benefits under Section 43B(b) of the Act. It was contention of learned AR that this is an amount provided by the Assessee, after a scientific determination based on an actuarial valuation, towards it's contractual non-statutory liability to provide post retirement benefits to it's employees. He further contended that the provisions of section 43B(b) of the Act have no application as this has been claimed only on the basis of a scientifically determined actuarial valuation and not as a contribution to any fund. 19. We have considered rival contentions and found that issue is squarely covered by the decision of Delhi High Court in the case of Ranbaxy Laboratories Ltd., wherein Hon'ble High Court held that the pension scheme of the assessee did not envisage any regular contribution to any fund or trust or any other entity. The pension scheme provided that pension would be paid by the assessee to its employee on his or her attaining the retirement age or resigning after having rendered services for a specified number of ....
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.... b. Disallowed provision of doubtful debts of Rs. 49,94,83,557/- c. xx xx d. xx xx 020. Assessee preferred an appeal against the order of learned Assessing Officer before the learned CIT (A). The learned CIT(A) passed the order on 26.09.2018 wherein he allowed the provision of Rs. 75,67,000/- towards Bhavishya Kalyan Yojna and Medicare Scheme following decision of the coordinate bench in assessee's own case for assessment year 2007-08. He also deleted disallowance with respect to the dealers commission of Rs.9,498,849/- and further Rs. 1,91,45,842/- following the decision of the coordinate bench in assessee's own case for assessment year 2007 - 08. He also deleted the disallowance/addition of Rs.262,340,000 with respect to the delinquency support based on noted number 25 of the annual accounts. 021 to 25. xx xx 026. On the appeal of the learned AO, we find that ground number 1 is with respect to the direction of the learned CIT-A 12 the provision of Rs.7,567,000 created towards the employee benefit schemes. The learned CIT-A followed the order of the coordinate bench in assessee's own case for assessment year 2007-08 for allowin....
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....ions for gratuity and leave encashment where, unlike the present case, the liabilities were certain to arise upon retirement/resignation of the employee; whereas in the present case the liability to make payment was contingent upon a future event being death/disablement of the employee. We are not in agreement with the aforesaid observations/reasoning of the Learned CIT(A). In the present case an employee becomes eligible to be covered under the employee benefit schemes (such as BKY) on account of employment contract and the applicable employee benefits schemes. The Actuarial valuation is done on the basis of the contractual obligation of the Assessee. The amount so determined constitutes ascertained liability computed based on the scientific method. The liability to make payment to employees in terms of BKY is a 'liability in praesenti though it will be discharged at a future date'. In the case of Bharat Earth Movers vs. Commissioner of Income-tax [2000] 112 Taxman 61 (SC)/[2000] 245 ITR 428 (SC)/[2000] 162 CTR 325 (SC)[09-08-2000], the Hon'ble Supreme Court had held that deduction for should be allowed for such liability based upon actuarial valuation even though the liability wo....
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....e profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; and (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 6. So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, wherein this Court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above-said settled pr....
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....so created on the basis of actuarial valuation report. We have already noted in Paragraph 8.2 above that the during the relevant previous year, the Assessee has recognized provision for Medicare Scheme amounting to INR.46,14,000/- in the following manner: Particulars Amount recognized in Profit & Loss Account Account recognized in Other Comprehensive Income Total Medicare Scheme 24,75,000 21,39,000 46,14,000 11.1. As regards, deduction for amount of INR.24,75,000/- is concerned, the Assessing Officer accepted the deduction of INR.24,75,000/- claimed by the Assessee for Provision for Medicare Scheme debited to the Profit & Loss Account. For amount of INR.21,39,000/-, the Assessee had claimed that amount related to relevant previous year though not debited to the Profit & Loss Account and was disclosed separately under the head 'Other Comprehensive Income'. On perusal of the actuarial valuation report that we find that the above amount of INR.21,39,000/- represented actuarial (gains)/losseson account of Defined Benefit Obligation (DBO) during the relevant previous year which has been disclosed as under in the actuarial valuation report: AOCI un....
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.... to explain why the aforesaid Provision for Expenses should not be disallowed. In response the Assessee filed submission, 17/12/2019 giving break-up of Provision for Expenses aggregating to INR.13,53,67,478/- alongwith the explanation. S. No Particulars Amount Remarks 1 Provision for Salary & Wages 7,05,63,417 TDS has been deducted during the payment of Salary 2 Raw Material Consumption 1,97,17,094 No TDS applicable since it relates to education cess 3 Bonus 1,80,67,955 Covered under 43B included in Annexure 8 of the Tax Audit Report 4 Superior Performance Award 1,15,17,862 TDS has been deducted during payment of salary 5 Reimbursement to Marcopolo 53,49,932 TDS deposited on 28.04.2017 6 Campaign/Retro Fitement Expenses 32,03,688 No TDS applicable since invoice for materials include VAT 7 Relinquishment - Modvat Credit 15,91,594 No TDS applicable since Modvat credit has been reversed on account of obsolete stock 8 Salary allowances 11,29,983 TDS has been deducted during the payment of salary 9 Reimbursement of transport 8,93,183 No TDS applicable 10 OT /doub....
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....4 No TDS applicable since SBC and KKC 40 CSR expenses 200 Disallowance in computation of income Total 13,53,67,478 14. The Assessing Officer noted that the Assessee had booked expenses aggregating to INR.1,34,48,711/- under specific heads and had deducted TDS thereon. Therefore, the Assessing Officer concluded that the aforesaid expenses were allowable as deduction. As regards balance amount of INR.2,06,94,361/- is concern, the Assessing Officer noted that the Assessee had failed to deduct tax on the same and therefore, the same were disallowed. 15. Being aggrieved, the Assessee carried the issue the before the Learned CIT(A). Before the Learned CIT(A) it was submitted that the amount of INR.2,06,94,371/- debited to the Profit & Loss Account consisted of provision created for (a) expenses of INR.1,34,48,711/- (being in the nature of salaries) on which tax was deductible at source under Section 192 of the Act only on payment and, therefore, the same fell outside the purview of Section 40(a)(ia) of the Act, and (b) expenses of INR.72,45,660/- on which no tax was required to be deducted at source. It was further submitted that without gra....
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....cable 11 Contract labour charges 1,26,563 No TDS applicable since SBC and KKC 12 Misc. contract jobs 78,055 No TDS applicable since SBC and KKC 13 Security expenses 73,985 No TDS applicable since SBC and KKC 14 Expenditure on car/Hire of car 46,036 No TDS applicable since SBC and KKC 15 Stipend 28,473 No TDS applicable since SBC and KKC 16 Reimbursement of recruitment expenses 24,285 No TDS applicable 17 Repairs and maintenance of land and Building 11,100 No TDS applicable since SBC and KKC 18 Penalties and interest on tax/duties 7,413 Disallowed in computation of income 19 Conservancey Expenses 7,234 No TDS applicable since SBC and KKC 20 Transport charges 5,341 No TDS applicable since SBC and KKC 21 Consultancy charges 5,288 No TDS applicable since SBC and KKC 22 Co's Contribution to Karnataka Labour Welfare 4,722 No TDS applicable since SBC and KKC 23 Mobile Phone Expenses 4,050 No TDS applicable since SBC and KKC 24 Hotel Expenses 3,100 No TDS applicable since SBC and KKC 25 Inspection & Testing Charges ....
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....ax at source. Accordingly, the disallowance of INR.1,34,48,711/- made by the Assessing Officer cannot be sustained and is hereby deleted. 20. We note that the provision for CSR Expenses of INR.200/- and the provision for Penalties and Interest on tax/duties of INR.7,413/- was disallowed by the Assessee in the computation of income. Therefore, no further disallowance of INR.7,613/- was warranted. 21. As regards provision of INR.32,03,688/- created for Campaign/Retro Fitment Expenses is concerned we note that the Assessee is a manufacturer of busses. During the year under consideration, the Appellant purchased some goods required for retro fitment of busses from PMI Coaches Private Limited. The provision was created in respect of the aforesaid purchases made during the relevant previous year since the invoices were received in the subsequent year. Thus, the provision was in respect of purchase of goods required for retrofitement of buses manufactured by the Assessee in its normal course of business. Therefore, no tax was required to be deducted at source. Accordingly, we overturn the decision of Learned CIT(A). The disallowance of INR.32,03,688/- made by the Assessing Officer o....