2012 (3) TMI 492 - AT - Income Tax

Addition on account of an ex-gratia payment to employees - absence of an entry in the account books towards provision for ex-gratia - HELD THAT - Firstly, the plea of the Revenue articulated before us that the assessee did not act in pursuance to such Resolution, in our view, is clearly unfounded. In fact, it is nobody s case that the assessee has not paid the amount in question. The material on record clearly shows the fact-situation, which is not disputed by the Revenue, that the amounts have been actually paid by the assessee, albeit before the filing of the return. Therefore, the plea of the Revenue that the Resolution has not been acted upon by the assessee merely because there is no entry for the provision in the account books, cannot stand inasmuch as the amounts have been actually paid, albeit, after the close of the year, and such payments are in terms of the said Resolution. As it is also to be kept in mind that in the instant year the Resolution dated 13.3.2007 adopts the liability to pay ex-gratia on similar rates as paid by the assessee for the preceding financial year. In-fact, the reference to the bonus/ex-gratia paid in the preceding financial year of 2005-06 is clearly noted in the Resolution dated 13.3.2007 and thereafter, it has been resolved that the bonus/ex-gratia be paid at the same rates in the instant year also. Under these circumstances, in the absence of any other corroborative evidence led by the Revenue, we find that the Board Resolution No 55 dated 13.3.2007 has been merely disbelieved by the Revenue authorities without demonstrating any falsity in the same. Therefore, in so far as the briefness of the Board Resolution No 55 dated 13.3.2007 is concerned, we do not find any merit in the objections raised by the Revenue. Whether the Board Resolution No 55 dated 13.3.2007 can be said to have crystallized the liability for exgratia payment to the employees ? - In our considered opinion, the adoption of the Resolution No 55 by the Board of Directors of the assessee bank on 13.3.2007 invests the assessee with the liability to pay ex-gratia to its employees. The said Resolution having been adopted prior to the close of the previous year relevant to the assessment year under consideration, in our view, implies that the liability towards ex-gratia towards employees crystallized and accrued during the previous year relevant to the assessment year under consideration itself. For the aforesaid reasons, we therefore, deem it fit and proper to set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the impugned addition. - Decided in favour of assessee. Addition being payments towards Gratuity Fund - there was no separate provision made for payment of gratuity and the assessee could only produce copies of the application made for approval of Gratuity Fund and not approval order - assessee submitted that the Commissioner of Income-tax, Kolhapur vide order dated 15.11.2011 has since granted approval to the Gratuity Fund of the assessee w.e.f. 25.4.1995, copy of which is placed on record, and, therefore, the assessee would be satisfied if the issue is sent back to the Assessing officer with directions to adjudicate the issue afresh - HELD THAT - We set aside the order of the Commissioner of Income-tax (Appeals) on this aspect and restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh in the light of the approval granted by the Commissioner of Income-tax and as per law. Needless to mention, the Assessing Officer shall afford a reasonable opportunity of being heard to the assessee and thereafter decide the issue according to law. Addition on account of unclaimed creditors - amount in question is a balance lying in the account unclaimed creditors reserve fund - AO added the same as an income on the ground that the assessee was unable to produce any details regarding the same - HELD THAT - We are inclined to uphold the plea of the assessee that the impugned amount is not liable to be assessed as income in the year under consideration. However, the plea of the assessee of having offered the requisite sum for taxation in the assessment year 2009-10 is liable to be verified by the Assessing Officer. In case it is found that the unclaimed balance remaining out of ₹ 1,17,405/- has been offered for taxation in the assessment year 2009-10 no addition shall be maintainable in this year. If the Assessing Officer is not satisfied, then he shall be at liberty to take a view as per law. Needless to mention, while carrying out this exercise, the Assessing Officer shall give a reasonable opportunity to the assessee for presenting its case and then decide the issue as per law. Thus, on this Ground assessee succeeds for statistical purposes. Addition on account of contingent provision for standard assets - HELD THAT - As carefully considered the rival submissions. In our view, the Commissioner of Income-tax (Appeals) has correctly appreciated the position and sustained the disallowance following the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. 2010 (1) TMI 5 - SUPREME COURT as clearly pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (supra) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities. Thus, on this Ground, assessee has to fail. Gat Sachiv salaries - AO disallowed the expenditure observing that no such salary has been debited to the Profit Loss account, but was debited to Gat Sachiv Salary Deficit Payable Account appearing under current/other liabilities - HELD THAT - Revenue has pointed out that the assessee has the balance lying in the provision of ₹ 25 lakhs on account of Gat Sachiv salaries, which is brought forward from preceding years. In the current year, when a demand of ₹ 15 lakh has been raised against the assessee, the assessee accepted the same and debited it to the provision already made in the books of account in earlier years. The expenditure of ₹ 15 lakhs was thus not claimed in the Profit Loss account and the same has been claimed for the purposes of Income-tax only in the computation of income annexed to the return of income. As per the assessee, the claim of ₹ 15 lakhs should be allowed as such, independent of the provision of ₹ 25 lakhs available. In our view, the claim of the assessee is quite mis-placed, inasmuch as there is no assertion by the assessee at any stage that the provision of ₹ 25 lakhs created in the preceding years was distinct or different from the demand of ₹ 15 lakhs now raised against the assessee by Dekharekh Society. Therefore, in the absence of any material to clarify the aforesaid position, we find ourselves in agreement with the authorities below that the claim of the assessee is not justified

Summary

Issues Involved:
1. Addition of Rs. 1,07,57,609/- on account of ex-gratia payment to employees.
2. Addition of Rs. 40,58,000/- towards Gratuity Fund.
3. Addition of Rs. 1,17,405/- on account of unclaimed creditors.
4. Addition of Rs. 14,00,000/- on account of contingent provision for standard assets.
5. Addition of Rs. 15,00,000/- on account of Gat Sachiv salaries.

Detailed Analysis:

1. Addition of Rs. 1,07,57,609/- on account of ex-gratia payment to employees:

The assessee, a co-operative society engaged in banking, claimed a deduction of Rs. 1,07,57,609/- for ex-gratia payments to employees under Section 43B of the Income-tax Act. The Assessing Officer (AO) disallowed the deduction, arguing that the liability had not crystallized during the relevant assessment year since no provision was made in the financial statements. The Commissioner of Income-tax (Appeals) upheld the AO's decision, stating that the Board Resolution No. 55 dated 13.3.2007 was an afterthought and lacked corroborative evidence.

The Tribunal found that the non-existence of entries in the account books is not determinative of the allowability of a claim, citing the Supreme Court's ruling in Kedarnath Jute Manufacturing Co. v. CIT. The Tribunal also noted that the Board Resolution No. 55 dated 13.3.2007 was sufficient to crystallize the liability before the end of the financial year. Thus, the Tribunal directed the AO to delete the impugned addition, allowing the assessee's claim.

2. Addition of Rs. 40,58,000/- towards Gratuity Fund:

The AO disallowed the deduction for gratuity payments, stating that the Gratuity Fund was not approved. The Commissioner of Income-tax (Appeals) upheld the disallowance, emphasizing the absence of approval from the Commissioner of Income-tax.

The Tribunal noted that the Gratuity Fund had since been approved by the Commissioner of Income-tax w.e.f. 25.4.1995. Consequently, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remanded the issue back to the AO for fresh adjudication in light of the approval granted.

3. Addition of Rs. 1,17,405/- on account of unclaimed creditors:

The AO added Rs. 1,17,405/- as income, arguing that the assessee failed to produce relevant details regarding the surplus from gold auctions. The Commissioner of Income-tax (Appeals) upheld the addition, treating the surplus as business income.

The Tribunal found that the amount represented unclaimed creditors' reserve fund, which the assessee was liable to refund to the respective borrowers. It was also noted that a part of this amount had been offered for taxation in the assessment year 2009-10. The Tribunal directed the AO to verify this claim and, if satisfied, not to maintain the addition for the current year.

4. Addition of Rs. 14,00,000/- on account of contingent provision for standard assets:

The AO disallowed the provision for standard assets, considering it a contingent liability. The Commissioner of Income-tax (Appeals) upheld the disallowance, citing the Supreme Court's decision in Southern Technologies Ltd. v. Jt. CIT.

The Tribunal agreed with the lower authorities, stating that the provision for standard assets, as per RBI guidelines, does not override the provisions of the Income-tax Act. The Tribunal upheld the disallowance.

5. Addition of Rs. 15,00,000/- on account of Gat Sachiv salaries:

The AO disallowed the expenditure for Gat Sachiv salaries, noting that it was not debited to the Profit & Loss account but to a provision account. The Commissioner of Income-tax (Appeals) upheld the disallowance.

The Tribunal found that the assessee had an existing provision of Rs. 25 lakhs for Gat Sachiv salaries from previous years. The demand of Rs. 15 lakhs for the current year was debited to this provision. The Tribunal agreed with the lower authorities that the claim was not justified, as the provision already existed.

Conclusion:

The Tribunal allowed the assessee's appeal partly, directing the AO to delete the addition for ex-gratia payments and to re-adjudicate the gratuity fund issue. The additions for unclaimed creditors, contingent provision for standard assets, and Gat Sachiv salaries were either remanded for verification or upheld.