2012 (12) TMI 717 - AT - Income Tax

Diminution in the value of Government securities - Held that - It is seen that the assessee has treated the purchase of Government of India security as its current investment and has followed a consistent policy for valuing the current investments at the year end. It is not shown to us that the said accounting policy followed by the assessee is not permissible under the law. Instead, according to the assessee, the said policy is perfectly within the permissible accounting systems. Income tax authorities are not right in law in disallowing the claim of made by the assessee - direct the AO to delete the above said disallowance - in favour of assessee. Disallowance of Staff Welfare Expenditure Held that - Amount contributed by it on behalf of its employees was treated as salary income in the hands of respective employees and income tax was also deducted there on. The amount accumulated in the name of employees were collectively accounted as Staff Welfare Scheme and the accumulated balance was not invested any where else. Instead, the assessee itself has used such contributions for its own business purpose. Thus, the net effect of this arrangement is that the amounts credited to the Employees Welfare Scheme a/c represents the amounts collected from employees only. The assessee has also provided for interest on the liability amount held under the Staff welfare scheme a/c and claimed the same as expenditure - Staff welfare scheme a/c can only be taken as a creditor account and not as welfare scheme account as defined in sec. 2(24)(x) - final decision reached by CIT(A) on this issue is confirmed - Relief granted by CIT(A) on this issue is upheld - In the result, appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Disallowance of diminution in the value of securities
2. Disallowance of staff welfare expenditure

Issue 1: Disallowance of diminution in the value of securities:
The case involved the disallowance of Rs.35,41,700 claimed by the assessee as expenditure due to the diminution in the value of its current investments made in Government of India securities. The tax authorities contended that the assessee had made long-term investments, while the assessee argued that the securities were part of its stock in trade or current investment. The assessee consistently valued the securities at cost or market value, whichever was lower, and treated them as current investments. The Tribunal found that the assessee's accounting policy was permissible under the law, and the disallowance was unjustified. The Tribunal directed the AO to delete the disallowance, emphasizing the assessee's consistent treatment of the securities as current investments.

Issue 2: Disallowance of staff welfare expenditure:
The revenue challenged the deletion of the disallowance of staff welfare expenditure by the Ld CIT(A). The Tribunal referred to a previous case related to the assessment year 2004-05 involving similar issues. The Tribunal noted that the contributions to the staff welfare scheme were made by the employees and collectively accounted for by the assessee. The scheme was considered akin to a liability (Creditors) account, and the Tribunal agreed with the Ld CIT(A) that the expenditure was allowable under the provisions of sec.40A(9) of the Act. The Tribunal upheld the relief granted by the Ld CIT(A) on this issue, consistent with the decision in the assessment year 2004-05.

In conclusion, the appeal filed by the assessee was partly allowed, and the appeal of the revenue was dismissed based on the detailed analysis and findings on the issues of disallowance of diminution in the value of securities and staff welfare expenditure.