2013 (6) TMI 360 - AT - Income Tax

MAT - Provision of leave encashment - whether an ascertained liability & need not to be added back to the book profits u/s 115 JB as held by CIT(A) - Minimum alternate tax - Held that - The principles laid down in Metal Box Company of India Ltd. V Their Workmen 1968 (8) TMI 53 - SUPREME Court are relevant for our purpose to understand whether such provision for leave encashment would constitute ascertained liability or not which clearly show that the provision for leave encashment would constitute a liability and if the same has been determined on the basis of actuarial valuation then same cannot be considered as unascertained liability. Accordingly nothing wrong in the order of the CIT(A) and confirm the same. In favour of assessee. Provision for staff incentive - whether an unascertained liability or not? - MAT - Held that - As decided in assessee s own case wherein no evidence has been filed before AO in respect of particular policy followed by the assessee- company in respect of staff incentive. The copy of scheme has also not been filed. However, at the same time the AO also rejected the issue summarily without asking for the scheme for incentive claimed from the assessee and the CIT(A) allowed the relief without examining the scheme. Therefore remand the matter back to the file of AO with a direction to re-examine the issue after obtaining the scheme of staff incentive from the assessee. In favour of revenue for statistical purposes. Provision for gratuity - whether an unascertained liability or not? - MAT provisions - Held that - Once a particular liability is determined on the basis of actuarial valuation then same can not be treated as unascertained liability. Secondly as decided in J.C.I.T. (OSD) V. Shreyans Industries Ltd. (2012 (7) TMI 150 - ITAT CHANDIGARH) in view of insertion of clause (i) in Explanation 1 to section 115JB (2) with retrospective effective from 1.4.2001, Assessing Officer was not justified in his action in treating it as unascertained liability. In favour of assessee.

Summary

Issues:
1. Whether provision of leave encashment is an ascertained liability and need not be added back to the book profits u/s 115 JB of the Act.
2. Whether provision for staff incentive is an unascertained liability.
3. Whether the provision for gratuity is an ascertained liability.

Issue 1:
The first issue revolves around whether the provision of leave encashment should be considered an ascertained liability and not added back to the book profits under section 115 JB of the Act. The Assessing Officer treated it as an unascertained liability, whereas the CIT(A) held it to be ascertained. The Tribunal referred to relevant legal principles and upheld the CIT(A)'s decision, stating that if the provision is determined based on actuarial valuation, it cannot be considered unascertained liability. Citing previous decisions, the Tribunal decided this issue against the Revenue.

Issue 2:
The second issue concerns whether the provision for staff incentive is an unascertained liability. The Assessing Officer treated it as unascertained, while the CIT(A) considered it as ascertained. The Tribunal found that no evidence was presented regarding the specific policy followed by the company for staff incentives. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the Assessing Officer for further examination after obtaining the scheme of staff incentives from the company.

Issue 3:
The third issue pertains to whether the provision for gratuity should be deemed an ascertained liability. The Assessing Officer added the provision to the book profit, but the CIT(A) disagreed, stating that since the provision was based on actuarial valuation, it should not be treated as an ascertained liability. The Tribunal concurred with the CIT(A)'s reasoning, citing previous decisions and held that the provision for gratuity should not be considered an ascertained liability. Referring to a specific case law, the Tribunal decided this issue against the Revenue.

In conclusion, the Tribunal partially allowed the appeals of the Revenue for statistical purposes based on the detailed analysis and legal interpretations provided for each issue raised in the judgment.