2013 (8) TMI 763 - AT - Income Tax

Deduction u/s 37 - Provision for Suraksha Fund - Suraksha Fund created by the order of Office of the Registrar, Co-operative Societies, Rajasthan - diversion by overriding title - Held that - Any contribution made by the assessee to a fund which directly connected or related to carrying on assesee s business or which results in benefit to the assesee s business has to be regarded as deduction allowable u/s 37 of the Act. The decision of Hon ble Apex Court in the case of Associated Power Co. Ltd. vs CIT (1995 (11) TMI 5 - SUPREME Court) is not applicable. - Decided in favour of assessee. Deduction u/s 37 - Premium paid to LIC leave encashment group scheme - CIT upheld disallowance - Held that - Leave encashment is not a statutory liability and even in the case of provision being made the deduction was allowed as business expenditure, when the liability was not actually incurred in the previous year. It was not a provision which was disowned but an actual liability towards premium paid on insurance policy and the liability was allowable as a deduction u/s 37 being an expenditure incurred for the purpose of business - The CIT proceeded on a totally wrong premise in finding the claim to be only u/s 43B(f) and then disallowing it. The order of AO allowing deduction to assessee in the case of premium paid towards the valid insurance policy, ensuring the satisfaction of liability for leave encashment by the insurer cannot be held to be erroneous and was not liable to be revised u/s 263 for the reason of being prejudicial to the revenue - Following decision of CIT vs. Hindustan Latex Ltd. 2012 (6) TMI 713 - KERALA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of Rs.65,67,700/- debited to Suraksha fund.
2. Confirmation of addition of Rs.15,71,767/- being premium paid to LIC group gratuity scheme.
3. Confirmation of addition of Rs.28,17,236/- paid as premium for Leave encashment group scheme.
4. Legality of the charge of interest u/s 234A, 234B, and 234C of the Act.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs.65,67,700/- Debited to Suraksha Fund:
The assessee filed the return of income declaring Rs.3,89,69,650/- and debited Rs.65,67,700/- to the Suraksha fund. The Assessing Officer (AO) disallowed this amount, stating it was not created by RBI instructions but by the Registrar of Co-operative Societies, Rajasthan, and did not increase the bank's profitability. The CIT(A) upheld this view, noting that the amount included a provision of Rs.58,00,000/- and interest of Rs.7,67,700/-, which were not allowable as deductions under section 37 of the Act. The Tribunal, however, decided in favor of the assessee by following a precedent set in the case of The Sirohi Central Coop. Bank Ltd., where similar contributions were deemed statutory liabilities and thus deductible.

2. Confirmation of Addition of Rs.15,71,767/- Being Premium Paid to LIC Group Gratuity Scheme:
The AO disallowed Rs.15,71,767/- paid as premium to LIC, citing the absence of fund approval as per section 36(v) of the Act. The CIT(A) confirmed this, stating the payment was for future liabilities and not current expenses. The Tribunal set aside this issue to the AO for fresh consideration, emphasizing the need to verify whether the fund was approved, referencing the judgment in CIT vs. Bitoni Lamps Ltd.

3. Confirmation of Addition of Rs.28,17,236/- Paid as Premium for Leave Encashment Group Scheme:
The AO disallowed Rs.28,17,236/- as the assessee did not provide evidence of actual payment. The CIT(A) upheld this, noting the payment was for future liabilities. The Tribunal referenced its earlier decision in The Sirohi Central Coop. Bank Ltd., which allowed such premiums as business expenses under section 37. Therefore, the Tribunal directed the AO to allow the claim of the assessee.

4. Legality of the Charge of Interest u/s 234A, 234B, and 234C of the Act:
The issue regarding the charging of interest under sections 234A, 234B, and 234C was deemed consequential by both parties. The Tribunal ordered accordingly.

Consolidated Order:
The Tribunal consolidated the appeals for assessment years 2007-08, 2008-09, and 2009-10, as the issues were common. The findings for I.T.A. No.212/Jodh/2010 were applied mutatis mutandis to the other appeals. The appeals were partly allowed for statistical purposes.