2013 (12) TMI 1100 - AT - Income Tax

Provision of PACS Manager salary Held that - Following ACIT vs Rajasthan State Cooperative Bank Ltd., Jaipur 2013 (9) TMI 38 - ITAT JAIPUR - Allowability of contribution by the Apex Bank for PAC Mangers salary is a statutory liability which is crystallized at the end of every year - The contribution once made become at the disposal of Registrar of Cooperative Society which is payable as and when demanded by the Registrar Cooperative Society alongwith interest on it - It is not contingent liability but a statutory liability which is crystallized at the end of every year and hence the liability is allowable Decided in favour of assessee. Premium of leave encashment Held that - Following CIT vs Hindustan Latex Ltd. 2012 (6) TMI 713 - KERALA HIGH COURT - Leave encashment is not a statutory liability and even in the case of provision being made the deduction was allowed as a business expenditure - 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 Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 1.47 lacs on account of provision of PACS Manager salary.
2. Sustenance of addition made on account of premium of 47 employees of leave encashment amounting to Rs. 26,52,873/- to LIC of the employees against quantified liabilities.

Analysis:

Issue 1:
The first issue in the appeal pertains to the addition of Rs. 1.47 lacs made by the Assessing Officer (AO) on account of the provision of PACS Manager salary. The AO disallowed this provision, stating it was not valid for business purposes. The ld. CIT(A) confirmed this addition. However, during the appeal, the assessee cited a previous order of ITAT Jaipur bench in a similar case where the addition was deleted. The ITAT Jodhpur bench, considering the facts of the present case akin to the previous case, deleted the addition, following the earlier order.

Issue 2:
The second issue revolves around the sustenance of the addition made by the AO concerning the premium of 47 employees of leave encashment amounting to Rs. 26,52,873/- paid to LIC of the employees against quantified liabilities. The AO disallowed this amount, alleging that the expenditure was not related to the business and that the funds were wrongly diverted. The ld. CIT(A) upheld this disallowance based on a similar disallowance in the previous year. However, during the appeal, the assessee referenced a decision of the Hon'ble Kerala High Court, stating that the actual liability towards the premium paid on insurance policy is an allowable deduction under section 37 of the Act for business purposes. Following the Kerala High Court's ruling, the ITAT Jodhpur bench set aside the ld. CIT(A)'s order and directed the AO to allow the claim of the assessee.

In conclusion, the ITAT Jodhpur bench allowed the appeal filed by the assessee, deleting the additions made by the AO in both issues.