2014 (5) TMI 595 - HC - Income Tax

Reopening of assessment Mere change of opinion - Allowability of deduction u/s 37 of the Act Amount paid to LIC under unapproved gratuity scheme Held that - At the time of making the payment of premium, both the schemes of LIC were not recognized as Recognition Certificate was not issued, but in due course, the Recognition Certificate was issued - Schemes were for the welfare of the employees which cover the substantial life insurance of the employees of Textile unit - The expenditure is allowable as a business expenditure under the Act - on merit, the claim of the assessee is allowable - thus, there is no reason to interfere with the order passed by the Tribunal Decided against Revenue.

Summary

Issues:
1. Deductibility of amount paid to LIC under unapproved gratuity scheme under Section 37 of the IT Act.
2. Validity of re-opening assessment based on change of opinion.

Analysis:
1. The case involved an appeal by the department under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal disallowing the amount paid to LIC under an unapproved gratuity scheme. The Tribunal allowed the claim, noting that the original return was filed within the prescribed time, and the notice for re-assessment was issued beyond the statutory period. The Tribunal also highlighted that the scheme was later approved, providing substantial life cover to employees. The High Court upheld the Tribunal's decision, emphasizing that the expenditure was for the welfare of employees and allowable as a business expenditure under the Act.

2. The second issue revolved around the re-opening of assessment by the department. The Tribunal found that the re-assessment was based on a change of opinion, which was not the case. The High Court concurred with the Tribunal's view, stating that the department failed to establish exceptional circumstances for re-assessment. The High Court upheld the Tribunal's decision, dismissing the department's appeal and ruling in favor of the assessee.

In conclusion, the High Court dismissed the department's appeal, upholding the Tribunal's decision in favor of the assessee on both substantial questions of law. The judgment emphasized the allowability of the expenditure under the unapproved gratuity scheme and the lack of valid grounds for re-opening the assessment, ultimately ruling in favor of the assessee.