2015 (8) TMI 123 - AT - Income Tax

Disallowance on a/c of payment of premium for group gratuity made to LIC under section 36(1)(v) - Held that - Similar issue came up for consideration before the Tribunal in the earlier year 2005-06 and 2007-08 2015 (8) TMI 171 - ITAT CHANDIGARH wherein held that if particular fund is not approved then Section 36(1)(iv) would come into operation and such expenditure cannot be allowed. In such situation Sec 37 is not applicable because deduction admissible u/s 30 to 36 cannot be claimed u/s 37. Therefore in our opinion, in view of this decision the claim of the assessee has been correctly denied by the authorities below and accordingly we confirm the order of the Ld. CIT(A) Premium towards leave encashment - Held that - This issue came up for consideration in the earlier year wherein held the amount has not be paid by way of provision but by way of premium under a particular scheme under which the Insurance company had computed the leave encashment dues. Therefore it cannot be called a payment towards a provision. In any case once the payment has been made the same is allowable under clause (f) of Sec 43B. Otherwise also the issue stands settled in favour of the assessee in view of the decision of Hon ble Supreme Court in case of Bharat Earth Movers V. CIT, 2000 (8) TMI 4 - SUPREME Court in which provision for leave encashment was held to be allowable if the same was based on a particular scheme proportionately with the entitlements earned by the employees. - Decided in favour of assessee. Disallowance of interest on FDRs - Held that - This issue came up for consideration in the earlier year wherein held that there was no profit motive as the entire fund entrusted and the interest accrued on the deposits in the bank, though in the name of the assessee, had to be applied only for the purpose of welfare of the nation as provided in the guidelines. The whole of the funds belonged to the State Exchequer and the assessee had to channelise them to the objects of the Centrally sponsored scheme of infrastructural development for the mega city of Bangalore. The entire money was received for a public purpose and the end scheme was implemented in accordance with the guidelines of the Central Government. Therefore, in computing the total income of the assessee the interest accrued on the bank deposits could not be treated as income - Decided in favour of assessee, Allocation of cost - whether CIT(A) has erred in holding that the A.O. was not right in apportioning the development cost incurred on 159868 sq. mtrs of marketable land to whole piece of land of 317803 sq. mtrs purchased and developed by the assessee for sale? - Held that - There is found no logic in the method of calculation of cost of the stock-in-trade adopted by the A.O. He is not found justified in apportioning the development cost incurred on 159868 sq. mtrs. of marketable land to 317803 sq. mtrs. of land purchased by the assessee Corporation. Therefore the adjustment made by him in the average cost of plots taking it at ₹ 1453.22 per sq. mtrs. is not found to be sustainable. The addition of ₹ 6,41,11,013/- on account of the so-called short profit is accordingly directed to be deleted. CIT(A) has correctly adjudicated this issue because cost cannot be allocated to the area which could not be sold ultimately. Further AO has nowhere disputed that this portion of land was not saleable. Therefore, we find nothing wrong in the order of Ld. CIT (A) and confirm the same. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of payment of premium for group gratuity made to LIC.
2. Disallowance of premium paid for leave encashment.
3. Addition of interest accrued on FDRs under ASIDE scheme.
4. Apportionment of development cost on marketable land.

Detailed Analysis:

Issue 1: Disallowance of Payment of Premium for Group Gratuity Made to LIC
Facts and Circumstances:
The assessee paid Rs. 68,34,365 towards premium for gratuity but failed to provide the approval certificate for the Gratuity Fund. The AO allowed Rs. 21,56,573 already paid to employees but disallowed Rs. 46,77,792.

Tribunal's Analysis:
The Tribunal referenced its earlier decisions for assessment years 2005-06 and 2007-08, which confirmed the disallowance due to the fund not being approved. The Delhi High Court's interpretation in Sony India P. Ltd V CIT emphasized that deductions under Section 36(1)(iv) and (v) are only permissible for contributions to approved funds, and Section 37 cannot be invoked to claim deductions for unapproved funds. The Tribunal upheld the disallowance, noting that the Supreme Court's decision in CIT vs. M/s Textool Co. Ltd. was not applicable as the fund in that case was approved, unlike the current case.

Conclusion:
The Tribunal confirmed the disallowance of Rs. 46,77,792, as the gratuity fund was not approved.

Issue 2: Disallowance of Premium Paid for Leave Encashment
Facts and Circumstances:
The AO disallowed the premium paid for leave encashment, considering it not allowable.

Tribunal's Analysis:
The Tribunal referred to its earlier decision, which allowed such payments under clause (f) of Section 43B, provided they are paid and not just provisioned. The Supreme Court's decision in Bharat Earth Movers V. CIT supported the allowance of leave encashment provisions based on a particular scheme.

Conclusion:
The Tribunal deleted the addition and allowed the premium paid for leave encashment.

Issue 3: Addition of Interest Accrued on FDRs Under ASIDE Scheme
Facts and Circumstances:
The AO added Rs. 60,29,838 as interest accrued on FDRs, which was confirmed by the CIT(A).

Tribunal's Analysis:
The Tribunal cited the government's terms for the ASIDE scheme, which required interest to be utilized for the scheme's purposes, not for the assessee's benefit. The Karnataka High Court's decision in a similar case involving government funds and interest supported the view that such interest does not belong to the assessee and is not taxable.

Conclusion:
The Tribunal deleted the addition, ruling that the interest income does not accrue to the assessee and is not taxable.

Issue 4: Apportionment of Development Cost on Marketable Land
Facts and Circumstances:
The AO apportioned the development cost across the entire land, including non-marketable portions, leading to an increased average cost and additional profit.

Tribunal's Analysis:
The CIT(A) found that only 229,511 sq. mtrs. of the total 320,803 sq. mtrs. were developed and that 88,292 sq. mtrs. were non-marketable due to government land patches. The development cost should only be apportioned to the marketable area. The Tribunal agreed with the CIT(A) that the AO's method of apportioning cost to the non-marketable land was illogical and unsupported by evidence.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision, deleting the addition of Rs. 6,41,11,013 and ruling that the development cost should only be apportioned to the marketable land.

Final Orders:
- The appeal of the assessee (ITA No.1036/Chd/2012) is partly allowed.
- The appeal of the Revenue (ITA No.1308/Chd/2012) is dismissed.

Order pronounced in the Open Court on 10.7.2015.