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2015 (8) TMI 171 - AT - Income TaxDisallowance on account of premium of group gratuity holding the same not to be allowable u/s 36(1)(v) - CIT(A) confirmed disallowance - Held that - As find in the earlier round, the matter was referred to the Assessing Officer for verification of the fate of application of the assessee for registration of gratuity scheme. The Assessing Officer enquired from the office of the Commissioner who clearly informed that no such application was pending in that office. In such circumstances in our opinion, the assessee should have taken caution to pursue the matter in the office of the Commissioner or should have produced some evidence before us to show that the application was really pending. In the absence of such evidence only conclusion which can be reached is that the gratuity fund of the assessee is not approved. It was common ground that the funds to which the assessee had contributed were not approved either during the year under consideration or at any time up to the date of making the contributions. Therefore, the contributions made did not qualify for deduction under section 36. Further the deduction which the assessee claimed was admittedly of the nature described in section 36(1)(iv) and (v). Therefore section 37 would not come to the aid of the assessee. From above it becomes clear 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 Hon ble High Court in case of Sony India P. Ltd V CIT 2006 (6) TMI 76 - DELHI High Court has very clearly held that 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). - Decided against assessee. Addition of provisions for bad and doubtful debts written off in the computation of book profit u/s 115JB - Held that - Section 115JB of the Act, provides that any amount credited to the profit and loss account on account of amounts withdrawn from the reserve or provision had to be reduced from the book profit with an exception that if such reserve or provision is out of reserve created prior to or before 1.4.1997 and, such reserve has been created not by way of debit to the profit and loss account, then the same will not be permitted to be reduced from the net profit as per profit and loss account. We have verified the figures from profit and loss account as well as the computation of income and it becomes clear that in all those years the return was filed on the basis of profit and loss account before reducing the provisions of doubtful debts. Therefore these are clearly the provisions made in the earlier years and in the present year the assessee has withdrawn certain sum out of this provision and therefore the same are deductible in terms of proviso to clause (i) to Sec 115 JB. - Decided in favour of assessee. Disallowance on account of premium paid for leave encashment - Held that - 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 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. Later on effect of this judgment was nullified by insertion of clause (f) to Sec 43B providing that the amount would be allowable only if the same has been paid. Since the amount has been paid, therefore same is, in our opinion, allowable. Accordingly we set aside the order of the CIT(A) and direct the Assessing Officer to allow this amount. - Decided in favour of assessee. Addition on account of the interest under the ASIDE scheme - Held that - Interest income does not accrued to the assessee and the assessee is not liable to be taxed on such interest. Therefore we set aside the order of the CIT(A) and delete this addition. See CIT And Another Versus Karnataka Urban Infrastructure Development And Finance Corporation 2006 (2) TMI 114 - KARNATAKA High Court - Decided in favour of assessee.
Issues Involved:
1. Addition on account of premium for group gratuity under Section 36(1)(v) of the Income Tax Act. 2. Addition on account of provisions for bad and doubtful debts under Section 115JB of the Income Tax Act. 3. Addition on account of premium paid for leave encashment. 4. Addition on account of interest under the ASIDE scheme. Issue-wise Detailed Analysis: 1. Addition on Account of Premium for Group Gratuity: The assessee claimed a deduction for the premium paid to LIC for a group gratuity scheme. The Assessing Officer (AO) disallowed this claim due to the lack of approval for the gratuity fund from the Commissioner. The Tribunal had earlier remanded the matter for verification of the application status. The AO confirmed that no application was pending, leading to the disallowance of Rs. 16,50,766/-. The CIT(A) upheld this decision, noting the absence of any pending application and the lack of a deeming provision for approval. The Tribunal, referencing the Delhi High Court's decision in Sony India P. Ltd V CIT, agreed that deductions under Section 36(1)(v) are only permissible for approved funds, and Section 37 cannot be invoked as an alternative. Consequently, the disallowance was upheld. 2. Addition on Account of Provisions for Bad and Doubtful Debts: The AO observed that the assessee deducted Rs. 3.53 crores from the book profit under Section 115JB, arguing that the provisions for bad debts created in earlier years were not debited to the profit and loss account then. The AO allowed only Rs. 1.33 crores, disallowing Rs. 2.20 crores. The CIT(A) confirmed this disallowance. The Tribunal, however, found that the provisions were indeed made in earlier years and not debited to the profit and loss account, thus qualifying for deduction under the proviso to clause (i) of Section 115JB. The Tribunal referenced the Himachal Pradesh High Court's decision, which supported the deduction of amounts withdrawn from reserves created after April 1, 1997. The Tribunal directed the AO to allow the deduction, thereby ruling in favor of the assessee. 3. Addition on Account of Premium Paid for Leave Encashment: The AO disallowed the premium paid for leave encashment, arguing that it was not an ascertained liability. The CIT(A) upheld this disallowance. The Tribunal, however, noted that the payment was made under a specific scheme with LIC, calculated based on actual liability, and thus allowable under Section 37 and clause (f) of Section 43B if paid. The Tribunal referenced the Supreme Court's decision in Bharat Earth Movers V. CIT, which allowed provisions for leave encashment based on a specific scheme. Consequently, the Tribunal directed the AO to allow the deduction. 4. Addition on Account of Interest Under the ASIDE Scheme: The AO included Rs. 46,19,180/- as interest accrued under the ASIDE scheme in the assessee's income, referencing the Andhra Pradesh High Court's decision. The CIT(A) upheld this inclusion. The Tribunal, however, noted that the interest accrued on funds under the ASIDE scheme was to be utilized for the scheme itself, as per Government of India guidelines. The Tribunal referenced the Karnataka High Court's decision in CIT V. Karnataka Urban Infrastructure Development and Finance Corp, which held that interest accrued on government funds for specific projects is not taxable. The Tribunal ruled that the interest did not accrue to the assessee and directed the deletion of this addition. Judgments Summary: - ITA No. 1226/Chd/2010: Partly allowed. The Tribunal upheld the disallowance of the gratuity premium but allowed the deduction for provisions for bad debts. - ITA No. 1227/Chd/2010: Partly allowed. The Tribunal upheld the disallowance of the gratuity premium but allowed deductions for leave encashment and interest under the ASIDE scheme. - ITA No. 1224/Chd/2011: Partly allowed. The Tribunal followed its earlier decisions on similar issues. - ITA No. 1118/Chd/2013: Allowed. The Tribunal ruled in favor of the assessee on the issue of interest under the ASIDE scheme. Conclusion: The Tribunal provided a detailed analysis of each issue, referencing relevant case laws and statutory provisions, ultimately ruling in favor of the assessee on most grounds except for the disallowance of the gratuity premium deduction.
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