2011 (1) TMI 1530 - AT - Income Tax

Disallowance of amount paid to Approved Superannuation Fund - violation of Rule 87 of Income tax Rules - Whether expenditure of the nature described in section 30 to 36 of the income tax Act?- HELD THAT - A contribution to approved superannuation fund is deductible in principle as long as the quantum of the said contribution does not exceed the prescribed limits. The limits are however prescribed only for the initial contribution and ordinary annual contribution to the fund. As a corollary to these limits having been prescribed amounts paid in excess of such limits towards initial contribution and for ordinary annual contribution are not allowed as deduction. That is the only limitation for quantum of deduction under section 36(1)(iv). However it is not in dispute that the amounts paid in excess of the 27% of salaries of the employees are neither towards the ordinary annual contribution nor towards the initial contribution. This payment has been necessitated due to shortfall discovered in the course of actuarial valuation of the fund and is in the nature of a one time exceptional payment to ensure that the superannuation fund is able to discharge its obligation. Its neither an annual contribution nor an ordinary contribution - the very foundation of the impugned disallowance did not have legally sustainable basis; the amount was deductible in principle under section 36(1)(iv) and the restriction on deductibility as set out in the said section as also in Rule 87 did not apply in this case. The conclusions arrived at by the CIT(A) though for the reasons other than the reasons adopted by the CIT(A) are correct and do not call for any interference - these grounds are dismissed. Disallowance of claim of bad debt CIT-A deleted the addition - HELD THAT - Learned representatives fairly agree that the issue is now covered in favour of the assessee by Hon ble Supreme Court s judgment in the case of TRF. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT . In this view of the matter the conclusions arrived at by the CIT(A) on this issue as well do not call for any interference - This ground also dismissed. Appeal dismissed.

Summary

Issues involved:
1. Disallowance of excess payment to superannuation fund under section 36(1)(vii) of the Income tax Act.
2. Allowability of excess contribution under section 37(1) of the Income tax Act.
3. Disallowance of bad debt claim.

Analysis:

Issue 1: Disallowance of excess payment to superannuation fund under section 36(1)(vii) of the Income tax Act:
The Assessing Officer raised concerns regarding the deduction claimed by the assessee for payment to the superannuation scheme, exceeding the limit prescribed under section 36(1)(vii) of the Income tax Act. The AO disallowed the excess amount paid by the assessee. However, the CIT (A) allowed the appeal of the assessee, citing precedents where excess gratuity contributions were allowed under section 37. The ITAT upheld the CIT (A)'s decision, emphasizing that the excess payment was a one-time exceptional payment to address a fund deficit discovered during an actuarial valuation. This payment was not an annual or ordinary contribution, and therefore, the restriction under Rule 87 for ordinary annual contribution did not apply. The ITAT concluded that the disallowance did not have a legally sustainable basis, and the amount was deductible under section 36(1)(iv).

Issue 2: Allowability of excess contribution under section 37(1) of the Income tax Act:
The Assessing Officer contended that the excess contribution disallowed under section 36(1)(vii) was not allowable under section 37(1) as it specifically excludes expenditures described in sections 30 to 36. However, the CIT (A) allowed the excess contribution under section 37 based on judicial precedents. The ITAT dismissed the AO's appeal, supporting the CIT (A)'s decision, emphasizing that the excess contribution was eligible for deduction under section 37.

Issue 3: Disallowance of bad debt claim:
The Assessing Officer disallowed the claim of bad debt amounting to Rs. 3.20 crores. The AO relied on specific court decisions to support the disallowance. However, both the representatives agreed that the issue was covered in favor of the assessee by a Supreme Court judgment. Consequently, the ITAT upheld the CIT (A)'s decision to delete the bad debt claim, dismissing the AO's appeal on this issue as well.

In conclusion, the ITAT dismissed the revenue's appeal and the cross objection filed by the assessee, upholding the CIT (A)'s orders on the issues of disallowance of excess payment to superannuation fund and bad debt claim, based on legal interpretations and precedents cited during the proceedings.