2017 (5) TMI 1611 - AT - Income Tax

Revision u/s 263 - addition on account of arrear payment due and payable consequent on wage revision - Held that - AO while completing the assessment has made due enquiries on this aspect and the assessee has also given a reply. As pointed out by the assessee a bipartite settlement between the commercial banks would equally apply to the Regional Rural Banks also. In the circumstances it cannot be said that action of the AO in allowing the claim of the assessee for deduction was erroneous. It was a possible view which the AO has taken and just because CIT does not agree with the view expressed by the AO jurisdiction u/s 263 cannot be invoked. The decision of Malabar Industries Ltd. 2000 (2) TMI 10 - SUPREME COURT clearly supports the plea of the assessee in this regard. Besides the above, we are also of the view that the AO had made proper enquiries before concluding the assessment.- decided in favour of assessee Allowing deduction of provision for leave encashment - Held that - As per proviso to Section 43B(f) of the Act any sum actually paid on account of leave encashment on or before due date before filing the return of income should be allowed as deduction. As far as direction of CIT to the AO to re-examine and reverify the contingencies liability of ₹ 2,55,66,000/- included in the provision under contingencies debited in profit and loss account, the ld. Counsel did not press the relevant ground of appeal and was agreeable for the AO making an enquiry on this aspect in the set aside proceedings. Hence this issue is decided against the assessee - Appeal decided partly in favour of assessee

Summary

Issues:
1. Assessment of deduction for provision and contingencies on account of arrear payment due to employees.
2. Assessment of deduction for leave encashment liability.
3. Treatment of contingent liability in the profit and loss account.

Analysis:

Issue 1: Assessment of Deduction for Provision and Contingencies
The Assessee, a cooperative bank, claimed a deduction of Rs. 25,57,00,000 debited in the profit and loss account for arrear payment due to employees following a wage revision. The AO did not make any addition during the assessment u/s 143(3) of the Act. However, the CIT found the AO's order erroneous, arguing that the liability was unascertained and should have been added to the total income. The CIT directed the AO to re-examine and pass a fresh assessment order. The Assessee contended that the liability was ascertained post-wage revision, citing a bipartite agreement and Supreme Court rulings on parity with commercial banks. The Tribunal held that the AO made proper inquiries, and the deduction claim was valid, supporting the Assessee's position.

Issue 2: Assessment of Deduction for Leave Encashment Liability
The Assessee claimed a sum of Rs. 1,30,00,000 for meeting leave encashment liability, of which a portion was paid before the due date of filing the return. The CIT directed the AO to re-examine this liability under section 43B(f) of the Act. The Assessee agreed to allow the deduction for the paid amount before the due date. The Tribunal upheld the deduction for the paid amount and directed the AO to re-verify the remaining liability in the fresh assessment.

Issue 3: Treatment of Contingent Liability
The CIT highlighted a contingent liability of Rs. 2,55,66,000 included in the profit and loss account, which was not debited. The Assessee argued that as it was never charged to the profit and loss account, no disallowance was required. The Tribunal did not press this ground of appeal, allowing the AO to examine and verify the contingent liability in the fresh assessment. The appeal by the Assessee was partly allowed based on the Tribunal's findings on the deduction claims and the treatment of contingent liability.

In conclusion, the Tribunal upheld the Assessee's position on the deduction claims related to arrear payment and leave encashment liability, while directing a re-verification of the contingent liability in the fresh assessment. The CIT's order under section 263 of the Act was partially set aside, and the appeal by the Assessee was partly allowed.