2013 (6) TMI 874 - AT - Income Tax

Summary

Issues Involved:
The judgment involves issues related to the treatment of provisions for leave encashment, staff incentive, and gratuity in the computation of book profits u/s 115 JB of the Income Tax Act.

Issue 1: Provision for Leave Encashment
The first common issue was whether the provision for leave encashment should be added back to the book profits u/s 115 JB of the Act. The Assessing Officer treated it as an unascertained liability, while the CIT(A) held it to be an ascertained liability based on actuarial valuation. The Tribunal referred to relevant principles from previous court decisions and upheld the CIT(A)'s decision, stating that such provisions constitute a liability and if determined on actuarial valuation, cannot be considered unascertained.

Issue 2: Provision for Staff Incentive
The second common issue was whether the provision for staff incentive was an unascertained liability. The Assessing Officer added this provision to book profits, considering it unascertained, while the CIT(A) treated it as an ascertained liability. The Tribunal found that no evidence was presented regarding the policy followed by the company for staff incentives. In the interest of justice, the Tribunal remanded the matter back to the Assessing Officer for re-examination after obtaining the scheme of staff incentives from the assessee.

Additional Issue: Provision for Gratuity
In the assessment year 2006-07, the issue was whether the provision for gratuity should be considered an ascertain liability. The Assessing Officer added this provision to book profits, but the CIT(A) held that since it was based on actuarial valuation, it should not be treated as an ascertain liability. The Tribunal agreed with the CIT(A) citing previous decisions and held that once a liability is determined on actuarial valuation, it cannot be considered unascertained.

In conclusion, the Tribunal partly allowed the appeals of the revenue for statistical purposes based on the decisions regarding the treatment of provisions for leave encashment, staff incentive, and gratuity in the computation of book profits u/s 115 JB of the Income Tax Act.