2018 (8) TMI 1897 - AT - Income Tax

Disallowance of Insurance Premium paid to LIC regarding Leave Encashment Liability and enhancement - payment was not made to the employees but it was paid to the Insurance Company - HELD THAT - Tribunal after considering the factual matrix of the issue remitted the same to the record of the AO for afresh adjudication after considering the relevant details to be filed by the assessee. However, the Tribunal has accepted the position of allowability of the claim if the same is regarding the premium paid for a policy taken from the LIC for Employees Group Leave Encashment Scheme. Accordingly, as far as the allowability of the claim for payment of premium of policy taken by the assessee for Employees Group Leave Encashment Scheme, the same is allowable expenditure. However, since the ld. CIT (A) has pointed out that the assessee itself has shown the payment as investment in the LIC and other companies and the interest accrued on such fund was credited to the Profit Loss account, therefore, the AO has to just verify the fact whether any income accruing on the policy taken by the assessee was actually received by the assessee or it is just an accounting treatment by the assessee without actual income. If the benefit accrued on the policy is only accumulated to the fund itself which is to be used for discharge of liability on account of Leave Encashment, then such income though assessee has credited in the Profit Loss account would not partake the character of real income but it would be only accumulation of the value of the policy to be used for discharge of the liability on account of leave encashment. In view of the above facts and circumstances of the case, we direct the AO to verify these facts and then allow the claim of the assessee - Appeals of the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of Insurance Premium paid to LIC regarding Leave Encashment Liability.
2. Enhancement of assessment by treating internal accretions by LIC as income.

Detailed Analysis:

Disallowance of Insurance Premium paid to LIC regarding Leave Encashment Liability:
The primary issue in both appeals is the disallowance of the Insurance premium paid to LIC for Leave Encashment Liability. The Assessing Officer (AO) disallowed the claim on the basis that the payment was made to the Insurance Company and not directly to the employees. The CIT (A) upheld this disallowance, referencing an earlier decision in the assessee's own case for the assessment year 2014-15.

The assessee argued that the Tribunal had previously accepted the principle that premium paid to LIC for leave encashment liability is an allowable claim, citing the Tribunal's earlier decision in Jhalawar Kendriya Sahakari Bank Ltd. vs. ACIT. The assessee contended that remanding the issue back would cause hardship due to the loss of interest on the funds held by the department.

The Tribunal noted that in the earlier case for the assessment year 2014-15, the issue had been remitted to the AO for fresh adjudication due to multiple policies and a substantial premium amount. However, for the assessment years 2009-10 and 2010-11, the premium amounts were smaller and paid solely to LIC. The Tribunal reiterated that the claim is allowable if it pertains to a policy taken from LIC for Employees Group Leave Encashment Scheme. The Tribunal directed the AO to verify whether the income accruing on the policy was actually received by the assessee or merely an accounting treatment, and to allow the claim accordingly.

Enhancement of assessment by treating internal accretions by LIC as income:
The second issue pertains to the enhancement of the assessment by an income of ?31,88,791, treating internal accretions by LIC as income. The assessee argued that these accretions, ascertained by Annual Actuarial Valuation, had neither been received nor accrued to the appellant.

The Tribunal referenced the CIT (A)'s observation that the assessee had shown the payment as an investment in LIC and other companies, with the interest accrued credited to the Profit & Loss account. The Tribunal directed the AO to verify whether the income from the policy was actually received or if it was merely an accounting entry. If the benefit accrued on the policy was only accumulating within the fund for future liability discharge, it would not constitute real income. The AO was instructed to verify these facts and allow the claim accordingly.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to verify the facts concerning the premium payments and the treatment of internal accretions, and to allow the claims based on the verification. The Tribunal upheld the principle that premium payments for a policy taken from LIC for Employees Group Leave Encashment Scheme are allowable expenditures, provided the income from such policies is not actually received by the assessee but is accumulated for future liability discharge.