2016 (3) TMI 319 - AT - Income Tax

Provision for gratuity & bonus - Held that - As explained by learned Authorized Representative both provision for gratuity and bonus are statutory obligation which has been incurred by the assessee and since the assessee is following mercantile system of accounting the same has to be charged to the profit and loss account of the assessee during the relevant previous year in which such obligation has resulted. The learned Commissioner of Income Tax (Appeals) after placing reliance on the decisions cited by the learned Authorized Representative in the case of M/s. Echjay Forgings Pvt. Ltd. (2001 (2) TMI 56 - BOMBAY High Court) and in the case of Apollo Tyres Ltd. Vs. CIT (2002 (5) TMI 5 - SUPREME Court ) has allowed the appeal of the assessee. Therefore, we do not find it necessary to interfere with the order of the learned Commissioner of Income Tax (Appeals) on this issue. - Decided against revenue Insurance claim received - Held that - The assessee had received ₹ 1,40,29,209/- from the insurance company towards loss of its assets. The written down value of these assets which works out to ₹ 27,44,739/- has to be necessarily reduced from the amount of ₹ 1,40,29,209/- to compute the net income received from such claim which only is to be credited to the profit & loss account of the assessee. Accordingly, the assessee has rightly reduced such amount and the balance amount of ₹ 1,12,84,470/- is credited to its profit and loss account which is in order. Therefore, we do not find it necessary to interfere with the orders of learned Commissioner of Income Tax (Appeals) on this issue.- Decided against revenue

Summary

Issues:
1. Condonation of delay in filing cross objections
2. Provision for gratuity and bonus
3. Treatment of insurance claim received

Condonation of Delay in Filing Cross Objections:
The cross objections filed by the assessee were initially barred by a significant limitation of 910 days. However, the Tribunal, after perusing the reasons provided in the affidavit explaining the delay, found a reasonable cause for the delay and thus condoned it in the interest of justice. The Tribunal allowed the cross objections, noting that they were filed in support of the order passed by the Commissioner of Income Tax (Appeals).

Provision for Gratuity and Bonus:
The Revenue challenged the order of the Commissioner of Income Tax (Appeals) on various grounds, with two main contentions being highlighted. Firstly, the issue of provision for gratuity and bonus was raised. The Assessing Officer had added the amounts provided for gratuity and bonus to the book profit for tax computation under section 115JB of the Act. However, the Commissioner of Income Tax (Appeals) disagreed, allowing the deductions based on the statutory nature of these liabilities and the accrual basis of accounting followed by the assessee. The Tribunal upheld the decision, citing relevant case laws and finding no merit in the Revenue's appeal.

Treatment of Insurance Claim Received:
The second issue revolved around the treatment of an insurance claim received by the assessee due to a major accident in the factory. The Commissioner of Income Tax (Appeals) had allowed the appeal of the assessee, stating that the apportionment of the insurance claim based on actual losses suffered was justified. The Tribunal concurred, emphasizing that the amounts credited to the profit and loss account were in accordance with the losses incurred and the written down value of the assets affected. The Tribunal upheld the decision, finding no fault in the Commissioner's order.

In conclusion, both appeals by the Revenue were dismissed, and the cross objections filed by the assessee were allowed, supporting the order of the Commissioner of Income Tax (Appeals) on both issues. The Tribunal pronounced the order on 29th January 2016, maintaining the decisions made regarding the provision for gratuity, bonus, and the treatment of the insurance claim received.