2021 (9) TMI 439 - AT - Income Tax

Alllowability of claim of arrears of salary - Ascertained or crystallized liability of the current year or not - coperative bank Allowability of remaining provision of payments towards surrender leave, bonus and ex-gratia etctowards arrears of salary - pay commission recommendation against the assessee co-operative bank - what is the relevant point of time the liability of the assessee towards arrears of salary has actually crystallized and not the year to which such arrears of salary pertains? - HELD THAT - In agreement as been executed between the assessee co-operative bank and its employees and staff members on 16.04.2012 towards implementation of the 14th pay commission recommendations and finally, major payments towards arrears of salary have happened during November 2012 - liability of the assessee cooperative bank to implement 14th pay commission recommendation arose on adoption of resolution at its meeting of the Board of Directors read along with execution of agreement with its employees and staff members. Prior to these two significant events which happened during the financial year 2012-13, it cannot be said that the assessee cooperative bank has decided to implement and enforce 14th pay commission recommendation in respect of its employees and on same analogy, prior to these two significant events, even the employees were not having any legally enforceable claim to implement 14th pay commission recommendation against the assessee co-operative bank. Crystallization of liability to pay arrears of salary and other payments towards surrender leave, bonus and ex-gratia etc. as per 14th pay commission recommendation arose during the financial year 2012-13 relevant to subsequent assessment year 2013-14 and not during the current financial year 2011-12 relevant to impugned assessment year 2012-13. The assessee co-operative bank therefore shall be eligible to claim the same in the subsequent assessment year 2013-14 and not in the impugned assessment year. AO is well within his jurisdiction to examine all such claims and the assessee is required to justify such claims and demonstrate with reasonable verifiable evidence that such liability has crystallized during the year under consideration. Grounds so taken by the assessee co- operative bank for allowability of claim of arrears of salary is hereby dismissed.

Summary

Issues Involved:
1. Sustaining the order passed by the Assessing Officer (AO).
2. Sustaining the addition of ?1,03,36,161/- out of arrears of salary.
3. Allowability of provision made for NPA accounts amounting to ?6,50,824/-.
4. Charging of interest under sections 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Sustaining the Order Passed by the AO:
The assessee argued that the order passed by the AO was erroneous both in law and on facts, and the additions made were unjustified. The Tribunal examined the grounds of appeal and found that the main contention revolved around the addition of ?1,03,36,161/- related to arrears of salary and other provisions.

2. Sustaining the Addition of ?1,03,36,161/- out of Arrears of Salary:
The assessee contended that the provision for arrears of salary, surrender leave, and bonus was made following the directives of the Registrar Co-operative Societies, Jaipur, and the 14th pay agreement execution. The AO denied the claim on the grounds that the agreement was signed on 16.04.2012, and actual payments were not made during the assessment year 2012-13.

The Tribunal noted that the liability for such payments crystallized during the financial year 2011-12. The CIT(A) allowed a deduction of ?67,13,839/- but sustained the addition of ?1,03,36,161/-. The Tribunal emphasized the principle of crystallization of liability, which is inherent in the mercantile system of accounting. It was held that the liability crystallized during the financial year 2012-13 relevant to the subsequent assessment year 2013-14, not during the financial year 2011-12 relevant to the assessment year 2012-13. Therefore, the assessee's claim for the remaining provision towards arrears of salary amounting to ?1,03,36,161/- was dismissed.

3. Allowability of Provision Made for NPA Accounts Amounting to ?6,50,824/-:
The assessee did not press Ground No. 3 of its appeal, and hence, it was dismissed as not pressed.

4. Charging of Interest under Sections 234B, 234C, and 234D:
The assessee contended that the interest charged under sections 234B, 234C, and 234D was bad in law and on facts. However, no specific argument was presented before the Tribunal. The Tribunal noted that charging of interest is consequential in nature and does not require separate adjudication.

Conclusion:
The Tribunal dismissed the appeal of the assessee, sustaining the addition of ?1,03,36,161/- and upholding the order of the CIT(A). The interest charged under sections 234B, 234C, and 234D was deemed consequential and did not require separate adjudication. The order was pronounced in the open Court on 31/08/2021.