2015 (6) TMI 750 - AT - Income Tax

Provisions for leave encashment and gratuity - whether not includable to the book profits u/s 115JB? - Held that - We following the order of Tribunal in Assessment Year 2000-01 and 2001-02, partly allow the appeal of Revenue by holding that the provisions for leave encashment is ascertained liability. As regards provisions for gratuity, the argument of Ld. A.R. that in subsequent years Ld. CIT(A) has allowed the relief and Revenue has not filed appeals, therefore, order of Ld. CIT(A) should be upheld, do not hold much force as we do not know as to whether there were defects in actuarial report in those years or not. Therefore, following Assessment Year 2001-02, we remit back the issue of gratuity to the office of A.O. for readjudication who will readjudicate on the basis of fresh actuarial report if any to be filed by assessee. - Decided partly in favour of revenue for statistical purposes.

Summary

Issues:
- Inclusion of provisions for gratuity and leave encashment in book profits u/s 115JB of the I.T. Act, 1961.

Analysis:
1. Issue of Inclusion of Provisions for Gratuity and Leave Encashment:
- The case involved an appeal by Revenue against the order of Ld. CIT(A) regarding the inclusion of provisions for gratuity and leave encashment in book profits u/s 115JB. The AO had not added back these provisions for calculating minimum book profits, considering them unascertainable liabilities. However, Ld. CIT(A) allowed relief to the assessee, stating that these provisions were based on actuarial valuation and, therefore, were ascertained liabilities. The Tribunal in an earlier case had held that provisions for leave encashment were ascertained liabilities but upheld the inclusion of gratuity provisions for book profit calculation. The Tribunal remanded the issue of gratuity back to the A.O. for readjudication in another year. The Revenue argued that the provisions were unascertained, while the assessee contended that they were based on actuarial valuation and should not be included. The Tribunal partly allowed the appeal, holding that provisions for leave encashment were ascertained liabilities, but remitted the issue of gratuity back to the A.O. for fresh adjudication based on any new actuarial report submitted by the assessee.

2. Judicial Precedents and Arguments:
- The Ld. A.R. relied on various case laws to support the contention that provisions based on actuarial valuation should not be considered unascertained liabilities. The Tribunal referred to previous cases where similar issues were dealt with, and decisions were made based on the nature of the provisions and actuarial reports. The Revenue highlighted past instances where the issue of gratuity was not accepted or remanded back for further review. The Tribunal considered the arguments of both parties and the findings in previous cases to arrive at the decision regarding the inclusion of provisions for gratuity and leave encashment in book profits.

3. Final Decision and Outcome:
- The Tribunal partly allowed the appeal of the Revenue for statistical purposes, holding that provisions for leave encashment were ascertained liabilities but remitting the issue of gratuity back to the A.O. for fresh adjudication. The decision was based on the nature of the provisions, reliance on actuarial valuation, and findings in previous cases. The Tribunal emphasized the need for clarity on the actuarial reports and the ascertainability of liabilities for accurate calculation of book profits u/s 115JB.

This detailed analysis outlines the key issues, arguments presented by both parties, relevant judicial precedents, and the final decision of the Tribunal regarding the inclusion of provisions for gratuity and leave encashment in book profits under the Income Tax Act, 1961.