2015 (10) TMI 245 - AT - Income Tax

Addition made on account of performance related pay provisions to directors and staff - ascertained liability - CIT(A) deleted the addition - Held that - We find from the order of the CIT(A) that the documents which were placed before the AO were not disputed by the AO, from which it is clear that the Director was entitled to performance related pay and as the actual amount had not been approved by the Board, the assessee had made provision for a crystallised liability and debited it in the P&L Account. As soon as the approval was received from the Board of Directors in the meeting held on 15th June 2009, the actual payments were made after deducting tax at source. From the above, it proves that the payment had to be made to the director, the liability had duly crystallised however, on non-availability of the approval it could not be quantified exactly. It is also seen that the payment made was exactly as per the provision made by the assessee. Under the circumstances, it stands that there is no reason for disallowing the expenses claimed regarding payment of PRP to the Director since records of the assessee show that they are bonafide expenses which was crystallised. Accordingly, we see no reason to interfere in the findings of the CIT(A). Apart from this, the issue of disallowance of provisions has already been decided by the Tribunal in assessee s own case vide its order dated 13-11-2006 and also for the assessment year 2009-2010 wherein the Tribunal deleted the addition so made on the provisions for expenses. - Decided in favour of assessee.

Summary

Issues Involved:
Appeal filed by Revenue against deletion of addition made on account of performance related pay provisions to directors and staff.

Detailed Analysis:
1. The Revenue contested the deletion of the addition concerning performance-related pay provisions by the CIT(A). The Revenue argued that there was no ascertained liability due to lack of approval by the Board of Directors or reliable estimation by 31-3-2009.
2. The Assessee, on the other hand, supported the CIT(A)'s decision, emphasizing that although provisions were estimated, they represented crystallized liabilities and were allowable deductions. The Assessee cited a previous Tribunal order where a similar disallowance was overturned.
3. The Tribunal reviewed the arguments of both parties and examined the evidence. It noted that the Director was entitled to the performance-related pay, and the provision was made based on a crystallized liability, debited in the P&L Account. Once approval was received, payments were made as per the provision.
4. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the expenses claimed were genuine and crystallized. It also referenced a previous Tribunal order that upheld the Assessee's position on similar provisions.
5. Considering consistency with previous Tribunal decisions, the Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s findings and allowing the deductions for performance-related pay provisions.
6. The Tribunal's decision was based on the crystallized nature of the liabilities and the genuine expenses claimed by the Assessee, in line with previous rulings supporting such provisions.

This comprehensive analysis outlines the arguments presented by both parties, the Tribunal's evaluation of the evidence, and the basis for confirming the CIT(A)'s decision in favor of the Assessee regarding the performance-related pay provisions.