2018 (11) TMI 1414 - AT - Income Tax

Disallowance of provision for wages - allowable deduction u/s 36 - as per AO only actual amount paid towards agreement arrear is an allowable deduction and no any provision to meet such future liability, accordingly, the Assessing Officer disallowed the claim - Held that - The assessee has duly explained that the last wage revision was done for the period 01/01/2009 to 31/12/2013 and thereafter the wages revision was due from 01/01/2014 till 31/3/2015, thus the assessee had made provisions of revised wages for the period from 01/01/2014 to 31/3/2014 i.e. 3 months of the financial year relevant to assessment year under consideration. The provision has been made by the assessee for three months of revised wages which finally to be approved by the government w.e.f. 01/01/2014. Once the revision of wages has to be w.e.f. 01/01/2014 and there cannot be any gap between expiry of the last revision and the new revised wages then the said liability to pay the revised wages is an actual and ascertain liability for the period 01/01/2014 to 31/3/2014 though, the quantification and crystallization of the amount comes later on when the revision is approved by the State Government. As decided in assessee s own case 2014 (8) TMI 1127 - ITAT JAIPUR the liabilities have been created by statutory rule which assessee is bound to follow. This provision has been created for amicability with the employees and is for the commercial benefit of the assessee bank and is to be held as wholly and exclusively for the purpose of business. In this eventuality, the payment is even otherwise allowable U/s 37 of the Act. Any perceived method of calculation by the Assessing Officer cannot be held as a tool to disallow the assessee s claim. The revenue s interest is safeguarded by a fact that if at all there is any mistake in the calculation, the access are short calculation will be given suitable treatment in books of account in subsequent years. This being so in our considered view, the assessee is eligible for claim of PACS Manager Fund payment as expenditure. - decided in favour of assessee Disallowance u/s 14A - Held that - CIT(A) has noted the fact that the assessee has not received any exempt income during the year under consideration. Further, the assessee has made investments in the shares of Apex bank and has not used any borrowed fund for the purpose of investment. This fact has not been disputed by the revenue before us that the investment was made from the assessee s own interest free funds and further when no exempt income was earned or received by the assessee during the year under consideration then in view of the various decisions as referred and relied upon by the ld. CIT(A) including the decision of Hon ble Delhi High Court in the case of Chemnivest Ltd. Vs. CIT-IV 2015 (9) TMI 238 - DELHI HIGH COURT no disallowance is called for U/s 14A - decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of provision for wages.
2. Deletion of addition made under Section 14A read with Rule 8D.
3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Provision for Wages:
The assessee, a cooperative bank, filed its return of income declaring a total income of ?3,32,25,920/-. During scrutiny, the Assessing Officer (AO) disallowed a provision of ?15,00,000/- made for agreement arrears, considering it an investment and not an actual payment. The AO's view was that only actual payments are allowable deductions. The CIT(A) upheld this disallowance.

Before the Tribunal, the assessee argued that the provision for revised wages was made in accordance with the Ranawat Award and was a certain liability, though crystallized later upon government approval. The Tribunal noted that the provision for revised wages from 01/01/2014 to 31/03/2014 was an actual and ascertainable liability, despite the quantification occurring later. The Tribunal referred to its previous decisions in the assessee's own case for A.Y. 2008-09 and 2009-10, where similar provisions were allowed. Consequently, the Tribunal allowed the assessee's claim and deleted the addition made by the AO.

2. Deletion of Addition Made Under Section 14A Read with Rule 8D:
The revenue appealed against the CIT(A)'s deletion of an addition of ?5,37,000/- made by the AO under Section 14A read with Rule 8D. The CIT(A) found no exempt income was earned by the assessee during the relevant year and that investments were made from interest-free funds. The Tribunal upheld the CIT(A)'s decision, noting that disallowance under Section 14A is not applicable if no exempt income is received, citing several judicial precedents including the Delhi High Court's decision in Chemnivest Ltd. Vs. CIT-IV 378 ITR 33. The Tribunal dismissed the revenue's appeal on this ground.

3. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee's ground regarding the initiation of penalty proceedings under Section 271(1)(c) was not pressed during the hearing and was dismissed as not pressed.

Conclusion:
The Tribunal partly allowed the assessee's appeal by deleting the disallowance of the provision for wages and dismissed the revenue's appeal regarding the addition under Section 14A. The penalty proceedings issue was dismissed as not pressed. The judgment emphasizes the principles of actual liability and the non-applicability of Section 14A in the absence of exempt income.