2018 (12) TMI 1454 - AT - Income Tax

Disallowance of leave encashment expenses paid to Life Insurance Corporation of India (LIC) - Held that - Tribunal while deciding the issue has followed the decision in the case of CIT Vs. Textool Co. Ltd. 2009 (9) TMI 66 - SUPREME COURT and the payment made to LIC was held to be allowable deduction. In absence of any contrary precedent we follow the decision of the Coordinate Bench and accordingly the claim of expenditure on account of payment to LIC for leave encashment scheme policy is allowed. Disallowance of claim of provision for gratuity - Held that - Payment was made to the LIC against the group gratuity fund policy taken from the LIC then there is no requirement of a separate approval of the fund for allowing the claim U/s 36(1)(v) of the Act. Accordingly, following the earlier decision of this Tribunal, we allow the claim of the assessee and the disallowance made by the authorities below on this account is deleted. - Decided in favour of assessee

Summary

Issues:
Delay in filing appeal - Condonation of delay
Disallowance of leave encashment expenses
Disallowance of provision for gratuity

Analysis:

1. Delay in filing appeal - Condonation of delay:
The appeal by the assessee was directed against the order of the CIT(A) for the A.Y. 2013-14 with a delay of 26 days. The assessee sought condonation of delay citing closing of the financial year and other events as reasons. The Tribunal noted that the appeal could have been filed within the limitation period, and the bank's casual approach in explaining the delay. Despite this, considering the issues raised in the appeal favoring the assessee, the delay was condoned subject to a cost of ?5,000.

2. Disallowance of leave encashment expenses:
The assessee's appeal challenged the disallowance of ?31,53,596 under Income From Business & Profession related to provision of leave encashment expenses paid to LIC. The Assessing Officer disallowed the claim as a provision, not a crystallized liability. The CIT(A) upheld this disallowance. However, the assessee argued that the payment made to LIC was based on actual liability accrued to employees, making it allowable. Citing precedents, the Tribunal held that the payment to LIC for leave encashment was akin to EPF/ESI payments and allowed the claim as a deduction.

3. Disallowance of provision for gratuity:
The appeal also contested the disallowance of the provision for gratuity. The authorities denied the claim as the gratuity fund was not an approved scheme under Section 36(1)(v) of the Act. However, referring to previous decisions, the Tribunal ruled in favor of the assessee, stating that once payment was made to LIC for the group gratuity fund policy, separate approval of the fund was not required for the deduction under Section 36(1)(v). Consequently, the disallowance made by the authorities was deleted, and the claim of the assessee was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the disallowances of leave encashment expenses and provision for gratuity. The order was pronounced on 19th December 2018.