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TMI Blog2014 (8) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rajasthan Cooperative Societies Act. The assessee’s liabilities towards wage revision having accrued and cryslatised by way of agreed settlement, the same is an allowable business expenditure as per Income Tax Act. The AS-I and II further supports the accounting done by the assessee in this behalf. Thus we hold that the assessee is eligible for deduction of provision of wage settlement Addition of bad debts - Liability for PACS - claim of PACS Manager Fund payment as expenditure - Held that:- The learned CIT(A) considered it to be a bad debt for which no reasons are given. In our considered view the PACS payment cannot be held to be a bad debt, therefore, what is relevant for us is the Assessing Officer’s order. 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of hearing. Departmental appeal in ITA No. 1051/JP/2011 On the facts and in the circumstances of the case, the learned CIT(A) has erred in:- deleting disallowance of ₹ 40,00,000/- on account of provision of Pension Leave Salary, when no actual payment has been made to the employees in conformity with the Section 43B(f) of the I.T. Act. 1961. 2. The brief facts of the case are that the assessee is a Cooperative Bank constituted under Rajasthan Cooperative Society Act, 2001. He filed its return by declaring income of ₹ 10,31,090/-. During the course of assessment proceedings, the Assessing Officer called for explanation in respect of expenses relating to pension leave salary, provision for gratuity, agreement for salary, PACS manager fund and excess cash. The assessee filed detailed explanation, which did not find favour with the Assessing Officer and the assessee s income was completed as under:- Total Income as per return ₹ 1031090/- Additions: 1. Pension leave salary ₹ 4000000/- 2. Provision for gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground No. 3 of appeal in respect of salary paid to staff on account of revision of wages was made consequent to settlement between the assessee, union staff, Registrar. Thereafter, the Finance Department of State Government approved the same and directed the Registrar to implement the settlement. Wages Revision Settlement initially was arrived on 11.10.2008 and thereafter, after incorporating the conditions suggested by the Finance Department, it was approved on 21.11.2008 by the Registrar and who directed to implement the same. The said wages settlement is known as 13th Wages Settlement. It is effective from the period 1.1.2004 to 31.12.2008 (Copy of the wages settlement is enclosed at PBP No. 01 to 07 and the portion indicating the effective period is at PBP No. 07). Settlement of increased wages is based upon the terms of the employment. The wages under the settlement are to be distributed for the period 1.1.2004 to 31.12.2008 as arrears. The liability towards such revision is crystallized and certain. During the year under consideration, Appellant was having 74 employees and total monthly salary was ₹ 12,42,559/-, by applying expected rate of increment at 15% to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng financial year 2007-08 amounting to ₹ 8450.57 Lacs and reduced therefrom outstanding loan amount at the end of the year amounting to ₹ 9533.44Lacs and on resultant Rs. (-) 1082.87Lacs (Rs. 8450.57 Lacs ₹ 9533.44 Lacs)applied 0.5% and worked out the amount of contribution to ₹ 5.41 Lacs and disallowed the remaining amount ₹ 37.88 Lacs (Rs. 43.29 Lacs ₹ 5.41 Lacs).Perusal of the relevant Rule 27 (Kh), makes it clear that there is no stipulation, which says that loan disbursed during the year must be reduced from outstanding loan amount. Therefore, such exercise and formula applied by Ld. A.O. is not according to the said Rule. Further, Ld. A.O. used the figure of financial year 2007-08, perusal of the relevant Rule shows that it used the word VIGAT VARSHZ . It is important to note that these Rules,2003 are under Rajasthan Societies Act and not under the Income Tax Act, wherein, VIGAT VARSHZ has been defined as the financial year immediately preceding to the assessment year i.e. 2007-08 in the instant case. Whereas, the general meaning of word VIGAT VARSHZ is a year an immediate preceding to the year under consideration i.e. 2006-07. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs) as against provision made of ₹ 43.29 Lacs by the Appellant. 12. Without prejudicial to the above, it is contended that undoubtedly; fund has been created to ensure the timely payment of the salary of the Manager of Primary Agricultural Credit Societies working under the Appellant Bank. The business and recovery of the loan of the bank are depends upon the performance of the PACS and their working Managers. Therefore, such fund is created for commercial benefit of the Appellant Bank and wholly and exclusively for the business. The fund as created, can be used strictly according to the Rules,2003 or as per instruction of the Registrar, Cooperative Societies, the Appellant Bank cannot use the fund as its own. Since, fund has been created wholly and exclusively for the business, therefore, even otherwise, it is allowable expenditure under Section 37, irrespective of the calculation of quantum. The contention for allowability is that the fund is wholly and exclusively for the purpose of the business and is based upon the commercial expediency. In this regard, further reliance is placed on the judgment of Hon ble Supreme Court in the case of Shri Venkata Satyanarayana Rice M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol over the same. Further, the employee s of the Appellant are entitled to take the money on account of leave encashment directly from LIC under said policy on account of their leave encashment. Thus, it ensured the timely payment of the dues of the employees, irrespective of the financial health of the bank at the time of payment. This benefited the employees by assuring their leave encashment payments. The expenses claimed for leave encashment is towards actual payment made and not against the provision. Leave encashment is payable on the period of services already rendered, for which employees are entitled for leave encashment, however, it is payable periodically or at the time of retirement. Thus, a certain liability crystallized on account of service already rendered by the employees. It is a present liability, which is going to be paid in future. The LIC has worked out the accrued amount of the liability as on 31.3.2008 on the basis of service already rendered by the different employees towards leave encashment liability. It is clear that to the extent of payment made to the LIC, the existing liability towards leave encashment of the Appellant ceased to exists and employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slatised by way of agreed settlement, the same is an allowable business expenditure as per Income Tax Act. The AS-I and II further supports the accounting done by the assessee in this behalf. Our views are fortified by the above referred judicial pronouncements cited by the learned counsel and mentioned at para above. Respectfully following the Hon'ble Supreme Court and various other Hon ble High Courts judgments, we hold that the assessee is eligible for deduction of provision of wage settlement of ₹ 20.00 lacs. In view of the above, ground No. 3 of the assessee is allowed. Apropos ground No. 4, the reasons for the payment have been narrated above, which have not been controverted by the learned D.R.. This emphasizes the fact that the assessee being a Central Cooperative Bank is bound by rules framed by the Registrar of Cooperative Societies, Rajasthan from time to time in respect of its banking and staff activities. Liability for PACS was fostered by the statutory rules. The Assessing Officer disputed the calculation thereof. The learned CIT(A) considered it to be a bad debt for which no reasons are given. In our considered view the PACS payment cannot be held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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