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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 723/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “B”, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 723/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2013-14 cuke Baran Kendriya Sahakari Bank Ltd. A.C.I.T., Vs. Station Road, Baran. Circle-2, Kota. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAALB 0443 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Deepak Sethi (CA) jktLo dh vksj ls@ Revenue by : Shri Ashok Khanna (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 18/12/2018 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 19/12/2018 vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 08/01/2018 of ld. CIT(A), Kota for the A.Y. 2013-14.
There is a delay of 26 days in filing the present appeal. The assessee has filed an application dated 24/5/2018 for condonation of delay.
We have heard the ld. AR as well as the ld DR on the condonation of delay and carefully perused the application filed by the assessee. The only explanation for delay in filing the appeal as per the application is
ITA 723/JP/2018_ 2 Baran Kendriya Sahakari Bank Vs ACIT
that due to closing of the financial year and other events, there is delay
in filing the appeal. The application of condonation of delay reads as
under:
“It is to state that CIT Appeal order was received on 28/02/2018 at out office. Therefore, due to closing of the Financial Year and other events were the reason to delay in filing appeal before your honour.
I, sincerely, request your honour to condone the delay.”
It is pertinent to note that the financial year is closed on 31/3/2018,
whereas the appeal has been filed on 25/05/2018. Therefore, even on
30/04/2018, the appeal could have been filed within limitation. Thus, it
is clear that the assessee has not given any specific reasons as to why
the appeal was not filed within the period of limitation. This is not the
filing of return of income or computation of income so as to require the
officials of the bank for preparation of the return of income but this is
second appeal arising from the order of the ld. CIT(A), therefore, the
only step to be taken by the authorized signatory of the bank was to
sign the appeal papers to be prepared by the authorized
representative/legal advisor. It appears that the bank has taken a very
casual approach in explaining the delay. However, since the issue raised
by the bank in this appeal are covered in favour of the assessee,
therefore, taking a lenient view, we condone the delay of 26 days in
filing the appeal subject to cost of Rs. 5,000/- (five thousands).
ITA 723/JP/2018_ 3 Baran Kendriya Sahakari Bank Vs ACIT
In this appeal, the assessee has raised following grounds:
“1. On the facts and circumstances of the case and in law, the Ld. CIT (Appeal) was not justified in holding the addition of Rs.31,53,596/- under the head Income From Business & Profession made by the A.O. with reference to disallowance the claim of provision of leave salary encashment expense paid to LIC. The action of Ld. CIT (Appeal) is illegal and deserved to be set aside.
On the facts and circumstances of the case and in law, the Ld. CIT (Appeal) was not justified in holding the addition of Rs 47,21,936/- under the head Income From Business & Profession made by the A.O. with reference to Section 36(v) read with section 40A(7)(a) of I.T. Act regarding the disallowance the expenses provision of gratuity. The action of Ld. CIT (Appeal) is illegal and deserved to be set aside.
The assessee craves to add, amend or alter any of the ground of appeal during the course of appellate proceedings/hearing.”
Ground No. 1 of the appeal is regarding the disallowance of leave
encashment expanses paid to Life Insurance Corporation of India (LIC).
The assessee has taken leave encashment policy from the LIC and paid
the annual premium to the LIC of Rs. 31,53,596/-. The Assessing Officer
has disallowed the claim of expenditure on account of provision of leave
encashment expenses on the ground that it is only a provision not a
crystallized liability. The ld. CIT(A) has confirmed the disallowance made
by the Assessing Officer on the ground that the payment to the LIC is
neither an annual premium nor a certain liability.
Before us, the ld AR of the assessee has submitted that when the
assessee has taken the policy and made the payment towards the leave
ITA 723/JP/2018_ 4 Baran Kendriya Sahakari Bank Vs ACIT
encashment fund of LIC then to the extent of payment made by the
assessee, it is based on actual crystallization of liability based on the
benefit accrued to the employees based on the length of their service,
therefore, the payment to LIC is only a liability which is allowable. In
support of his contention, he has relied upon the decision of this
Tribunal dated 14/08/2014 in the cross appeals in the case of Jhalawar
Kendriya Sahakari Bank Ltd. Vs ACIT in ITA Nos. 1032/JP/2011 and
1051/JP/2011. Thus, the ld AR has submitted that there are series of
decisions on this point whereby the claim of leave encashment
expenditure on account of payment to LIC is held as an allowable claim.
On the other hand, the ld DR has relied upon the orders of the
authorities below and submitted that it is only a provision and not the
crystallization of liability, therefore, it is not allowable.
Having considered the rival submissions as well as relevant
material on record at the outset we note that the Coordinate Bench of
this Tribunal in the case of Jhalawar Kendriya Sahakari Bank Ltd. Vs
ACIT (supra) has considered an identical issue in para 15 and 19 as
under:
“15. Apropos departmental appeal, the learned counsel contends that the assessee had taken a policy from LIC named as "Jhalawar Kendriya
ITA 723/JP/2018_ 5 Baran Kendriya Sahakari Bank Vs ACIT
Sahakari Bank Employee Group Leave Encashment Scheme". The policy was taken to pay its employees.
As per estimates of LIC the total liability of the Appellant Bank towards leave encashment already accrued stood at Rs. 83,57,029/- as on 31.03.2008. However, Appellant paid Rs. 40,00,000/- by the end of FY 2007-08 and Jhalawar Kendriya Sahakari bank Ltd. Vs. ACIT.
Accordingly debited only Rs. 40,00,000/- to its Profit & Loss Account against said payment.
It is pertinent to note that after contribution of premium, the Appellant has no control 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
ITA 723/JP/2018_ 6 Baran Kendriya Sahakari Bank Vs ACIT
encashment of the Appellant ceased to exists and employees became entitled to receive the same from the LIC.
Jhalawar Kendriya Sahakari bank Ltd. Vs. ACIT.
The payment made to LIC towards leave encashment policy is akin to payments made to EPF/ESI, wherein, the employer deposits a particular sum with the respective department in every year and the employees get benefit of the same in the year of their retirement or upon their death.
Further reliance is placed on the order of ITAT Delhi Bench 'H' in the case of ACIT Vs. Nainital Bank Limited vide ITA No. 3606/Del/2011, which in turn relies on Hon'ble Madras High Court judgment in the case of Cit Vs. Textool Co. Ltd. (supra) held that such payments to the LIC for leave encashment benefits is an allowable expenditure. Similar view has been taken by the Hon'ble Kerela High Court in the case of CIT Vs. Hindustan Latex Ltd. (2012) 209 Taxman 42. ……………….. ………………… 19. Apropos the departmental appeal, the assessee took a policy from LIC named as Jawahar Kendriya Sahakari Bank Employee Group Leave Encashment Scheme. The facts are mentioned in detail above. The payment of leave encashment is a contractual liability, a charge on assessee's profit. To ensure timely payment of leave encashment to employees' scheme is devised by the LIC, which works out the leave encashment liability and fixation of premium. The liability is ascertained and crystalised on a scientific method by Jhalawar Kendriya Sahakari bank Ltd. Vs. ACIT.
The LIC. Thus, the assessee's payment of Rs. 40 lacs towards the same is within the frame work of the scheme. In our considered view, the
ITA 723/JP/2018_ 7 Baran Kendriya Sahakari Bank Vs ACIT
same is an allowable deduction. This view further supported by the Hon'ble Supreme Court in the case of Textool Co. Ltd. (supra) and ITAT judgment in the case of Nainital bank Ltd. (supra). Respectfully following the same, we hold that the assessee is eligible for this deduction.”
Thus, it is clear that the Tribunal while deciding the issue has followed
the decision of Hon'ble Supreme Court in the case of CIT Vs. Textool Co.
Ltd. 263 ITR 257 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.
Ground No. 2 of the appeal is regarding the disallowance of claim
of provision for gratuity.
We have heard the ld AR as well as the ld DR and considered the
relevant material on record. The Assessing Officer as well as the ld.
CIT(A) denied the claim on the ground that the payments made to the
LIC on account of employees’ gratuity fund is not an approved gratuity
scheme as per the provisions of Section 36(1)(v) of the Act. The ld AR
of the assessee has submitted that this issue was also considered by this
Tribunal in the case of Jhalawar Kendriya Sahakari Bank Ltd. Vs ACIT
ITA 723/JP/2018_ 8 Baran Kendriya Sahakari Bank Vs ACIT
(supra) as well as in the subsequent decision dated 07/09/2018 in the
case of Jhalawar Kendriya Sahakari Bank Ltd. Vs ACIT in ITA No.
349/JP/2018. We note that the Coordinate Bench of this Tribunal in the
case Jhalawar Kendriya Sahakari Bank Ltd. Vs ACIT (supra) vide order
dated 14/08/2014 has considered this issue in para 17 as under:
“ Apropos ground No. 2 in respect of group gratuity scheme policy from time to time thereof was paid to LIC. The disallowance has been made by lower authorities holding that the necessary registration of scheme was not obtained by the assessee, in our considered view, the controversy stands squarely covered in favour of the assessee by the Hon'ble Supreme Court judgment in the case of CIT Vs Textool Co. Ltd. 263 ITR 257 (SC) wherein Jhalawar Kendriya Sahakari Bank Ltd. Vs ACIT the similar payment by the assessee directly to LIC for group gratuity fund was held to be allowable deduction U/s 36(1)(v) of the Act. This decision has been followed by the Delhi Bench of ITAT in the case of Heihin Penalfa Ltd. Vs ACIT vide ITA No. 4309/Del/2011 (supra) to which one us (learned J.M.) is a party. In view thereof, we are inclined to hold that the assessee is entitled to deduction of payment of gratuity to the LIC. Accordingly, ground No. 2 of the assessee is allowed.”
Thus, it is clear that once the 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
ITA 723/JP/2018_ 9 Baran Kendriya Sahakari Bank Vs ACIT Tribunal, we allow the claim of the assessee and the disallowance made by the authorities below on this account is deleted.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 19th December, 2018.
Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 19th December, 2018 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Baran Kendriya Sahakari Bank Ltd., 1. Baran. izR;FkhZ@ The Respondent- The A.C.I.T., Circle-2, Kota. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 723/JP/2018) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत