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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
ORDER
Per N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 30.03.2015 of CIT- Kol-14, Kolkata passed u/s 263 of the Income Tax Act, 1961 (Act.).
The Assessee is a cooperative bank. For A.Y.2010-11 the assessee filed return of income disclosing total income of Rs.Nil. The assessment was taken up for scrutiny by the AO. The assessee in response to the notice u/s 142(1) of the Act dated 08.01.2016 filed a letter dated 15.01.2016 explaining the assessee’s claim for deduction a sum of Rs.25,57,00,000/- debited in the profit and loss account which was a provision and contingencies on account of arrear payment due to the employees consequent to wage revision. The assessee gave the following explanation :- “The amount of Rs 255700000.00 debited to Profit & Loss Account for the year 2009-10 was attributed to impending wage revision and was paid out during the immediately succeeding financial year 2010-11 from the "Provision Held" Account. It may be noted that Profit & Loss Account was loaded only once i.e. in the FY 2009-10. No deduction was claimed during the FY 2010-11 on payment basis. However the payment is not governed by Section 43B of the IT Act 1961. It may be noted that wage revisions in Commercial Banks are automatically extended to Regional Rural Banks across the country by virtue of the award passed by the National Industrial Tribunal (NIT) constituted and upheld by Supreme Court.”
2 Bangiya Gramin Vikash Bank A.Yr.2010-11 3. The assessee also explained in the aforesaid letter that it was claiming a sum of Rs.,1,30 lakhs for meeting the liability on account leave encashment for its staff and pointed out that out of the aforesaid sum whatever leave encashment is actually been paid on or before the due date of filing the return of income should be allowed as deduction. The AO completed the assessment u/s 143(3) of the Act by its order dated 18.03.2013 in which the AO did not make any addition on account of the aforesaid two items of the debit in the profit and loss account.
The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of AO dated 18.03.2013 was erroneous and prejudicial to the interest of the revenue for the following reasons :- “(i) As per Point No.8 of Notes of Account (Schedule-17) provision & contingencies included provision of Rs. 25,57,00,000/- on account of arrear payment due to wages revision already negotiated in commercial banks and likely to be. extended to the bank also. As the wage revision was negotiated only in commercial bank and was yet to be implemented/negotiated in Co-operative Bank during F.Y.2009-10, liability for arrear payment was not accrued in F.Y.2009-10. Therefore, provision of Rs. 25,57,00,000/- on account of arrear payment due to wage revision was an unascertained liability for F.Y.2009-10 and was required to be added to the total income of the assessee. But A.O. failed to do so.
(ii) As per Point No.6.2 of the Notes on Account (Schedule-17) the assessee provided Rs. 1,30,00,000/- for meeting of liability of leave encashment on superannuation during the F.Y.2009-10. As per provision of Section 43B of the I. T. Act, deduction for leave encashment is allowable only on payment basis. Therefore, provision of Rs.1,30,00,000/- for leave encashment liability were required to be disallowed and added to the income. But A.O. failed to do so.
(iii) Further, it is also noticed from (Schedule-12) of Balance Sheet that there was contingent liability of Rs. 2,55,66,000/- included in the provision and contingencies, debited in P & L A/c. The contingent liability is not an allowable expenditure for income tax purpose and it was required to be disallowed and added to the total income. But A.O. failed to do so.”
3 Bangiya Gramin Vikash Bank A.Yr.2010-11 5. A show cause notice dated 14.07.2011 was issued to the assesee on the above issues. The assessee in reply pointed out that :- a) That provision & contingencies included provision of Rs.25,57,00,000/- on account of arrear payment due to wage revision. The said amount of was debited to P/L A/c. for the A. Y.2010-11 attributed to impending wage revision which was done by way of bipartite agreement in Govt. bank as well as R.R.B. also. The P & L A/c. was only charged once in the A. Y.2010- 11 when the liability was ascertained after the bipartite agreement by which the wage revision was ascertained at Rs. 25.57 crores. The said amount was not claimed in the A. Y.2011- 12 when the said payment was made. Wage revision in commercial bank are automatically extended to Regional Rural Banks across the country by virtue of award passed by the National Industrial Tribunal{NIT) constituted and upheld by Supreme Court. That as the liability was an ascertained liability as per the wage revision which took place in the A. Y.2010-11 it should be allowed as per judgment of the Apex Court in the case of Rotork Contrals India {P} Ltd. Vs.CIT reported in 314 ITR 62 (SC) b) The assessee provided Rs. 1,30,00,000/- for meeting its liability of leave encashment of superannuation during the F. Y. 2009-10 and that out of the said amount Rs.49,86,186/- was paid out within 15th October, 2010 and the balance amount of Rs.72,64,923/- was paid within March, 2011, therefore, even if the amount of Rs. 72,64,923/- is disallowed in this year it may be directed to be allowed in the A. Y.2011-12. c) As per Schedule-12 of the balance sheet that there was contingent liability of Rs. 2,55,66,000/- which was included as provision& contingencies liability was never debited in P& L A/c and therefore there was no question of any disallowance as the said amount as it was never charged to P/L A/c. neither it was allowed in assessment as revenue expenditure
After considering the reply of the assessee the CIT directed the AO to examine and pass a fresh assessment order on the three items set out by CIT in the show cause notice. According to the CIT the AO did not make proper enquiries before concluding the assessment on the aforesaid three aspects and the order of AO was erroneous and prejudicial to the interest of the revenue. The following were the relevant observations of the CIT :- “The fact of the case is that: 3 4 Bangiya Gramin Vikash Bank A.Yr.2010-11 (i) As per notes of accounts, quantum of arrear payable on account of wage revision was negotiated in commercial bank during the financial year 2009-10 and likely to be extended to the bank. As such, the quantum of arrear wage was yet to be implemented/negotiated in the Co-operative Bank. Hence, liability of arrear payment was not accrued or ascertained for the financial year 2009-10. In course of assessment proceedings, A.O. did not verify the issue and take action accordingly. (ii) As per notes on Account, though the assessee bank was valuing its leave encashment liability on cash basis, it provided Rs. 1,30,00,000/- for meeting its liability of leave encashment on superannuation during F. Y. 2009-10. And as per submission filed during the course of proceedings u/s. 263 of the 1. T. Act, such payment was made during the F.Y. 2010-11 relevant to the A.Y. 2011-12. As per provision of section 43B of the 1. T. Act, deduction for leave encashment is allowable only on payment basis. In course of assessment proceedings, A.O. did not verify the quantum and period of actual payment made in this regard and take action accordingly. (iii) As per Balance Sheet, a contingent liability of Rs. 2,55,66,000/- was included in 'Provision & Contingencies' which was debited in the Profit & Loss account. The contingent liability is not an allowable expenditure for income tax purpose. In course of proceedings u/s. 263 assessee argued that contingent liability of Rs.2.55 cores as appear in in Schedue-12 in off balance sheet item, representing Bank Guarantee issued on behalf of the constituent for which P/L A/e. was never debited. In course of assessment proceedings, A.O. did not verify the issue and take action accordingly.
It is observed that, the assessment order u/s. 143(3) of the Income Tax Act dated 18-03-2013 passed by erstwhile I.T.O., Ward-3, Murshidabad amounts to Inadequate scrutiny of detailed facts and making such assessment without examination of facts rendering it erroneous and prejudicial to the interest of revenue. In view of aforesaid errors, inadequacies and omission on part of A.O., the order passed u/s. 143(3) of the Income Tax Act, 1961 dated 18-03- 2013 is considered erroneous in so far as it is prejudicial to the interest of revenue and accordingly the order u/s.143(3) of the Income Tax Act dated 18-03.-2013 is set aside with the direction to pass a fresh assessment order after examining the evidence and documents and after giving opportunity to the assessee and in accordance with the law.”
Aggrieved by the order of CIT the assessee has preferred the present appeal before the Tribunal.
We have heard the rival submissions. The ld. Counsel for the assessee submitted that deduction of a sum of Rs.25.57 crores on account of arrear payment due and 5 Bangiya Gramin Vikash Bank A.Yr.2010-11 payable consequent on wage revision was an ascertained liability and was liable to be allowed as deduction. In this regard the principal contention of the ld. Counsel for the assessee was that there was a bipartite agreement consequent to which the liability in question was determined though further procurement formalities need to be completed. The memorandum of settlement dated 27th April, 2010 was entered into by a management of 46 banks represented by the All India Bank Employees Association, National Confederation of Bank Employees, Bank Employees ‘Federation of India, Indian National Bank Employees’; Federation and National Organisation of Bank Workers. The ld. Counsel pointed out that though it was a Regional rural bank it was controlled by Union Bank of India which was a party to the aforesaid settlement. He also pointed out that consequent to the decision of the Hon’ble Supreme Court in the case of Civil Appeal No.2218 of 1999 in the case of South Malabar Gramin Bank vs Co-ord. committee of S.M.G.B.Empl. Union & Ors it has been held that there should be a parity between the employees of the Commercial Banks and the employees of the Regional Rural banks that as and when the pay structure of the employees of the nationalized banks got revised on the basis of any bipartite settlement, the Union Government should take a decision so far as the employees of the Regional Rural Banks are concerned within a reasonable time so that the parity could be maintained. It was the submission that in the light of the aforesaid circumstances prevailing in the case of the assessee the action of the AO in allowing the claim of the assessee for deduction on account of provision and contingent payment due to wage revision was a possible view and no fault could be found in the order of AO. It was his further submission that the AO has made due enquiries before completing the assessment on these aspects. Therefore exercising of jurisdiction by CIT u/s 263 of the Act on the ground that the AO before completing the assessment failed to make proper and adequate enquiries on this issue is untenable.
6 Bangiya Gramin Vikash Bank A.Yr.2010-11 9. As far as the liability on account of leave encashment is concerned the ld. Counsel for the assessee agreed that the provision of section 43B(f) of the Act would apply. The assessee should be allowed deduction on the sum which assessee had paid on account of leave encashment on or before due date of filing return of income i.e. 30.09.2010. With regard to the sum of Rs.2,55,66,000/- debited in the profit and loss account on account of provision and contingency, the ld. Counsel for the assessee was agreeable for an addition of the aforesaid sum. Ground of appeal in this regard was not pressed. The ld. DR relied on the order of CIT u/s 263 of the Act.
10. We have given a very careful consideration to the rival submissions. So far as invoking the jurisdiction on the issue of provision for arrear of wages consequent to wage revision of a sum of Rs.25.57 crores is concerned we find that the AO while completing the assessment has made due enquiries on this aspect and the assessee has also given a reply. As pointed out by the ld. Counsel for the assessee a bipartite settlement between the commercial banks would equally apply to the Regional Rural Banks also. In the circumstances it cannot be said that action of the AO in allowing the claim of the assessee for deduction was erroneous. It was a possible view which the AO has taken and just because CIT does not agree with the view expressed by the AO jurisdiction u/s 263 of the Act cannot be invoked. The decision of the Hon’ble Supreme Court in the case of Malabar Industries Ltd. 243 ITR 83 clearly supports the plea of the assessee in this regard. Besides the above, we are also of the view that the AO had made proper enquiries before concluding the assessment and since the CIT has invoked the jurisdiction u/s 263 of the Act for failure on the part of the AO to make proper enquiries the action of CIT on this issue cannot be sustained.
As far as issue of allowing deduction of provision for leave encashment of Rs.1.30 crores is concerned in view of the proviso to Section 43B(f) of the Act any sum actually paid on account of leave encashment on or before due date before filing the 6
7 Bangiya Gramin Vikash Bank A.Yr.2010-11 return of income should be allowed as deduction. As far as direction of CIT to the AO to re-examine and reverify the contingencies liability of Rs.2,55,66,000/- included in the provision under contingencies debited in profit and loss account, the ld. Counsel did not press the relevant ground of appeal and was agreeable for the AO making an enquiry on this aspect in the set aside proceedings. Hence this issue is decided against the assessee. For the reasons given above we partly allow the appeal of the assessee as indicated in this order.
In the result the appeal by the assessee is partly allowed. Order pronounced in the Court on 12.05.2017.