JHALAWAR DENDRIYA SAHAKARI BANK LTD., Jaipur V. ACIT, Kota

ITA 1032/JPR/2011

• Counselvise Citation: 103223114 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: DEEPAK GUPTA
• Keywords: Business expenditure; Bad and doubtful debts; Commercial expediency
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE : SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM ITA NO. 1032/JP/2011 ASSESSMENT YEAR : 2008-09 PAN NO.: AAATJ 2424 M JHALAWAR KENDRIYA SAHAKARI BANK LTD., THE A.C.I.T., PRADHAN KARYALYA, SAHAKAR BHAWAN, VS. CIRCLE-1, K OTA. NH-12, JHALARAPATAN, DISTT. JHALAWAR-326023 APPELLANT RESPONDENT ITA NO. 1051/JP/2011 ASSESSMENT YEAR : 2008-09 PAN NO.: AAATJ 2424 M THE A.C.I.T. JHALAWAR KENDRIYA SAHAKARI BANK LTD., CIRCLE-1, KOTA. VS. PRADHAN KARYALYA, SAHAKAR BHA WAN, NH-12, JHALARAPATAN, DISTT. JHALAWAR-326023 APPELLANT RESPONDENT ASSESSEE BY : SHRI VINOD KUMAR GUPTA & SHRI DEEPAK GUPTA. REVENUE BY : SHRI D.C. SHARMA DATE OF HEARING : 23/07/2014 DATE OF PRONOUNCEMENT : 14/08/2014 O R D E R PER R.P. TOLANI, J.M. THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND AN OTHER BY THE REVENUE AGAINST THE ORDER DATED 29/09/2011 BY THE L EARNED CIT(A), KOTA FOR A.Y. 2008-09. RESPECTIVE GROUNDS OF APPEAL ARE AS U NDER: ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 2 ASSESSEES APPEAL:- 1. IMPUGNED ASSESSMENT ORDER PASSED U/S 143(3) IS BAD IN LAW AND ON FACTS BEING AGAINST THE PRINCIPAL OF NATURAL JUS TICE AND FOR MANY MORE OTHER REASONS. 2. UNDER THE FACTS AND CIRCUMSTANCES, LD. A.O. HAS ERRED BY DISALLOWING THE PROVISION OF GRATUITY OF RS. 5,23,03 6/-. THE DISALLOWANCE MADE IS UNJUSTIFIED, ILLEGAL OR EXCESSI VE. 3. UNDER THE FACTS AND CIRCUMSTANCES, LD. A.O. HAS ERRED BY DISALLOWING RS. 20,00,000/- OUT OF SALARY (AGREEMENT FOR SALARY), FURTHER, CIT(A) ERRED BY SUSTAINING THE SAME. THE DIS ALLOWANCE MADE IS UNJUSTIFIED, ILLEGAL OR EXCESSIVE. 4. UNDER THE FACTS AND CIRCUMSTANCES, LD. A.O. HAS ERRED BY DISALLOWING RS. 37,88,000/- OF PACS MANAGER FUND, FU RTHER, CIT(A) ERRED BY SUSTAINING THE SAME. THE DISALLOWANCE MADE IS UNJUSTIFIED, ILLEGAL OR EXCESSIVE. 5. UNDER THE FACTS AND CIRCUMSTANCES, THE LD. A.O. HAS ERRED BY MAKING ADDITION OF RS. 10,631/- ON ACCOUNT OF EXCES S CASH RESERVE, FURTHER, CIT(A) ERRED BY SUSTAINING THE SAM E. THE ADDITION MADE IS UNJUSTIFIED, ILLEGAL OR EXCESSIVE. 6. UNDER THE FACT AND CIRCUMSTANCES, THE LD. A.O. H AS ERRED BY CHARGING INTEREST U/S 234B. THE APPELLANT TOTALLY D ENIES ITS LIABILITY OF CHARGING OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, MAY KI NDLY BE DELETED IN FULL. 7. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. A.O. HAS ERRED BY INITIATING PENALTY PROCEEDINGS U/S 271(1)( C) OF THE ACT. 8. THAT THE APPELLANT CRAVES YOUR INDULGENCE TO ADD, AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 3 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 RS. 40,00,000/- ON ACCOUNT OF PROVISION OF PENSION LEAVE SALARY, WHEN NO ACTUAL PAYMENT HAS BEE N 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 RS. 10,31,090/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED FOR EXPLA NATION IN RESPECT OF EXPENSES RELATING TO PENSION LEAVE SALARY, PROVISIO N FOR GRATUITY, AGREEMENT FOR SALARY, PACS MANAGER FUND AND EXCESS CASH. THE ASSES SEE FILED DETAILED EXPLANATION, WHICH DID NOT FIND FAVOUR WITH THE ASSE SSING OFFICER AND THE ASSESSEES INCOME WAS COMPLETED AS UNDER:- TOTAL INCOME AS PER RETURN RS. 1031090/- ADDITIONS: 1. PENSION LEAVE SALARY RS. 4000000/- 2. PROVISION FOR GRATUITY RS. 523036/- 3. AGREEMENT FOR SALARY RS. 2000000/- 4. PACS MANAGER FUND RS. 3788000/- 5. EXCESS CASH RS. 10631/- TOTAL ADDITIONS RS. 10321667/- TOTAL ASSESSED INCOME RS. 11352757/- (11352760) 3. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL B EFORE THE LEARNED CIT(A), WHO GAVE A RELIEF OF RS. 40 LACS ON ACCOUNT OF DISALLOWANCE OUT OF LEAVE ENCASHMENT PAID TO LIC AND CONFIRMED THE BALA NCE ADDITIONS. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 4 4. AGGRIEVED, BOTH THE PARTIES ARE BEFORE US ON THE IR RESPECTIVE GRIEVANCES. 5. LEARNED COUNSEL FOR THE ASSESSEE SHRI VINOD KUMA R GUPTA APROPOS GROUND NO. 2 CONTENDS THAT: I. THE APPELLANT WAS HAVING A GROUP GRATUITY SCHEME POLICY WITH LIC. ON THE BASIS OF THIS POLICY, PREMIUM IS PAID T O LIC AMOUNTING TO RS. 5,23,036/-. II. LEARNED ASSESSING OFFICER DISALLOWED AND LEARNED CIT(A) CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT N ECESSARY REGISTRATION OF THE GROUP GRATUITY LIFE INSURANCE SCHEME WAS NOT OBT AINED BY THE ASSESSEE. THE AUDITOR IN THEIR AUDIT REPORT HAS ALSO SHOWN IT AS DISALLOWABLE. IT IS PLEADED THAT THE REPORT OF THE AUDITOR IS NOT CONCL USIVE TO DECIDE WHETHER PARTICULAR EXPENDITURE IS ALLOWABLE OR NOT, RATHER R ELEVANT LAW DECIDES WHETHER PARTICULAR EXPENDITURE IS ALLOWABLE OR NOT. III. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVER ED BY THE RECENT JUDGMENT OF THE HON'BLE SUPREME COURT GIVEN IN THE CASE OF CIT VS. TEXTOOL CO. LTD. 263 CTR 257 (SC), WHEREIN, COMPANY DIRECTLY PAID PREMIUM TO LIC TOWARDS GROUP GRATUITY FUND AND CLAIMED DEDUCTION UN DER SECTION 36(1)(V) OF THE INCOME TAX ACT, IT HAS BEEN HELD AS ALLOWABLE EXP ENDITURE. IV. THE DELHI BENCH OF ITAT IN THE CASE OF KEIHIN PEN ALFA LTD. VS. ACIT VIDE ITA NO. 4309/DEL./2011 AND 4937/DEL./2012, HAS FOLLOWED ABOVE REFERRED JUDGMENT OF THE SUPREME COURT AND GRANTED THE RELIEF WHEREIN ALSO PAYMENT AS MADE TO LIC TOWARDS GROUP GRATUITY FUND. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 5 V. IN VIEW OF THE ABOVE, THE CLAIM OF THE APPELLANT OF THE PAYMENT MADE TO LIC TOWARDS GROUP GRATUITY FUND IS ALLOWABLE UNDER SECTION 36(1)(V) AND DISALLOWANCE MADE BY LD. A.O. AND CONFIRMED BY C IT(A), DESERVES TO BE DELETED. 6. APROPOS GROUND NO. 3 OF APPEAL IN RESPECT OF SAL ARY PAID TO STAFF ON ACCOUNT OF REVISION OF WAGES WAS MADE CONSEQUENT TO S ETTLEMENT BETWEEN THE ASSESSEE, UNION STAFF, REGISTRAR. THEREAFTER, THE FI NANCE DEPARTMENT OF STATE GOVERNMENT APPROVED THE SAME AND DIRECTED THE REGIS TRAR TO IMPLEMENT THE SETTLEMENT. WAGES REVISION SETTLEMENT INITIALLY WAS ARRIVED ON 11.10.2008 AND THEREAFTER, AFTER INCORPORATING THE CONDITIONS SUGG ESTED BY THE FINANCE DEPARTMENT, IT WAS APPROVED ON 21.11.2008 BY THE REG ISTRAR AND WHO DIRECTED TO IMPLEMENT THE SAME. THE SAID WAGES SETTLEMENT IS K NOWN AS 13 TH WAGES SETTLEMENT. IT IS EFFECTIVE FROM THE PERIOD 1.1.200 4 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 A S ARREARS. THE LIABILITY TOWARDS SUCH REVISION IS CRYSTALLIZED AND CERTAIN. DURING THE YEAR UNDER CONSIDERATION, APPELLANT WAS H AVING 74 EMPLOYEES AND TOTAL MONTHLY SALARY WAS RS. 12,42,559 /-, BY APPLYING EXPECTED ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 6 RATE OF INCREMENT AT 15% TO ANNUAL SALARY I.E. RS. 149.11 LACS, THE ARREARS CAME TO RS. 22.37 LACS, THE ASSESSEE MADE PROVISION OF RS. 20.00 LACS. IT IS FURTHER PLEADED THAT REVISION OF RS. 20 LACS IS ALSO MADE IN CONFORMITY WITH THE TWO ACCOUNTING STANDARDS, AS-I AN D AS-II, VIDE NOTIFICATION NO. S.O. 69(E), DATED JANUARY, 25, 199 6 PRESCRIBED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. THUS, THE PROVISION HAS B EEN MADE IN CONFORMITY WITH THE COOPERATIVE BANK REGULATIONS AS APPROVED BY THE STAKE HOLDERS AND FURTHER APPROVED BY THE FINANCE DEPARTMENT OF THE S TATE GOVERNMENT AND ACCOUNTING STANDARDS. THE SAME IS THUS, ALLOWABLE DE DUCTION UNDER INCOME TAX ACT. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS : 1. CALCUTTA COMPANY LIMITED VS. CIT (1959) 37 ITR 1 ( SC), 2. CIT VS. BHARAT HEAVY ELECTRICALS LIMITED ITA NO.3 52 ITR 88 (DEL.) 3. IBP CO. LIMITED VS/ ACIT (2003) 78 TTJ (CAL.) 158. 4. ROTORK CONTROLS INDIA PRIVATE LIMITED VS. CIT (20 09) 314 ITR 62 (SC) 5. DCIT V/S. LG ELECTRONIC INDIA LIMITED [2009] 29 S OT 167 (DELHI). 6. CIT V. INDIAN TRANSFORMERS LTD., (2004) 270 ITR 259 ; (2005) 142 TAXMAN 429 (KER.) 7. BHARAT EARTH MOVERS V. CIT, (2000) 245 ITR 428; 11 2 TAXMAN 61 (SC) 8. CALCUTTA CO. LTD. V. CIT, (1959) 37 ITR 1 (SC) 9. IRC V. MITSUBISHI MOTORS NEW ZEALAND LTD., (1966) 222 ITR 697 (PC) 10. CIT V. VINITEK CORPN. (P.) LTD., (2005) 278 ITR 3 37; 146 TAXMAN 313 (DELHI) 7. APROPOS GROUND NO. 4 IN APPEAL IN RESPECT OF DIS ALLOWANCE OF RS. 37,88,000/- OF PACS MANAGER FUND. THE LEARNED COUNSE L FOR THE ASSESSEE ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 7 POINTED OUT TO THE UNDISPUTED FACT THAT THE ASSESSE E IS REGULATED BY RAJASTHAN COOPERATIVE SOCIETIES RULES, UNDER THE AEGIS THEREO F, THE REGISTRAR ISSUED AN ORDER TO IMPLEMENT SELECTION, APPOINTMENT AND SERVICE RULES, 2003 OF MANAGERS OF PRIMARY AGRICULTURAL CREDIT SOCIETIES ( PACS) (IN SHORT RULES,2003). UNDER PACS RULES, THE ASSESSEE HAS T O CREATE THE PACS FUND AMOUNTING RS. 43.29 LACS TO COMPLY WITH THE STATUTO RY REQUIREMENT. THE BENEFICIARIES UNDER PACS ARE WORKING FOR THE ASSESSE E, WHICH IS CENTRAL COOPERATIVE BANK. THIS FACT HAS NOT BEEN DENIED BY T HE ASSESSING OFFICER. HOWEVER, HE HELD THAT THE CALCULATIONS OF THE PACS F UND BY ASSESSEE TO BE NOT CORRECT, WHICH WAS HELD TO BE ON THE BASIS OF LOAN DI SBURSED DURING THE YEAR. THE LD. A.O. TO ARRIVE AT THE AMOUNT OF SUCH CONTRIB UTION FIRST TOOK THE AMOUNT OF LOAN DISTRIBUTED DURING FINANCIAL YEAR 2007-08 A MOUNTING TO RS. 8450.57 LACS AND REDUCED THEREFROM OUTSTANDING LOAN AMOUNT AT THE END OF THE YEAR AMOUNTING TO RS. 9533.44LACS AND ON RESULTANT RS. ( -) 1082.87LACS (RS. 8450.57 LACS RS. 9533.44 LACS)APPLIED 0.5% AND WOR KED OUT THE AMOUNT OF CONTRIBUTION TO RS. 5.41 LACS AND DISALLOWED THE REM AINING AMOUNT RS. 37.88 LACS (RS. 43.29 LACS RS. 5.41 LACS).PERUSAL OF TH E RELEVANT RULE 27 (KH), MAKES IT CLEAR THAT THERE IS NO STIPULATION, WHICH S AYS THAT LOAN DISBURSED DURING THE YEAR MUST BE REDUCED FROM OUTSTANDING LO AN AMOUNT. THEREFORE, SUCH EXERCISE AND FORMULA APPLIED BY LD. A.O. IS NO T ACCORDING TO THE SAID RULE. FURTHER, LD. A.O. USED THE FIGURE OF FINANCIA L YEAR 2007-08, PERUSAL OF THE RELEVANT RULE SHOWS THAT IT USED THE WORD VIGAT V ARSH Z . IT IS IMPORTANT ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 8 TO NOTE THAT THESE RULES,2003 ARE UNDER RAJASTHAN S OCIETIES ACT AND NOT UNDER THE INCOME TAX ACT, WHEREIN, VIGAT VARSH Z HAS BEEN DEFINED AS THE FINANCIAL YEAR IMMEDIATELY PRECEDING TO THE ASSESSM ENT YEAR I.E. 2007-08 IN THE INSTANT CASE. WHEREAS, THE GENERAL MEANING OF WO RD VIGAT VARSH Z IS A YEAR AN IMMEDIATE PRECEDING TO THE YEAR UNDER CONSI DERATION I.E. 2006-07. THEREFORE, ON THIS ACCOUNT ALSO, LD. A.O. HAS ERRED IN INTERPRETING THE RELEVANT RULE 27(KH), THUS, THE LD. A.O. ERRED BY APPLYING A METHOD WHICH IS INCONSISTENT TO THE RELEVANT RULE. APPELLANT CALCUL ATED THE CONTRIBUTION BY USING THE FIGURE OF FINANCIAL YEAR 2006-07 WHICH IS CORRECT AS EXPLAINED BEFORE LOWER AUTHORITIES. APPELLANT AVERAGED THE MONTHLY OU TSTANDING LOAN AMOUNT AND THEN APPLIED 0.5% ON SUCH MONTHLY AVERAGE OUTST ANDING AND WORK OUT THE AMOUNT OF CONTRIBUTION OF SUCH FUND AT RS. 43.2 9 LACS. 8. IT IS CONTENDED THAT THE ASSESSEES WORKING IS A BSOLUTELY CORRECT AND APPROVED BY THE BOARD OF DIRECTORS. RELIANCE IS PLA CED ON ITAT, JAIPUR BENCH IN THE CASE OF ACIT, CIRCLE 1, JAIPUR V/S. RAJASTHAN STATE CO-OPERATIVE BANK LIMITED, ITA NO. 1277/JP/2010, A.Y. 2007-08. 9. THE LEARNED CIT(A), SURPRISINGLY MADE OUT A NEW CAS E BY RELYING ON SECTION 36(1)(VIIA), WHICH IS APPLICABLE FOR CLAIM O F BAD DEBTS, WHICH IS NOT THE CASE OF THE ASSESSEE. HENCE, THE LOWER AUTHORITIES H AVE BEEN EITHER MISCALCULATING THE ELIGIBLE EXPENDITURE OR MISAPPLY ING THE LAW. THE PACS FUND CANNOT BE REGARDED AS A BAD DEBT, THEREFORE, THE LO WER AUTHORITYS ORDER ARE NOT TENABLE. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 9 10. WITHOUT PREJUDICE TO THIS ARGUMENT, THE LEARNED COUNSEL CONTENDS THAT LD. CIT(A) CONCLUDED THAT THE ALLOWABLE AMOUNT SHALL BE (I) 7.5% OF THE INCOME COMPUTED BEFORE ALLOWING THE SAID DEDUCTION O R (II) 10% OF THE ADVANCES MADE TO THE SOCIETIES ON THE LAST DAY OF T HE PREVIOUS YEAR, WHICHEVER IS LESS. WHEREAS, PERUSAL OF THE SAID RULE CLEARLY REVEALS THAT IT DOES NOT STIPULATE WHICHEVER IS LESS, NOWHERE, IT IS MENT IONED THAT OUT OF TWO, ONE WOULD BE ELIGIBLE AND THAT MUST BE LESS. ON THE CONT RARY, IT IS ENVISAGED THAT PROVISION SHALL BE 7.5% OF THE TOTAL INCOME COMPUTE D (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND 10 % OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANKS. IT IS CLEAR THAT THE WORD USED IS AND NOT WHICHEVER IS LESS, THERE FORE, BOTH THE AMOUNTS SHALL BE ELIGIBLE AS PROVISION UNDER THIS SECTION A ND EVEN BY APPLYING SAID SECTION, THE APPELLANT WILL FURTHER ELIGIBLE FOR PRO VISION OF RS. 95.33 LACS BEING 10% OF THE ADVANCE OUTSTANDING AT THE END OF THE YE AR. 11. FROM THESE CONTENTIONS, IT IS CLEAR THAT EVEN B Y APPLYING, SECTION 36(1)(VIIA), APPELLANT IS ELIGIBLE FOR MAKING PROVI SION OF RS. 99.68 LACS(RS. 4.02 LACS + RS. 95.33 LACS) AS AGAINST PROVISION MA DE OF RS. 43.29 LACS BY THE APPELLANT. 12. WITHOUT PREJUDICIAL TO THE ABOVE, IT IS CONTEND ED THAT UNDOUBTEDLY; FUND HAS BEEN CREATED TO ENSURE THE TIMELY PAYMENT OF TH E SALARY OF THE MANAGER OF PRIMARY AGRICULTURAL CREDIT SOCIETIES WORKING UN DER THE APPELLANT BANK. THE BUSINESS AND RECOVERY OF THE LOAN OF THE BANK ARE D EPENDS UPON THE ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 10 PERFORMANCE OF THE PACS AND THEIR WORKING MANAGERS. THEREFORE, SUCH FUND IS CREATED FOR COMMERCIAL BENEFIT OF THE APPELLANT BAN K AND WHOLLY AND EXCLUSIVELY FOR THE BUSINESS. THE FUND AS CREATED, CAN BE USED STRICTLY ACCORDING TO THE RULES,2003 OR AS PER INSTRUCTION O F THE REGISTRAR, CO- OPERATIVE 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 ALLOWABILI TY IS THAT THE FUND IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINE SS AND IS BASED UPON THE COMMERCIAL EXPEDIENCY. IN THIS REGARD, FURTHER RELI ANCE IS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SH RI VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT (199 7) (137) CTR (SC) 267.WHEREIN, IT IS OBSERVED THAT THE CORRECT TEST O F ALLOWABILITY IS COMMERCIAL EXPEDIENCY AND NOT WHETHER IT IS COMPULSORY OR NOT. IN THE INSTANT CASE, ADMITTEDLY FUND IS ON THE CONSIDERATION OF COMMERCI AL EXPEDIENCY. LD. A.O. HAS NOT DISPUTED THE ALLOWABILITY OF FUND AND ONLY D ISPUTED THE CALCULATION OF QUANTUM AS PERCEIVED BY HIM. THEREFORE, APART FROM O THER MERITS, EVEN ACCORDING TO SECTION 37, THE WHOLE PROVISION FOR PAC S FUND CREATED BY THE APPELLANT IS ALLOWABLE. IT IS PLEADED THAT THE ASSES SEE PROVISION BEING STATUTORY ALLOWABLE, PROPERLY CALCULATED THE EXPENDITURE, SHOU LD BE ALLOWED. 13. APROPOS GROUND NO. 5 OF APPEAL IN RESPECT OF EX CESS CASH RESERVE. IT IS PLEADED BY THE LEARNED COUNSEL FOR THE ASSESSEE THA T THE ASSESSEE HAD EXCESS ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 11 CASH RESERVE ACCOUNT WHICH IS SHOWN IN BALANCE SHEET ON LIABILITIES SIDE UNDER THE HEAD FUNDS AND RESERVE ACCOUNT. MEANING THAT TH E EXCESS CASH FOUND WITH THE CASHIER IS BEING TRANSFERRED IN EXCESS CASH RES ERVE ACCOUNT TREATING IT AS THE LIABILITIES OF THE BANK. THE PURPOSE OF CREATION OF RESERVE IS THAT, THE EXCESS CASH FOUND WITH THE CASHIER IS NOT ITS INCOM E IT IS A LIABILITY, WHICH THE BANK IS REQUIRED TO REPAY/RETURN TO THE LEGITIMATE PERSON, UPON HIS/HER CLAIM. THEREFORE, IT CANNOT BE SAID THAT THE LIABILITY OF B ANK, WITH RESPECT TO THIS AMOUNT HAS CEASED TO EXIST, IF IN THE EVENTUALITY O F ANY CLAIM, THE BANK IS BOUND TO RETURN/REPAY IT. THUS, THE BANK HAS NOT SHO WN THE SAID SUM AS INCOME IN THE PROFIT & LOSS ACCOUNT. UNDER SUCH FAC TS AND CIRCUMSTANCES, THE ADDITION MADE IS UNWARRANTED AND DESERVES TO DELETE IT. 14. APROPOS GROUND NO. 6 OF APPEAL IN RESPECT OF IN TEREST U/S 234B OF THE ACT IS PLEASED TO BE CONSEQUENTIAL. 15. APROPOS DEPARTMENTAL APPEAL, THE LEARNED COUNS EL CONTENDS THAT THE ASSESSEE HAD TAKEN A POLICY FROM LIC NAMED AS JHAL AWAR KENDRIYA SAHAKARI BANK EMPLOYEE GROUP LEAVE ENCASHMENT SCHEME. THE P OLICY 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 O F FY 2007-08 AND ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 12 ACCORDINGLY DEBITED ONLY RS. 40,00,000/- TO ITS PRO FIT & 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 ENCA SHMENT DIRECTLY FROM LIC UNDER SAID POLICY ON ACCOUNT OF THEIR LEAVE ENCASHM ENT. THUS, IT ENSURED THE TIMELY PAYMENT OF THE DUES OF THE EMPLOYEES, IRRESP ECTIVE OF THE FINANCIAL HEALTH OF THE BANK AT THE TIME OF PAYMENT. THIS BEN EFITED THE EMPLOYEES BY ASSURING THEIR LEAVE ENCASHMENT PAYMENTS. THE EXPEN SES CLAIMED FOR LEAVE ENCASHMENT IS TOWARDS ACTUAL PAYMENT MADE AND NOT AG AINST THE PROVISION. LEAVE ENCASHMENT IS PAYABLE ON THE PERIOD OF SERVIC ES ALREADY RENDERED, FOR WHICH EMPLOYEES ARE ENTITLED FOR LEAVE ENCASHMENT, HOWEVER, IT IS PAYABLE PERIODICALLY OR AT THE TIME OF RETIREMEN T. 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 FUTU RE. 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 PAYME NT MADE TO THE LIC, THE EXISTING LIABILITY TOWARDS LEAVE ENCASHMENT OF THE APPELLANT CEASED TO EXISTS AND EMPLOYEES BECAME ENTITLED TO RECEIVE THE SAME FROM THE LIC. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 13 THE PAYMENT MADE TO LIC TOWARDS LEAVE ENCASHMENT POLI CY IS AKIN TO PAYMENTS MADE TO EPF/ESI, WHEREIN, THE EMPLOYER DEP OSITS 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 TH EIR DEATH. FURTHER RELIANCE IS PLACED ON THE ORDER OF ITAT DELH I BENCH H IN THE CASE OF ACIT VS. NAINITAL BANK LIMITED VIDE ITA NO. 3606/DEL/2011, WHICH IN TURN RELIES ON HONBLE MADRAS HIGH COURT JUDGMENT I N THE CASE OF CIT VS. TEXTOOL CO. LTD. (SUPRA) HELD THAT SUCH PAYMENTS TO THE LIC FOR LEAVE ENCASHMENT BENEFITS IS AN ALLOWABLE EXPENDITURE. SIM ILAR VIEW HAS BEEN TAKEN BY THE HONBLE KERELA HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN LATEX LTD. (2012) 209 TAXMAN 42. 16. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEAR NED ASSESSING OFFICER. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. WE PROCEED TO DEC IDE THE GROUNDS RAISED BY THE ASSESSEE 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 REGISTR ATION OF SCHEME WAS NOT OBTAINED BY THE ASSESSEE, IN OUR CONSIDERED VIEW, TH E CONTROVERSY STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE H ON'BLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. TEXTOOL CO. LTD. 26 3 CTR 257 (SC) WHEREIN ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 14 THE SIMILAR PAYMENT MADE BY THE ASSESSEE DIRECTLY T O 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 C ASE OF KEIHIN PENALFA LTD. VS. ACIT VIDE ITA NO. 4309/DEL./2011 (SUPRA), T O 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. APROPOS GROUND NO. 3, THERE IS NO DISPUTE ON THE FA CTS THAT THE AMOUNT OF PAYMENT OF ARREARS OF SALARY IN QUESTION WAS MADE CONSEQUENT TO THE 13 TH WAGE SETTLEMENT WITH ALL THE STAKE HOLDERS. THE GENUIN ENESS OF THE PAYMENT IS NOT CHALLENGED. THE ASSESSEE IS GOVERNED BY REGULATO RY LAWS OF RAJASTHAN COOPERATIVE SOCIETIES ACT. THE ASSESSEES LIABILITI ES TOWARDS WAGE REVISION HAVING ACCRUED AND CRYSLATISED BY WAY OF AGREED SETT LEMENT, 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 THI S BEHALF. OUR VIEWS ARE FORTIFIED BY THE ABOVE REFERRED JUDICIAL PRONOUNCEM ENTS CITED BY THE LEARNED COUNSEL AND MENTIONED AT PARA ABOVE. RESPECTFULLY F OLLOWING THE HON'BLE SUPREME COURT AND VARIOUS OTHER HONBLE HIGH COURTS JUDGMENTS, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF PROVISION OF WAGE SETTLEMENT OF RS. 20.00 LACS. IN VIEW OF THE ABOVE, GROUND NO. 3 OF T HE ASSESSEE IS ALLOWED. ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 15 APROPOS GROUND NO. 4, THE REASONS FOR THE PAYMENT H AVE BEEN NARRATED ABOVE, WHICH HAVE NOT BEEN CONTROVERTED BY THE LEARN ED D.R.. THIS EMPHASIZES THE FACT THAT THE ASSESSEE BEING A CENTR AL COOPERATIVE BANK IS BOUND BY RULES FRAMED BY THE REGISTRAR OF COOPERATI VE SOCIETIES, RAJASTHAN FROM TIME TO TIME IN RESPECT OF ITS BANKING AND STA FF ACTIVITIES. LIABILITY FOR PACS WAS FOSTERED BY THE STATUTORY RULES. THE ASSESSI NG 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 T HE PACS PAYMENT CANNOT BE HELD TO BE A BAD DEBT, THEREFORE, WHAT IS RELEVAN T FOR US IS THE ASSESSING OFFICERS ORDER. THE LIABILITIES HAVE BEEN CREATED B Y 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 OF FICER CANNOT BE HELD AS A TOOL TO DISALLOW THE ASSESSEES CLAIM. THE REVENUES INTEREST IS SAFEGUARDED BY A FACT THAT IF AT ALL THERE IS ANY MISTAKE IN THE C ALCULATION, THE ACCESS ARE SHORT CALCULATION WILL BE GIVEN SUITABLE TREATMENT IN BOO KS OF ACCOUNT IN SUBSEQUENT YEARS. THIS BEING SO IN OUR CONSIDERED VIEW, THE ASSE SSEE IS ELIGIBLE FOR CLAIM OF PACS MANAGER FUND PAYMENT AS EXPENDITURE. OUR VI EWS ARE FORTIFIED BY THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF SHRI VENKATA SATYANARAYANA ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 16 RICE MILL CONTRACTORS CO. VS. CIT (SUPRA). IN VIEW TH EREOF, THIS GROUND OF ASSESSEE IS ALSO ALLOWED. 18. APROPOS GROUND NO. 5 I.E. CASH RESERVE AMOUNTIN G TO RS. 10,631/-, THE ASSESSEE HAS GIVEN A CLEAR EXPLANATION THAT THIS RE SERVE ACCOUNT IN BALANCE SHEET HAS BEEN CREATED ON THE LIABILITY SIDE. THE SA ME REPRESENTS THE EXCESS CASH FOUND AS PER THE BOOKS WHICH THE BANK IS REQUIR ED TO REPAY TO THE LEGITIMATE PERSON ON A PROPER CLAIM. THUS, IT IS AN AMOUNT IN TRUST HELD BY THE BANK, IT IS NOT CREDITED TO P&L ACCOUNT AND IS A BA LANCE SHEET ITEM. IT WAS ADDED TO THE INCOME OF THE ASSESSEE WITHOUT ANY COGE NT REASON. IN OUR VIEW, THE ASSESSEES EXPLANATION IS BONAFIDE. THE ACCRUAL OF EXCESS CASH IN THE BOOKS MAY BE ATTRIBUTABLE TO EXCESS CASH DEPOSITED BY ANY CUSTOMER. THE BANK WILL BE LIABLE TO PAY THIS AMOUNT ON A VALID CL AIM. THE SAME BEING AN ITEM OF BALANCE SHEET AND NOT THE P&L ACCOUNT, CANN OT BE ADDED AS THE INCOME OF THE ASSESSEE. 19. APROPOS THE DEPARTMENTAL APPEAL, THE ASSESSEE T OOK A POLICY FROM LIC NAMED AS JAWAHAR KENDRIYA SAHAKARI BANK EMPLOYEE GRO UP LEAVE ENCASHMENT SCHEME. THE FACTS ARE MENTIONED IN DETAIL ABOVE. THE PAYMENT OF LEAVE ENCASHMENT IS A CONTRACTUAL LIABILITY, A C HARGE ON ASSESSEES PROFIT. TO ENSURE TIMELY PAYMENT OF LEAVE ENCASHMENT TO EMPLOY EES SCHEME IS DEVISED BY THE LIC, WHICH WORKS OUT THE LEAVE ENCASHMENT LIA BILITY AND FIXATION OF PREMIUM. THE LIABILITY IS ASCERTAINED AND CRYSTALISE D ON A SCIENTIFIC METHOD BY ITA NO. 1032 & 1051/JP/2011 JHALAWAR KENDRIYA SAHAKARI BANK LTD. VS. ACIT. 17 THE LIC. THUS, THE ASSESSEES PAYMENT OF RS. 40 LACS TOWARDS THE SAME IS WITHIN THE FRAME WORK OF THE SCHEME. IN OUR CONSIDERE D VIEW, THE SAME IS A ALLOWABLE DEDUCTION. THIS VIEW FURTHER SUPPORTED BY TH E HON'BLE SUPREME COURT IN THE CASE OF TEXTOOL CO. LTD. (SUPRA) AND IT AT JUDGMENT IN THE CASE OF NAINITAL BANK LTD. (SUPRA). RESPECTFULLY FOLLOWING T HE SAME, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR THIS DEDUCTION. 20. IN VIEW OF THE FOREGOING, THE ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/08/2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, DATED : 14 TH AUGUST, 2014 * RANJAN COPY FORWARDED TO :- 1. JHALAWAR KENDRIYA SAHAKARI BANK LTD., JHALAWAR. 2. THE ACIT, CIRCLE-1, KOTA. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 1032 & 1051/JP/2011) BY ORDER, AR ITAT JAIPUR.