The Panipat Urban Co-operative Bank Ltd., New Delhi V. ACIT, Panipat

ITA 1998/DEL/2019

AI Insights

The case involves the Panipat Urban Co-operative Bank Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) - Karnal, which confirmed the disallowance made by the Assessing Officer on account of provision for leave encashment. The bank had claimed a deduction for Rs. 12,99,387, which was the premium paid to LIC for a leave encashment scheme. The Assessing Officer disallowed this claim citing that the liability was not discharged by the due date of furnishing the return of income, as required under section 43B(f) of the Income Tax Act. The Tribunal, however, found that the issue was covered by earlier decisions in favor of the assessee and that the CIT(A) had previously allowed similar claims for different assessment years.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 302777 (ITAT-DELHI)
• Duration Of Justice: 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 28-11-2022
• Assessment Year: misc
• Appeal Filed On: 06-11-2022
• Other Referred Cases: CIT vs Hindustan Latex Ltd., DCIT vs M/s. Andhra Pradesh Handicrafts Development Corporation Ltd., Nainital Almora Kshetriya Gramin Bank vs. ACIT, ACIT vs. M/s. The Nainital Bank Ltd., Hindustan Latex Ltd. vs. ACIT, DCIT vs. M/s. Andhra Pradesh Handicrafts Development Corporation Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SONAL LAHINA
• Keywords: Business expenditure; Set aside
• Section: 37; 263; 271(1)(c); 43B; 143(3); 274; 64; 43; 13

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 1998/Del/2019 Asstt. Year: 2015-16 O R D E R PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order dated 15.01.2019 of the Ld. Commissioner of Income Tax (Appeals)- Karnal (“CIT(A)”) pertaining to the assessment year (“AY”) 2015- 16. 2. The assessee has raised the following grounds of appeal: 1. “That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs. 12,99,3 87/- on account of provision for leave encashment u/s 43B and that too by recording incorrect facts and findings and incorrect application of law. whereas the issue is squarely covered in favor of assessee by the judgment of CIT vs Hindustan Latex The Panipat Urban Co- operative Bank Ltd. GT Road, Panipat Haryana. PAN AALT0141K Vs. ACIT, Panipat (Appellant) (Respondent) Assessee by: Ms. Sonal Lahina, CA Department by : Shri Abhishek Kumar, Sr. DR Date of Hearing 29.11.2022 Date of pronouncement 02.12.2022 ITA No. 1998/Del/2019 2 Ltd. in ITA. No. 64 of 2012, Date of order 07-06-2012.Hon'ble High Court, Kerala, and the judgment of DCIT vs M/s. Andhra Pradesh Handicrafts Development Corporation Ltd. in ITA. No. 915&916/Hyd./2014, Date of order 29- 05-2015. ITAT Hyderabad. 2. That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in charging penalty proceedings u/s 271(1 )(c ) read with section 274 and interest u/s 234 of the Income tax Act, 1961. 3. That in any case and in any view of the matter, order passed by Ld. CIT (A) in the non¬speaking manner and pre-conceived mind and just placing reliance on the assessment order, is bad in law and against the facts and circumstances of the case. 4. That the appellant craves the leave to add, modify, amend or delete any ot the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.” 3. The assessee is stated to be a co-operative society engaged in the business of banking activity. For the AY 2015-16, the assessee filed its return of income on 16.09.2015 declaring income of Rs. 7,13,68,760/-. The case was selected for manual scrutiny. The Ld. Assessing Officer (“AO”) completed the assessment on 26.12.2017 under section 143(3) of the Income Tax Act, 1961 (the “Act”) on total income of Rs. 7,42,94,956/- including therein, interalia disallowance of Rs. 12,99,387/- on account of provision for leave encashment under section 43B of the Act. 4. During assessment proceedings the Ld. AO found that the assessee has claimed expenditure on account of leave encashment provisions at Rs. 12,99,387/- being liability which are not actually paid by the assessee on or before the due date of furnishing the return of income. On query raised by the Ld. AO, the assessee submitted that there is corresponding increase of Rs. 12,99,387/- in the group leave encashment balance with LIC under the head Other Asset Schedule II. Bank discharge the liability on yearly basis and amount is transferred to LIC fund who deposit the same in accounts maintained by it on individual basis to discharge the liability of employee on retirement / resignation as retiring benefit. After transferring to LIC fund, bank has no liability but it is the liability of LIC to discharge the liability of each employee when it occurs in future. So the expenditure is claimed by the ITA No. 1998/Del/2019 3 bank on yearly basis after detailed calculation as shown as per separate sheets, hence these should be allowed. 5. The explanation of the assessee was not acceptable to the Ld. AO. Applying the provision of section 43B(f) of the Act and relying on the decision of Delhi “E” Bench of the Tribunal in the case of Nainital Almora Kshetriya Gramin Bank vs. ACIT (ITA No. 4240-5234-5312/Del/2012 dated 12.11.2015) the Ld. AO made the impugned disallowance against which the assessee appealed before the Ld. CIT(A) but without success. Aggrieved, the assessee is before the Tribunal. 6. The Ld. AR submitted that the assessee claimed deduction of Rs. 12,99,387/- being the amounts paid as premium to the LIC towards the leave encashment scheme. The assessee bank had insured itself about 10 years back against the liabilities that may arise on account of the claims made by the employee towards leave encashment. It was further submitted that though the primary responsibility to pay the leave encashment benefit is of the assessee, the assessee to safeguard its interest took an insurance policy from LIC so that, henceforth, the LIC will discharge leave encashment liability subject to assessee paying the premium. Therefore, the liability of the assessee is only to pay the premium and actual sum payable to each employee towards leave encashment is that of LIC. Since the assesee has paid the premium, to the LIC, it has discharged its liability towards leave encashment scheme. Hence, it is an allowable expenditure under section 37 of the Act being an expenditure incurred for the purposes of business of the assessee. The Ld. AR relied on the following decisions:- i) ACIT vs. M/s. The Nainital Bank Ltd. (ITA No. 3606/Del/2011 dated 11.01.2012 – Delhi ‘H‘ Bench – A.Y. 2008-09 ii) CIT vs. Hindustan Latex Ltd. (IT Appeal No. 64 of 2012 decided by Kerala High Court on 07.06.2012 ITA No. 1998/Del/2019 4 iii) DCIT vs. M/s. Andhra Pradesh Handicrafts Development Corporation Ltd. (ITA No. 915-916/Hyd./2014 dated 25.5.2015 – ITAT ‘B’ Bench Hyderabad) 7. The Ld. DR relied on the orders of the Ld. AO/CIT(A). 8. We have considered the submission of the parties and perused the material available in the records. The facts are not in dispute. On identical facts in the case of M/s. The Nainital Bank Ltd. (supra), similar disallowance was deleted by Delhi Bench of the Tribunal in appeal preferred by the Revenue by observing in para 2 and 3 of its order as under:- “2. Before us, the learned Senior Departmental Representative relied on the assessment order. It has already been mentioned by us that he made the disallowance as the revenue has not accepted the decision of ITAT in the case of the assessee for the Assessment Year 2006-07. 2.1 In reply, the learned counsel referred to the statement of facts. It is mentioned therein that a sum of Rs. 30 lakh has been disallowed, which represents payment made to the LIC on account of leave encashment. This issue stands covered by the decision of the Tribunal in the case of the assessee for Assessment Year 2006-07. Further, it has been submitted that the issue arose for the first time in the proceedings of Assessment Year 2004-05. In that year, the matter was decided in favour of the assessee by 'F' Bench of the Tribunal in ITA No.4987(Del)/2007 dated 09.01.2009. The decision has been followed by the Tribunal in subsequent years 2005-06 and 2006-7. In view of these decisions, it is urged that the matter may be decided in favour of the assessee. 3. We have considered the facts of the case and submissions made before us. The admitted position is that the issue stands covered by three decisions of the Tribunal for Assessment Years 2004-05 to 2006- 07. The matter has been discussed at length in the order for Assessment Year 2004-05. For the sake of ready reference, paragraph 13 of this order is reproduced below:- “13. We have considered the rival submissions. As per the Master Policy taken by the assessee bank in respect of the liability as an employer, LIC has undertaken to pay the benefits in respect of all the employees (Members of the Scheme) the leave encashment benefits. The assessee is to intimate LIC about the happening of the event which entitles the employee to leave encashment benefit. On such intimation LIC shall discharge the liability through the assessee. Therefore, the liability to pay encashment benefit now rests with the LIC and not with the assessee. The assessee has to merely pay annual premium as per the ITA No. 1998/Del/2019 5 terms of agreement. The initial premium for one year was worked out at Rs.1,10,00,000/- which was paid by the assessee on taking the policy itself in March 2003. The Commissioner (Appeals) mistook the nature of payment by the assessee. Though the primary responsibility to pay leave encashment benefit is of the assessee, the assessee to safeguard its interest took an insurance policy from LIC so that henceforth the LIC will discharge leave encashment liability subject to assessee paying the premium. Therefore, the liability of the assessee is only to pay the premium and actual sum payable to each employee towards leave encashment is that of LIC. In such circumstances, the assessee having paid the premium has discharged its liability towards leave encashment scheme. The same is therefore, allowable as expenditure under section 37 of the Act. In the case of Textool Co. Ltd. (supra), the facts are that the Employees Group Gratuity Fund of the Assessee company was duly approved Gratuity fund created for the exclusive benefit of the employees of the said company and it was also an irrevocable trust. Although the payments were made by the Assessee company directly to the Life Insurance Corporation the Commissioner (Appeals) and the Tribunal recorded a finding of fact that the payments were deductible. On reference the Hon'ble Madras High Court held - "Merely because the payments were made directly to the L.I.C., the company could not be denied the benefit under section 36(i)(v) of the Income Tax Act, 1961 the Tribunal was right in allowing the deduction of Rs.5584754-00 being the payment made by the assessee company directly to L.I.C. towards Group Gratuity Fund under section 36(i)(v) of I.T. Act." In the case of Associated Electrical Industries (India) Pvt. Ltd. ( supra), the head note reads as under:- "Business Expenditure - Year in which allowable - Plan for pension and Insurance for Employees - Policies taken in names of Employees pursuant to Plan - Assessee’s contributions to premium disallowed in years of payment on ground that Assessee had control over disposal of funds - Amendment of Rules of Plan leaving no control with Assessee and making amounts due under Policies payable to employees - Amounts earlier disallowed - Allowable in year in which Amendment was effected as outgoing of that year - Indian Income Tax Act 1922, s.io(2)(xv), (4)(c )." Both the cases can be applied to hold that the liability which was sought to be discharged by taking insurance policy and the premium having been paid in this regard, the premium payable/paid is eligible for deduction while computing the income from business. We, therefore, delete the disallowance of Rs.1,10,00,000/-." ITA No. 1998/Del/2019 6 3.1 Following the aforesaid decision, it is held that the assessee was entitled to deduct the am Rs.30 lakh in computing its total income.” 9. In Hindustan Latex Ltd. (supra), the Ld. AO has allowed similar claim of deduction under section 37 of the Act which was set aside by the Ld. CIT under section 263 of the Act. On appeal by the assessee, the Tribunal set aside the order under section 263 of the Act passed by the Ld. CIT. On appeal by the Revenue, after having analysed the provisions of section 43B(f) of the Act in para 4, 5 & 6 of their decision, the Hon’ble Kerala High Court recorded their findings in para 7,8, 9 which is reproduced hereunder:- “7. In the said circumstance, the order of the Assessing officer allowing the claim of deduction cannot at all be assailed. The same cannot be said to be an incorrect assumption of fact or incorrect application of law. The view taken by the Assessing Officer can not be said to be unsustainable in law. The only reason quoted by the Commissioner to initiate and conclude proceedings under Section 263 was that the amounts paid in lieu of leave as 'leave encashment' to employees, could only be claimed as a deduction on the actual liability being suffered in the previous year as per Section 43 B (f). The said view cannot be sustained. The finding of the Tribunal is that the proceedings taken under section 263 of the Act to revise the order of the Assessing Officer on grounds of the same being prejudicial to the Revenue cannot be sustained on the principles laid down by the Supreme Court in Malabar Industries v. Commissioner of Income Tax (2000 243 ITR 83) and reiterated in Commissioner of Income-tax v. Max India Limited (2007 295 ITR 283). Section 263 cannot evidently be invoked when an Assessing Officer adopts one of the two courses permissible in law which may result in loss of revenue or where two views are possible and circumstances, it has been clearly laid down in the above cited decisions that an order so passed cannot be treated as erroneous order prejudicial to the interest of the Revenue. Further it was not a provision which was disallowed, but an actual liability towards premium paid on insurance policy and the liability was allowable as a deduction under Section37 being an expenditure incurred for the purpose of the business. The Commissioner proceeded on a totally wrong premise in finding the claim to be only under Section 43B(f) and then disallowing it. 8. One other circumstance is the Calcutta High Court decision in Exide Industries case supra). The Calcutta High Court held that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of Section 43 B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Section 43 B, it was held, was originally inserted ITA No. 1998/Del/2019 7 to plug evasion of statutory liabilities and the introduction of clause (f) was found to be inconsistent with the said object. The learned Judges held that the amendment brought in could not have nullified the dictum laid down in Bharat Earth Movers case {Supra). As noticed earlier there is nothing in the appeal memorandum to indicate that the Revenue has challenged the said decision before the Supreme Court. In the circumstances of the Revenue having not challenged the correctness of the law laid down by the Calcutta High Court, it is not open to the Revenue to challenge its correctness in the case of another assessee. The Supreme Court in AIR 2004 1743 SC Berger Paints India Ltd. v. Commissioner of Income Tax reiterated that "if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessee, without just cause is squarely applicable herein. 9. The order of the Assessing Officer allowing deduction to the assessee in the case of premium paid towards the valid insurance policy, ensuring the satisfaction of liability for leave encashment by the insurer cannot be held to be erroneous and is not liable to be revised under Section 263 for the reason of being prejudicial to the Revenue. The Revenue having accepted the decision of the Calcutta High Court also cannot press into service Section 43B(f). Hence, the questions of law are answered against the Revenue and in favour of the assessee. Income Tax appeal is rejected in limine.” 10. It may be mentioned that in the case of the assessee before us, similar disallowance made by the Ld. AO in A.Y. 2017-18 has been deleted by the Ld. CIT(A) vide his order in appeal No. IT/388/E/PPT/2019-20 dated 25.08.2020, copy of which has been placed on record. 11. We, therefore, following the decision (supra) and taking notice of the fact that the Ld. CIT(A) in AY 2017-18 has himself deleted the similar disallowance, decide ground No. 1 in favour of the assessee. 12. Ground No. 2 relating to initiation of penalty proceedings under section 271(1)(c) is pre mature and levy of interest under section 234 is only consequential. 13. Ground No. 3 is general in nature. ITA No. 1998/Del/2019 8 14. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 2 nd December, 2022. sd/- sd/- (ANIL CHATURVEDI) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 02/12/2022 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order