The Sirohi Central Cooperative Bank Ltd., JODHPUR V. ACIT, JODHPUR

ITA 351/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1583 (ITAT-JODHPUR)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Assessee Lawyers: S K BISSAR
• Keywords: Business expenditure; Diversion of income
• Section: 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 351/JU/2012 ASSESSMENT YEAR : 2009-10 THE SIROHI CENTRAL COOP BANK LTD., VS THE ACIT, CIR CLE-2, C/O S.K. BISSAR, JODHPUR JODHPUR PAN NO. AAALT0792J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. BISSAR RESPONDENT BY : SHRI G.R. KOKANI DATE OF HEARING : 19.2.2013 DATE OF PRONOUNCEMENT : 19.2.2013 ORDER PER N.K.SAINI, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 2.8.2012 OF CIT(A), JODHPUR. 2.1 THE FIRST ISSUE IN THIS APPEAL RELATES TO ADDIT ION OF RS. 1.47 LACS MADE BY THE AO ON ACCOUNT OF PROVISION OF PACS MANAGER SALARY. 2.2 THE FACTS IN BRIEF OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAD DEBITED PRO VISION FOR PACS MANAGER SALARY FUND AND THE ASSESSEE SUBMITTED THAT THIS PROVISION WAS MADE AS PER DIRECTION OF THE REGISTRAR 2 COOPERATIVE SOCIETIES AND THE PROVISION IS MADE FOR BUSINESS PURPOSE. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE ABOVE SUBMISSIONS OF THE ASSESSEE. HE MADE THE DISALLOWANCE OF RS. 1.47 LACS BEING THE PROVISION F OR PAC MANAGER FUND. 2.3 THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( A) WHO CONFIRMED THE ADDITION MADE BY THE AO FOR THE REASONS STATED IN PARA 4.3 OF THE IMPUGNED ORDER. 2.4 BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. 2.5 DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE VIDE ORDER DATED 22-07- 2011 OF ITAT JAIPUR BENCH IN ITA NO.1277/JAIPUR/201 0 FOR THE ASSESSMENT YEAR 2007-08 IN THE CASE OF ACIT VS RAJASTHAN STATE COOPERATIVE BAN K LTD., JAIPUR. THE COPY OF THE SAID ORDER WAS FURNISHED. 2.5 THE LD. DR IN HIS RIVAL SUBMISSIONS SUPPORTED T HE ORDER OF THE AUTHORITIES BELOW. 2.6 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIALS AVAILABLE ON RECORD, IT IS NOTICED THAT SIMILAR ISSUE HAS BEEN D ECIDED BY THE COORDINATE BENCH IN THE AFORESAID REFERRED TO CASE OF ACIT VS RAJASTHAN STA TE COOPERATIVE BANK LTD., JAIPUR. IN THE SAID CASE ON SIMILAR ISSUE, THE ADDITION WAS DELETE D BY THE LD. CIT(A) BY OBSERVING AS UNDER:- ALLOWABILITY OF CONTRIBUTION BY THE APEX BANK FOR PAC MANGERS SALARY IS A STATUTORY LIABILITY WHICH IS CRYSTALLIZED AT THE END OF EVERY YEAR. THE CONTRIBUTION HOWEVER, ONCE MADE BECOME AT THE DISPO SAL OF REGISTRAR OF COOPERATIVE SOCIETY WHICH IS PAYABLE AS AND WHEN DE MANDED BY THE REGISTRAR COOPERATIVE SOCIETY ALONGWITH INTEREST ON IT. THUS, IT IS NOT CONTINGENT LIABILITY BUT A STATUTORY LIABILITY WHIC H IS CRYSTALLIZED AT THE END OF EVERY YEAR AND HENCE THE LIABILITY IS ALLOWABLE. 3 2.7 AGAINST THE SAID ORDER, THE DEPARTMENT PREFERRE D AN APPEAL IN ITA NO.1277/JAIPUR/2010 WHEREIN VIDE ORDER DATED 22-07- 2011, THE ORDER OF THE LD. CIT(A) WAS UPHELD BY OBSERVING IN PARA 3.6 OF THE SAID ORDER A S UNDER:- 3.6 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE A PEX COURT IN THE CASE OF SRI VENKATA SATYANARAYANA RICE MILL CON TRACTORS CO. VS CIT,223 ITR 101 HAS STATED THAT IT IS TO BE SEEN AS TO WHETHER THE PAYMENT IS COMPULSORY FOR THE ASSESSEE TO MAKE OR N OT BUT WHETHER IT WAS EXPENDED OUT OF CONSIDERATION OF COMMERCIAL EXP EDIENCY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A FUND WHICH D IRECTLY CONNECTED OR RELATED TO CARRYING ON ASSESEE'S BUSINESS OR WHI CH RESULTS IN BENEFIT TO THE ASSESEE'S BUSINESS HAS TO BE REGARDE D AS DEDUCTION ALLOWABLE U/S 37 OF THE ACT. THE DECISION OF HON'BL E APEX COURT IN THE CASE OF ASSOCIATED POWER CO. LTD. VS CIT (SUPRA ) IS NOT APPLICABLE. THE HON'BLE APEX COURT HELD THAT APPLIC ATION OF THE DOCTRINE OF DIVERSION OF INCOME BY REASON OF OVERRI DING TITLE IS NOT APPLICABLE IN THAT CASE AS THE RESERVE IS OUT OF TH E REVENUES OF THE UNDERTAKING AND REACH THE ELECTRICITY COMPANY AND I S NOT DIVERTED AWAY FROM IT. HOWEVER, IN THE INSTANT CASE, THE AMO UNT IS TO BE CONTRIBUTED TO A FUND AND THE FUND IS NOT BEING MAN AGED BY THE ASSESSEE. THE ASSESSEE MAY BE TRUSTEE OF THAT FUND BUT IT CANNOT APPLY THE FUND AS PER HIS OWN WILL. THE INTEREST, IF ANY, EARNED ON THIS FUND IS ALSO TO BE CREDITED TO THAT FUND. IT IS THEREFOR E, CLEAR THAT FUNDS STAND DIVERTED AT THE SOURCE AND THEREFORE, THIS CA NNOT BE CONSIDERED AS AN APPROPRIATION OF INCOME BUT IT IS AN EXPENDIT URE. THUS THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 2.8 SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE, SO RESPECTFULLY FOLLOWING THE ORD ER DATED 22-07-2011 OF THE ITAT JAIPUR BENCH IN ITA 1277JP/2010 FOR THE ASSESSMENT YEAR 20 07-08 IN THE CASE OF ACIT VS RAJASTHAN STATE COOPERATIVE BANK LTD., JAIPUR, THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS DELETED. 4 3.1 THE NEXT ISSUE RELATES TO THE SUSTENANCE OF ADD ITION MADE BY THE AO ON ACCOUNT OF PREMIUM OF 47 EMPLOYEES OF LEAVE ENCASHMENT AMOUNT ING TO RS. 26,52,873/- TO LIC OF THE EMPLOYEES AGAINST QUANTIFIED LIABILTIES. 3.2 THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE AO FOUND THAT A SUM OF RS. 26,52,873/- WAS DEBITED IN THE PROFIT AND LOSS ACCO UNT AS LEAVE ENCASHMENT POLICY PREMIUM PAID TO LIC OF INDIA. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE PURPOSE OF THIS EXPENDITURE AND ITS RELATION WITH THE BUSINESS . THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS PAID TO CREATE A FUND FOR THE BENEFIT OF EMPLOY EES. THE ASSESSING OFFICER, HOWEVER, OBSERVED THAT THE ASSESSEE COULD NOT PROVE THE PURP OSE OF THIS EXPENDITURE WITH RELATION TO THE BUSINESS AND THAT ANY EXPENDITURE WAS ALLOWABLE ONLY WHEN INCURRED FOR BUSINESS PURPOSES, OTHERWISE ALSO, EXPENDITURE IN RELATION T O THE CONTRIBUTION TOWARDS SUCH FUNDS WAS NOT ALLOWABLE. THE ASSESSING OFFICER WAS OF THE VI EW THAT THE ASSESSEE HAS DIVERTED THE FUNDS OF BUSINESS WRONGLY WHICH OTHERWISE COULD HAV E BEEN UTILISED FOR GROWTH OF BUSINESS. ACCORDINGLY, THE AMOUNT OF RS. 26,52,873/- PAID FOR LEAVE ENCASHMENT POLICY PREMIUM WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSES SEE. 3.3 THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( A) WHO CONFIRMED THE ADDITION BY OBSERVING THAT A SIMILAR DISALLOWANCE WAS MADE IN T HE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2008-09 AND THE ISSUE WAS DECIDED A GAINST THE ASSESSEE, HE, THEREFORE, BY FOLLOWING HIS EARLIER ORDER CONFIRMED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. 3.4 NOW THE ASSESSEE IS IN APPEAL. 3.5 THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OU TSET STATED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE KERALA HIGH COURT IN TH E CASE OF CIT VS HINDUSTAN LATEX LTD. 209 TAXMAN 42 (KERALA). THE COPY OF THE SAID ORDER WAS ALSO FURNISHED. 3.6 IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 3.7 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIALS AVAILABLE ON RECORD, IT IS NOTICED THAT ON THE SIMILAR ISSUE TH E HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS HINDUSTAN LATEX LTD. (SUPRA) HAS HELD AS UND ER:- LEAVE ENCASHMENT IS NOT A STATUTORY LIABILITY AND EVEN IN THE CASE OF PROVISION BEING MADE THE DEDUCTION WAS ALLOWED AS A BUSINESS EXPENDITURE, WHEN THE LIABILITY WAS NOT ACTUALLY IN CURRED IN THE PREVIOUS YEAR. IT WAS NOT A PROVISION WHICH WAS DIS OWNED BUT AN ACTUAL LIABILITY TOWARDS PREMIUM PAID ON INSURANCE POLICY AND THE LIABILITY WAS ALLOWABLE AS A DEDUCTION U/S 37 BEING AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. CIT PROCEED O N A TOTALLY WRONG PREMISE IN FINDING THE CLAIM TO BE OLY U/S 43B(F) A ND THEN DISALLOWING IT. THE ORDER OF AO ALLOWING DEDUCTION TO ASSESSEE IN THE CASE OF PREMIUM PAID TOWARDS THE VALID INSURANCE POLICY, EN SURING THE SATISFACTION OF LIABILITY FOR LEAVE ENCASHMENT BY T HE INSURER CANNOT BE HELD TO BE ERRONEOUS AND WAS NOT LIABLE TO BE REVIS ED U/S 263 FOR THE REASON OF BEING PREJUDICIAL TO THE REVENUE. 3.8 FROM THE RATIO LAID DOWN BY THE HON'BLE KERALA HIGH COURT IN THE AFORESAID REFERRED TO CASE, IT IS CLEAR THAT ACTUAL LIABILITY TOWARDS PREMIUM PAID ON INSURANCE POLICY IS AN ALLOWABLE DEDUCTION U/S 37 OF THE ACT BEING THE EXP ENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. IN VIEW OF THAT, WE SET ASIDE THE IMPUGNE D ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSE E. 4.0 IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 19.2.2013) SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 19 TH FEBRUARY, 2013, RKK 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR