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

ITA 672/DEL/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6074 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2016-2017
• Appeal Filed On: 04-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure
• Section: 37; 28; 43B; 143(3); 274; 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘H’ : NEW DELHI) BEFORE DR. B.R.R.KUMAR, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.672/Del/2020 (Assessment Year : 2016-17) The Panipat Urban Co-operative Bank Ltd. 510/8 Near Jain High School G.T. Road Opp. Railway Road Panipat- 132103 PAN : AAALT0141K Vs. The Addl. CIT Panipat Circle, Panipat (APPELLANT) (RESPONDENT) Assessee by Sh. Vishal Gupta, Employee of the Bank Revenue by Shri M. Baranwal, Sr. DR Date of hearing: 13.07.2022 Date of Pronouncement: 18.07.2022 ORDER PER ANUBHAV SHARMA, JM: The appeal has been filed by the Assessee against order dated 05.12.2019 in appeal no. IT/395/E/PPT/2018-19, New Delhi in assessment year 2016-17 passed by Commissioner of Income Tax (Appeals), Karnal (hereinafter referred to as the First Appellate Authority in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 2 dated 26/12/2018 u/s 143(3) of the Income Tax Act, 1961 passed by ACIT, CIR, New Delhi (hereinafter referred to as the Assessing Officer ‘AO’). 2. The facts in brief are the assessee is a co-operative society engaged in the business of banking activity and Ld. AO observed that the assessee had claimed expenditure on account of leave encashment provisions at Rs. 11,26,143/-. The assessee had claimed that there is increase of Rs. 11,26,143/- in the group leave encashment balance with LIC under the head “Other Assets” and that the Bank discharges the liability on the 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. It was claimed that 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. The Ld. AO was not satisfied with this claim and observed that section 43(B) of the Act mandates that specific items listed therein which are otherwise eligible for deduction u/s 28 to 44 of the Act shall be allowed only on actual payment to employee subject to the exception that the payment in respect of the said expenses is actually made on or before the due date of submission of return of income and the evidence of such payment is submitted along with the return of income. Ld. AO had relied judgment dated 12.11.2015 of ITAT Delhi Bench in Nanital Almora Kshetriya Gramin Bank vs. ACIT ITA No. 4240-5234-5312/Del/2012. The Ld. AO observed that the payment made to LIC fund is just a provision as bank has parked its money with LIC Fund, not actually paid to employees. Thus, the expenditure of Rs. 11,26,143/- was disallowed. The Ld. CIT(A) had confirmed the addition. ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 3 3. Now assessee has come before the Tribunal raising following grounds :- “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. 11,26,143/- 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 ACIT Nainital V/s. M/s. The Nainital Bank Ltd., Nainital in ITA No. 3606/Bel/2011, Date of Order 11-01-2012. ITAT DELHI and the judgment of CIT vs. Hindustan Latex 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/FIyd./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(l)(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 nonspeaking 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 of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 4. Heard and perused the record. On behalf of the assessee bank, Sh. Vishal Gupta, Authorised Representative appeared and submitted written arguments which are reproduced below for convenience; “Ld. AO has discussed this issue at Para 4 of the assessment order and finally concluded the findings that the payment made to LIC fund is just a provision as bank has parked its money with LIC Fund, not actually paid to employees. Therefore, the ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 4 expenditure of Rs 11,26,143/- on account of leave encashment provisions is disallowed u/s 43B (f) of the Act. Ld. AO has relied upon judgment of Nainital Almora Kshetriya Gramin Bank Vs. ACIT ITA No. 4240-5234-5312/Del/2012 dated 12.11.2015 in which assessee has made a provision of leave encashment for its employees on the basis of actuarial valuation, payable to the employees on their retirement, death or termination of employment but Facts and circumstances of present proceeding is totally different which is discussed as under :- Case of the assessee is : • That for the Assessment year 2016-17 assessee claimed deduction of Rs 11, 26,143/- being the amounts paid as premium to the LIC, towards the Leave Encashment Scheme. • That the assessee, a Co-operative Bank had insured itself against the liabilities that may arise on account of the claims made by the employees towards leave encashment. • 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. • 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. • 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 deduction u/s 37 of the Act being an expenditure incurred for the purpose of business. The Ld. CIT (A) has erred in law and on facts in confirming the action of Ld AO on a totally wrong premise in finding the claim to be only u/s 43B(f) and then disallowing it. • In the instant case, the assessee had claimed deduction on the basis of actual payment exclusively incurred for the purpose of business as covered in the judgment of ACIT Nainital V/s. M/s. The Nainital Bank Ltd., Nainital in ITA No. 3606/Del/2011, Date of Order 11- 01-2012. ITAT DELHI and CIT vs. Hindustan Latex ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 5 Ltd. in Hon'ble High Court , Kerala and DCIT vs^M/s. Andhra Pradesh Handicrafts Development Corporation Ltd. in ITAT Hyderabad. Further, the similar ground has been allowed in the favor of Assessee in the office of the Commissioner of Income Tax (Appeals), Kamal in subsequent Assessment Year 2017-18. (Copy of said order u/s 250(6) of the income tax Act, 1961 has been enclosed herewith).” 5. Ld. DR however vehemently argued that the provisions of Section 43B(f) of the Act are clear and therefore disallowance of actuarial leave encashment which is admittedly unpaid may be upheld. He also relied judgment of Hon’bel Supreme Court of India in Exide Industries Limited vs Union Of India 292 ITR 470 to contend that Hon’ble Supreme Court has upheld constitutional validity of Section 43B(f) of the Act. He also relied the judgment in Nanital Almora Kshetriya Gramin Bank Haldwani (supra) which has been relied by the Ld. AO. 6. Giving thoughtful consideration to the matter on record, it can be observed that Ld. AO had primarily made the disallowance on the basis that LIC fund is just a provision as the assessee bank has ‘parked’ its money with LIC fund and not actually paid to employees. Now what is relevant is that the group leave encashment scheme from LIC of India is not merely scheme for payment of leave encashment benefit on retirement of a member but also makes provision for payment of sum assured on the death. Thus the amount paid to LIC is on account to secure the life covered benefit and leave encashment benefit. The amount paid to purchase the policy is by way of contribution which provides annual renewal.Thus, Ld.AO had fallen in error in considering the contribution to be in the nature of deposit by using the term ‘parking’ of money. The money paid in the form of contribution looses its character of funds of assessee and nothing will be received by the assessee ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 6 as a subscriber but the benefit will accrue to the employees on the happening of contingencies. 7. The assessee has relied judgment of Coordinate Bench in Assistant Commissioner of Income Tax, Nainital vs. M/s. The Nainital Bank Ltd. ITA no 3606/Del/2011, wherein in regard to same controversy, the Bench has held :- “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 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 ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 7 (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(1)(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(1)(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.10(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/-." 3.1 Following the aforesaid decision, it is held that the assessee was entitled to deduct the amount of Rs.30 lakh in computing its total income.” 8. Similalry ITAT, Hyderabad Bench in DCIT vs. M/s. Andhra Pradesh Handicrafts Development Corporation Ltd. (supra) has also taken into consideration the decisions of Hon’ble Uttarakhand High Court in the case of CIT vs. Nainital Bank Ltd. (2014) 8 tax Corp. (BT) 56471 and the judgment of Hon’ble Kerala High Court in CIT vs. Hindustan Latex Ltd. (supra) while deleting the addition. ITA No.672 /Del/2020 The Panipat Urban Co-operative Bank Ltd. 8 9. It is rightly submitted on behalf of the assessee that the judgment relied by Ld. AO in Nainital Almora Kshetriya Gramin Bank (supra) was on different facts where no such master policy of LIC was purchased. Even in assessee’s own case for the same assessment year 2017-18 while relying Assistant Commissioner of Income Tax, Nainital vs. M/s. The Nainital Bank Ltd. (supra) by order dated 25/8/20 in appeal no. IT/388/E/PPT/2019- 20, same Ld. CIT(A), Karnal has deleted the addition. However, in the case in hand the order of Ld. CIT(A), is silent in regard to whatever submissions were raised and without giving a word of her own findings while confirming the additions, which is not sustainable. In the light of aforesaid discussion, The grounds raised are allowed. The appeal of assessee is allowed and the impugned addition made by the ld. AO stand deleted. Order pronounced in the open court on 18 th July, 2022. Sd/- Sd/- (DR. B.R.R.KUMAR) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:-18 th .07.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI