TMI Blog2021 (12) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (1) TMI 1530 - ITAT MUMBAI] we noticed that even in the given case there was a shortage of contribution to the fund based on the actuarial valuation report and even assessee has contributed to the above fund based on the above said report. Therefore, the expenditure claimed by the assessee is allowable under Income Tax Act u/s 37 of the Act. Hence, we are in agreement with the submissions of the Ld. AR on this aspect. Provision for leave encashment - Assessee has claimed an amount on account of provision for leave encashment. Based on the fact on record, we noticed that the assessee has not made the payment during this year and rightly statutory auditor has flagged this expenditure which is not allowable u/s 43B. AR heavily relied on the case of Glaxo Smithkline Pharmaceuticals (supra) and we observed that the Hon ble Supreme Court upheld the constitutional validity of section 43B(1) of the Act and wherein it has accepted the decision of Hon ble Calcutta High Court. Therefore, as far as this issue is concerned which is against the assessee and the Assessing Officer should have verified the issue in detail. We do not see any submission or any inquiry made by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overall salary and contribution to pension fund for all the employees including employees who have already superannuated, which works out to ₹1421.53 crores. Further, in the Annual Report, the Managing Director and CEO in his statement mentioned that the Bank has switched from the old LIC table(94-96) to LAM 2006-08 which considers higher life expectancy. The net one time annual impact of this movement to the ILAM table is ₹ 1412 crores during the year under consideration. This expenditure was stated to be non-recurring in nature. In Schedule 18(6.2) to Annual Accounts, disclosure on the same has been made. Thus considering the Tax Auditors specific qualification, disclosures made in the Annual Report and also considering the method of accounting (i.e. mercantile system of accounting), an amount of ₹ 1421.53 crores was required to be disallowed. However, the assessee has not disallowed the same while computing the income. The assessment records also show that no such details are available on record. This has rendered the assessment order u/s 143(3) dated 14.3.2019 as erroneous in so far as it is prejudicial to the interests of the revenue. (ii) In the Tax Aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee basis and credited to the individual account of each particular employee. 2.5 The Assessee Bank manages 2 types of schemes for the benefit of its employees: defined contribution scheme and defined benefit scheme. The contributions made by the Assessee Bank to employees who have opted for recognized provident fund (RPF) and national Pension Scheme (NPS) are under a defined contribution scheme where the Bank makes a contribution of a defined % of the salary to the individual PF and/or NP'S accounts of the concerned employee. In such case, the quantum is certain and absolute. The approved superannuation fund managed by the Assessee bank is under a defined benefit scheme . 2.6 ... Thus, the Assessee Bank submits that the contribution to approved superannuation fund is credited to the account of the Fund and not to the individual account of the employee. As such, the Assessee Bank submits that provisions of Rule 87 limiting the ordinary annual contribution to the approved superannuation fund to the extent of 27% of salary of each employee does not apply in respect of contributions made by the Assessee Bank to its approved superannuation fund determined based on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to defined benefit schemes. It has placed reliance on the judgement of Hon'ble Bombay High Court in the case of CIT vs. Glaxo Smithkline Pharmaceuticals Ltd. (ITA No.2232/2011 dated 06.03.2013) as well as decision of TAT Hyderabad in the case of Andhra Bank (ITA No. 601 and 781). The submissions filed on behalf of the assessee along with the case laws relied upon are considered carefully. The facts about the issue are narrated in the paras above. The assessee is required to prepare its books of account as per the applicable Accounting Standards and accordingly it has applied AS-15 to these transactions and worked out the amount to be charged to profit and loss account. However, the deductibility of different expenses is not determined as per Accounting Standards but as per the provisions of the income Tax Act, 1961. The section 36(1) (iv) of the Act read with Rule 87 of Income Tax Rules prescribe certain conditions for claim of deductions on account of contributions to the Approved Superannuation Fund. The provisions of Rule 87 are reproduced as under: 87. The ordinary annual contribution by the employer to a fund in respect of any particular employee shall not exceed 19/twenty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter case the facts are that the company paid contributions to the provident fund of the directors and claimed it as deduction u/s 36(1) (iv) of the Act. On appeal at the stage of High Court, it was held to be not allowable by the Hon'ble Bombay High Court in the decision reported in 137 ITR 525. Thereafter, the Tribunal referred the question of law to the Hon'ble High Court as to whether the said expenditure, if not allowable u/s 36(1)(iv) of the Act is allowable u/s 37 of the Act. To this question, the Hon'ble High Court affirmed in the affirmative as below: 5. We are inclined to accept the assessee's contention that the assessee's claim under section 37 requires to be considered in view of the fact that the question was specifically left open by our Court in Western India Paper Board Mills' case (supra) and in the judgment for the assessment year 1970-71 this question was not brought to the notice of the Court. We need hardly mention that so far as the question of allowance of the claim under section 36(1)(iv) is concerned, our Court's judgment in Western India Paper Board's case (supra) is binding on us, following which we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed above) as deduction under the said section. 16. The facts of the case in ITAT Hyderabad in the case of Andhra Bank (ITA No. 601 and 781 also differ from the case of the Assessee Bank in that those cases relate to the issue of Fringe Benefits Tax and not the deductions u/d 36(1) (iv) of tine Act. 17. In view of the observations made above, the submissions of the assessee on the merits of issues involved are not acceptable and the assessment is held to be erroneous in so far as it is prejudicial to the interests of revenue within the meaning of section 263 of the Act. Deduction of provision for leave encashment. 18. It is observed that the Tax Audit Report contained the observation that an amount of R 47,92,48,882/- on account of provision for Leave Encashment was not allowable u/s 43B. However, this amount was not found to be added to the business income of the assessee in the computation of income and the Assessing Officer also has not made any enquiries in this regard. During the proceedings of revision, the assessee submitted that such an amount is claimed as deductions after actuarial valuations and it is correctly claimed. 19. The deductions claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or pension. He explained from the notes submitted before Assessing Officer that assessee has on regular basis followed LIC 94-96 mortality table to arrive at the actuarial valuation till financial year 2014-15 and for the financial year 2015-16, the assessee decided to adopt IALM 2006-08 table and accordingly as per the actuarial valuation of the pension for the year has increased. The increased commitment is due to the fact that there is a short provision for the contribution to approved superannuation fund. The increase in liability is due to change in adopting new mortality table. The Ld. Pr. CIT cannot apply the restrictions specified u/s 36(1)(iv) r.w.s. 87 in the given case. Considering the fact that the specified restriction u/s 36(1)((iv) is for ordinary annual contribution, the assessee has made the superannuation payment based on the actuarial valuation report. Therefore, it is an admissible operative expenses for the assessee. For this purpose, he relied on the decision of ACIT v. Glaxo Smithkline Pharmaceuticals decision of the Co-ordinate Bench in ITA No. 6444/2007 dated 28.01.2011 and he brought to our notice page 34 of the Paper Book in which the jurisdictional High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all discovered in the course of actuarial valuation of the fund, and is in the nature of a one-time exceptional payment to ensure that the superannuation fund is able to discharge its obligation. Limitations placed under rule 87 relevant for 'ordinary annual contribution', as have been invoked in this case, cannot be pressed into service in such a case. The disallowance under section 36(1) (iv) read with Rule 87 do not come into play in the case of a payment to make good the shortfall, on the basis of actuarial valuation, in the superannuation fund. Thus no disallowance can be made. 8.1 Respectfully following the above decision, we noticed that even in the given case there was a shortage of contribution to the fund based on the actuarial valuation report and even assessee has contributed to the above fund based on the above said report. Therefore, the expenditure claimed by the assessee is allowable under Income Tax Act u/s 37 of the Act. Hence, we are in agreement with the submissions of the Ld. AR on this aspect. Coming to the next issue of provision for leave encashment, we observe that the assessee has claimed an amount of ₹ 47.92 crores on account of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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