2013 (8) TMI 441 - AT - Income Tax

Deduction u/s 37 - Provision for PACS Managers salary - 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 disposal of Registrar of Cooperative Society which is payable as and when demanded by the Registrar Cooperative Society along with interest on it. Thus it is not contingent liability but a statutory liability which is crystallized at the end of every year and hence the liability is allowable - amount is to be contributed to a fund and the fund is not being managed 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 therefore clear that funds stand diverted at the source and therefore this cannot be considered as an appropriation of income but it is an expenditure - Following decision of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT 1996 (10) TMI 2 - SUPREME Court - Decided against Revenue.

Summary

Issues:
1. Disallowance of contribution of PACS Managers' salary amounting to Rs. 1,13,38,000.

Analysis:
The appeal before the Appellate Tribunal ITAT Jaipur involved the department objecting to the allowance of contribution of PACS Managers' salary amounting to Rs. 1,13,38,000. The Assessing Officer (AO) during the assessment proceedings noted that the assessee had made a provision for the salary of PACS Managers without any disbursement being made. The AO considered this liability as disputed or contingent, stating that it should only be allowed when it crystallizes. Consequently, the AO disallowed the amount of Rs. 1,13,38,000. However, the assessee contended before the ld. CIT (A) that in the previous year, a similar disallowance was made by the AO, which was subsequently deleted by the ld. CIT (A) and confirmed by the Tribunal in a previous appeal for the assessment year 2007-08.

The ld. CIT (A) deleted the disallowance in the current appeal, citing the previous Tribunal's order where a similar addition was made and subsequently deleted. The Tribunal, in its decision, referred to the case law of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, emphasizing that the payment must be made out of commercial expediency rather than being compulsory. The Tribunal differentiated this case from the Associated Power Co. Ltd. vs. CIT case, highlighting that the contribution made by the assessee to a fund directly related to the business should be considered as a deduction under section 37 of the Act. The Tribunal concluded that the funds were not diverted but were an expenditure, justifying the deletion of the addition by the ld. CIT (A).

Based on the above analysis and considering that the issue was identical to the one in the previous year where the Tribunal had upheld the deletion of the disallowance, the Appellate Tribunal confirmed the order of the ld. CIT (A) and dismissed the department's appeal. The judgment was pronounced on 15.3.2012.