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2015 (8) TMI 123 - ITAT CHANDIGARH

2015 (8) TMI 123 - ITAT CHANDIGARH - TMI - Disallowance on a/c of payment of premium for group gratuity made to LIC under section 36(1)(v) - Held that:- Similar issue came up for consideration before the Tribunal in the earlier year 2005-06 and 2007-08 [2015 (8) TMI 171 - ITAT CHANDIGARH] wherein held that if particular fund is not approved then Section 36(1)(iv) would come into operation and such expenditure cannot be allowed. In such situation Sec 37 is not applicable because deduction admissi .....

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leave encashment dues. Therefore it cannot be called a payment towards a provision. In any case once the payment has been made the same is allowable under clause (f) of Sec 43B. Otherwise also the issue stands settled in favour of the assessee in view of the decision of Hon'ble Supreme Court in case of Bharat Earth Movers V. CIT, [2000 (8) TMI 4 - SUPREME Court ] in which provision for leave encashment was held to be allowable if the same was based on a particular scheme proportionately with the .....

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and the assessee had to channelise them to the objects of the Centrally sponsored scheme of infrastructural development for the mega city of Bangalore. The entire money was received for a public purpose and the end scheme was implemented in accordance with the guidelines of the Central Government. Therefore, in computing the total income of the assessee the interest accrued on the bank deposits could not be treated as income - Decided in favour of assessee,

Allocation of cost - wheth .....

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by the assessee Corporation. Therefore the adjustment made by him in the average cost of plots taking it at ₹ 1453.22 per sq. mtrs. is not found to be sustainable. The addition of ₹ 6,41,11,013/- on account of the so-called "short profit" is accordingly directed to be deleted. CIT(A) has correctly adjudicated this issue because cost cannot be allocated to the area which could not be sold ultimately. Further AO has nowhere disputed that this portion of land was not saleable. Therefor .....

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. That in the facts and circumstances of the case the Ld. CIT(A) is not justified in upholding the disallowance made by ld. A.O. of ₹ 4677792/- on a/c of payment of premium for group gratuity made to LIC holding the same not to be allowable under section 36(1)(v) of the Income Tax Act, 1961. 2. That in the facts and circumstances of the case the ld. CIT(A) is not justified in upholding the addition of ₹ 2129850/- on account of disallowance of premium paid for leave encashment. 3. Tha .....

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oth the parties we find that during the assessment proceedings AO noticed that assessee has paid a sum of ₹ 68,34,365/- on account of Premium for Gratuity. The assessee was asked to file copy of the order granting approval to the Gratuity Fund. No such certificate was filed but it was claimed that assessee has following the mercantile system of accounting and therefore claim was justified, this claim was not allowed since the funds was not approved. However the alternative submission that .....

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and therefore this amount should be allowed. In view of the decision of Hon'ble Supreme Court in case of CIT Vs. M/s Textool Co. Ltd. in Civil Appeal No. 447 of 2003 (copy enclosed). 7. On the other hand Ld. DR strongly supported the order of Ld. CIT(A). 8. After considering the rival submissions carefully we find that similar issue came up for consideration before the Tribunal in the earlier year 2005-06 and 2007-08 in ITA No. 1226&1227/Chd/2010. This issue was decided vide para 8 which .....

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circumstances in our opinion, the assessee should have taken caution to pursue the matter in the office of the Commissioner or should have produced some evidence before us to show that the application was really pending. In the absence of such evidence only conclusion which can be reached is that the gratuity fund of the assessee is not approved. Hon'ble Delhi High Court has clearly examined this issue and also the contention of the allowability of the claim of the assessee alternatively u/ .....

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deduction of "any sum paid by the assessee by way of contribution towards an approved gratuity fund provided the same is under an irrevocable trust". A plain reading of section 36(1)(iv) and (v) makes it manifest that deductions there under are admissible only if the employer pays the contributions towards a recognized provident fund, an approved superannuation fund or an approved gratuity fund. The provisions of a taxing statute have to be interpreted strictly applying the rule of li .....

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de contributions towards gratuity and superannuation funds for the benefit of its employees. The assessee made an application to the Commissioner for approval of the fund under the Employees Group Gratuity Scheme (corporate and factory ) which was approved by the Commissioner with effect from September 30,1998. A similar approval for the superannuation scheme was granted by the Commissioner with effect from October 14, 1998. The assessee claimed that the contributions made by it were admissible .....

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contributed towards the superannuation fund on the ground that the said funds were not approved during the relevant period. On appeal: Held, dismissing the appeal, that it was common ground that the funds to which the assessee had contributed were not approved either during the year under consideration or at any time up to the date of making the contributions. Therefore, the contributions made did not qualify for deduction under section 36. Further the deduction which the assessee claimed was ad .....

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n the claim of the assessee has been correctly denied by the authorities below and accordingly we confirm the order of the Ld. CIT(A)." 9. From the above it is clear that issue is covered against the assessee. We are unable to agree that this year different view should be taken in view of the decision of Hon'ble Supreme Court in case of CIT vs. M/s Textool Co. Ltd. (supra) because in that case clearly the fund was approved by the Commissioner of Income tax (as shown in highlighted porti .....

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" for short); a sum of ₹ 50,00,000/- was paid to the LIC as initial contribution in the group Life Assurance Scheme framed by the LIC for the benefit of the employees of the assessee and the remaining amount of ₹ 36,22,224/- was shown as provision for initial contribution. It is common ground that assessee company's gratuity fund, viz., the Textool Company Ltd. Employees Group Gratuity Fund was approved by the Commissioner of Income Tax, coimbatore, w.e.f. 25th February, 198 .....

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After hearing both the parties we find that during the assessment proceedings it was noticed that assessee has paid certain premium towards leave encashment. After detailed discussion this premium was held to be not allowable. 11. On appeal the action of AO was confirmed by the Ld. CIT(A). 12. Before us Ld. Counsel for the assessee submitted that this issue is covered by the order of Tribunal for earlier years in favour of the assessee. 13. On the other hand Ld. DR strongly supported the order .....

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s a provision. In any case once the payment has been made the same is allowable under clause (f) of Sec 43B. Otherwise also the issue stands settled in favour of the assessee in view of the decision of Hon'ble Supreme Court in case of Bharat Earth Movers V. CIT, 245 ITR 428 in which provision for leave encashment was held to be allowable if the same was based on a particular scheme proportionately with the entitlements earned by the employees. Later on effect of this judgment was nullified b .....

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FDRs amounting to ₹ 60,29,838/-. AO after detailed discussion disallowed this amount and the action of the AO was confirmed by the Ld. CIT(A). 15. Before us the Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of Tribunal in the earlier years. 16. On the other hand Ld. DR strongly supported the order of Ld. CIT(A). 17. After considering the rival submissions carefully we find that identical issue came up for consideration in earlier y .....

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ii) The account of the implementing agency be kept open for inspection by the sanctioning authority/audit. (iii) The amount received from the Government be kept in a separate head of account of the nodal agency. (iv) No part of the funds be invested except in the scheduled nationalized banks. Any interest accrued be utilized for the scheme. (v) The nodal agency shall submit the report in the prescribed proforma along with the proposal for release of second installment as prescribed in the guidel .....

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e the assessee, the Karnataka Urban Infrastructure Development and Financial Corp, a Government company owned by the State of Karnataka was involved in project development of infrastructure and was provided funds by the Planning Commission for development of urban infrastructure to Bangalore City. The funds received by it from the Government of India were deposited with banks for the period they were not utilized. The interest earned on these deposits was transferred to the mega city account dir .....

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ceived by it from the Government of India were deposited with banks for the period they were not utilized. The interest earned on these deposits was transferred to the mega city account directly. On the question whether the interest on these bank deposits was taxable. Held, that there was no profit motive as the entire fund entrusted and the interest accrued on the deposits in the bank, though in the name of the assessee, had to be applied only for the purpose of welfare of the nation as provide .....

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come." This decision has been followed by the Chandigarh Bench of the Tribunal in case of H.P. Government Energy Development Agency, Shimla V. ACIT (supra). Therefore following this decision we are of the opinon that the interest income does not accrued to the assessee and the assessee is not liable to be taxed on such interest. Therefore we set aside the order of the CIT(A) and delete this addition. Following the same we decide this issue against the assessee. 18. In the result appeal of t .....

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. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the development made by the assessee in the entire land such as construction of road etc. does not hold good for whole of land and only increases the cost of land sold by the assessee. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in reaching to the conclusion without any material on record that no development was carried out on the remaining land measuring 88292 sq. .....

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65051.34 sq, mtr. The assessee has taken average cost at ₹ 2438.77 per sq. mtr. This cost was determined by considering the purchase price + cost of development of the land sold. The assessee had reduced cost of land covered under the tube well which was non marketable and cost of land had been reduced by ₹ 864.36 per sq. mtr. AO did not accepted this proposition and held that development expenses incurred for the plots were required to be apportioned to the whole of the land after r .....

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assessee. 21. On appeal it was mainly submitted that assessee had acquired total land holding of 426.12 bighas equivalent to 320803 sq. mtrs. for development of Industrial Estate at Baddi. During the process of development of Industrial plots it was found that 88292 sq. mtrs. of land could not be developed because of the existence of small patches of Govt. land in between the plots, because of this reason development of this area could not be undertaken and only the purchase cost was incurred. .....

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3 sq. mtrs. Thus net saleable area was 159868 sq. mtrs. which gave the average cost of ₹ 2438.77 per. sq. mtr. since the assessee has sold land measuring 65051 sq. mtrs. of land. During the year the profit was reflected accordingly. It was also pointed out that out of the sold area 14148 sq. metrs. was surrendered by the buyers in the immediately succeeding year and loss was booked accordingly which was accepted by the department. The Ld. CIT(A) found force in this submission and decided t .....

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sue vide para 9 which is as under: "9. The rival submissions have been carefully considered w.r.t the facts of the case. It is noted that 229511 sq. mtrs. of area was actually developed by the appellant Corporation, although the total land purchased amounted to 320803 sq. mtrs. 3000 sq. mtrs. of area was separately developed as the said area was under the tubewells. The development cost of this area was ₹ 87,13,155/-. No development was carried out on the remaining land measuring 8829 .....

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aleable land by the total marketable/saleable area which was 159868 sq. mtrs. The A.O. has not doubted the genuineness of the appellant's claim in respect of the land cost and the development cost and the balance work cost. Therefore it is not understood as to how he has chosen to divide the development cost incurred in respect of 159868 sq. mtrs. of land by 317803 sq. mtrs. of land in order to arrive at the average cost per sq. mtr. of the saleable land. It is not the A.O.'s case that 8 .....

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