The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the closing allowance provided to the employees cannot be disallowed under Section 37(1) of the Income Tax Act, 1961 if the same is quantifiable.
The assessee, a District Cooperative Bank, is operating in the District of Bijnor (Uttar Pradesh), filed the income tax return on 28/09/2013 declaring total income of Rs.5,25,63,310/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 was issued and complied with.
While concluding the proceedings, the Assessing Officer made various additions to the returned income and assessed the income at Rs.8,85,81,080/-.
On appeal, the assessee approached the Commissioner of Income Tax (Appeals) wherein the claim of the assessee was partly allowed. Therefore, the Revenue filed an appeal before the Tribunal.
After hearing both the sides, the Tribunal observed that the assessee has claimed before us that the amount of closing allowance has been paid to the employees from year to year in percentage terms of salary and therefore duly quantifiable provision.
“The Ld. DR also could not controvert this fact that the amount of closing allowance is quantifiable in respect of each employee. It is also not in dispute that the amount was incurred wholly and exclusively for the purpose of the business. In our opinion, when the amount of provision is quantifiable, the same cannot be said as an unascertained liability. Accordingly, the same is allowable under section 37(1) of the Act as incurred wholly and exclusively for the purpose of the business of the assessee. The ground of the appeal of the Revenue is accordingly dismissed,” the Tribunal said.
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