ITAT Allows Deduction for Bhavishya Kalyan Yojana Provisions Worth ₹26.78 Lakh in Favour of Tata Motors Body Solutions [Read Order]

In a ruling in favour of Tata Motors Body Solutions Limited (formerly Tata Marcopolo Motors Limited), the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, held that a provision for the Bhavishya Kalyan Yojana (BKY), based on an independent actuarial valuation, constitutes an ascertained liability and is allowable as a deduction under Section 37(1) of the Income Tax Act.

The case involved Tata Motors Body Solutions Limited (formerly Tata Marcopolo Motors Limited), the Appellant, which had created provisions for BKY and a Medicare Scheme for its employees for the Assessment Year 2017-2018. The Assessing Officer (AO) had disallowed a claim of ₹28.55 lakh for the BKY provision, contending that the liability was contingent upon future events (such as death or permanent disability of employees) and had not crystallised during the relevant year. The National Faceless Appeal Centre (NFAC) upheld this disallowance.

The Appellant argued that the liability was contractual and determined through scientific actuarial methods, making it an "ascertained liability" rather than a contingent one. It was further contended that the provisions recognised in the Profit & Loss Account should be allowed, consistent with the principles of mercantile accounting.

The bench of Shri Rahul Chaudhary (Judicial Member) and Shri Prabhash Shankar (Accountant Member) observed that the Revenue had not disputed the existence of the BKY scheme or the actuarial basis of the valuation. The Tribunal noted that coordinate benches had previously allowed similar deductions for group entities. Relying on Supreme Court precedents such as Bharat Earth Movers Ltd. and Metal Box Co. of India Ltd., the Tribunal held that a business liability that has definitely arisen in the accounting year is allowable as a deduction, even if it is to be quantified and discharged at a future date.

The Tribunal observed:

“Applying the above-said settled principles to the facts of the case at hand, we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it... is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability.”

Furthermore, the Tribunal allowed the Appellant’s revised claim of ₹26.78 Lakh(net of a negative provision recognized in Other Comprehensive Income) and additionally allowed a deduction of ₹21.39 Lakh for the Medicare Scheme actuarial loss.

Regarding the separate disallowance of business expenses amounting to ₹2.06 Crore, the Tribunal held that the disallowance was primarily made on the ground of non-deduction of Tax Deducted at Source (TDS). The Tribunal deleted the disallowance for salary-related provisions (where TDS was deducted at payment) and other specific expenses like retrofitment costs and MODVAT credit relinquishment, where no TDS was applicable.

In view of this, the Tribunal partly allowed the appeal, directing the AO to grant the deduction for the BKY provision of ₹26.78 Lakh and the Medicare Scheme claim of ₹21.39 Lakh, while also deleting significant portions of the disallowance related to other business expenses.

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