ITAT allows SBI Staff Welfare Expenditure as Business Expense [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the deduction claimed by State Bank of India (SBI) for provisions made towards employee benefits such as leave travel concession, sick leave, and casual leave. The Tribunal held that these liabilities, accrued from services already rendered by employees, represented an "ascertained liability" and not a "contingent liability," warranting a deduction under Section 37(1) of the Income Tax Act.

The Bench, comprising Judicial Member Smt. Beena Pillai and Accountant Member Shri Jagadish, was hearing appeals by SBI for the Assessment Year 2010-11. The Revenue had disallowed the claim of ₹47.04 crores, contending that the actual outflow was dependent on future events like employees availing leave, making it contingent. The Department also objected that the claim was made by a "note" and not in the return of income.

Rejecting the Revenue’s contention, the Tribunal observed that the determinative test for allowability is whether the liability has accrued with reasonable certainty, not when it is discharged. It noted that the provisions were computed on a scientific basis in accordance with Accounting Standard-15 (Employee Benefits) and reflected a present obligation arising from past service.

The Tribunal distinguished these provisions from leave encashment, stating that leave travel concession represents actual reimbursement of travel costs and that sick/casual leave provisions compensate for the loss of services during the leave period.

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The provision towards casual leave and sick leave represents the obligation arising on account of services already rendered by the employees, being in the nature of compensation for loss of services during the period of leave that the employees are entitled to avail. Such leave is not encashable and can only be availed in future. Therefore, these provisions do not partake the character of contingent liabilities, but represent present obligations arising from past services, reasonably estimated on scientific basis, and hence constitute allowable business expenditure.

The tribunal held that the contribution made by the assessee to the retired employees benefit scheme, being a bona fide business expenditure incurred wholly and exclusively for the purposes of business, is allowable as deduction. The Tribunal relied on the decision of the Coordinate Bench in the assessee’s own case for A.Y. 2008-09 State Bank of India vs. ACIT, which had held that such provisions are not hit by Section 43B(f) and are allowable as business expenditure under Section 37(1).

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