Long-Term Employees Benefits Deductible while Computing Book Profit: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that the long term employees benefits such as gratuity, leave encashment, ex-gratia & bonus etc., are deductible while assessing the book profit under Section 115JB of the Income Tax Act, 1961.

The appellant had provided for the long term employees benefits inter alia including provision for gratuity, bonus and leave encashment etc. according to the mandatory Accounting Standards -15 issued by the Institute of Chartered Accountants of India (ICAI). From the Notes forming part of the Annual Financial Statements for the relevant FY 2011-12, it is observed that provision for employee benefits have been provided on a scientific and systematic basis. Actuarial valuation reports were obtained to determine the said liability; copies of which have been placed in the paper book as well. The AO without assigning any reason added back these provisions to the computation of book profit u/s 115JB. On appeal, the Ld. CIT(A) also confirmed the above additions.

Allowing relief to the assessee, the Tribunal observed that the provisions in respect of gratuity, leave encashment, ex-gratia & bonus were created on an actuarial basis and had been estimated with reasonable certainty.

“Accordingly such provisions cannot be said to be provisions of unascertained liabilities so to add it back under clause (c) of the Explanation to section 115JB(2). Since these provisions are in the nature of ascertained liabilities, I am of the considered view that the same is allowable while computing book profit u/s 115JB of the I.T. Act.”

Relying on the Tribunal decision in the case of Eastern Power Distribution Co. of AP Ltd Vs ACIT, the Tribunal directed the AO to delete the additions made in respect of the provisions for gratuity, leave encashment, ex-gratia & bonus in the computation of book profit under section 115JB.