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Assessment Years: 2005-06 & 2007-08 these expenses are not allowable as deduction from business income and the same ought to be disallowed and added to the income of the assessee and brought to income-tax. The assessee during the course of reassessment proceedings was asked by AO to explain the same. The assessee submitted before the AO during the course of reassessment proceedings that as per the BPCL Employees Provident Trust Annual Accounts for the financial year 2004- 05 and 2003-04 , the said trust had incurred loss amounting to Rs.96.26 lacs and Rs.29.02 lacs respectively after crediting interest in the Employees Accounts as per statutory requirements. The assessee further submitted the as per BPCL Employees Provident Rules 25(v) page 14 of the Employees PF Rules, if there is any shortfall/deficiency between interest earning of the trust and interest distributed by the trust to its members as per statutory requirements such shortfall/deficiency shall be made good by the assessee company. It was submitted by assessee before AO during the course of reassessment proceedings that the PF Trust is for the employees of the company and in case of any shortfall/deficiency in earning of the PF Trust, the said deficiency shall be recouped by the assessee company to avoid any ultimate loss to member employees. The assessee , thus , explained that accordingly the expenditure was debited to interest account and prior period expense account respectively. The AO was not satisfied with the reply of the assessee as the AO was of the view that even if the assessee was obligated to make good the losses suffered/deficiencies /shortfall in PF Trust, the same cannot be allowed as business expenditure and allowed to be debited to P&L account , as it did not relate to the regular business activities of the assessee company, vide re- assessment order dated 31.12.2009 passed by the AO .

4. Being aggrieved by reassessment order dated 31.12.2009 passed by AO, the assessee carried the matter further by filing an appeal before ld. CIT(A). It was ITA No.147 and 148/ALLD/2016 Bharat Pumps & Compressors Ltd.

Assessment Years: 2005-06 & 2007-08 submitted by assessee before ld. CIT(A) that as per BPCL Employees Provident Fund Trust's annual accounts for the financial year 2004-05 and 2003-04 , the Trust had incurred loss amounting to Rs. 96.26 lacs and Rs. 29.02 lacs respectively after crediting interest in the employees account as per the rates prescribed by notification of Central Government. It was submitted by assessee before ld. CIT(A) that as per Note no. 8 of the Notes to Accounts (Schedule 11.1) of the Audited Financial Statement, the assessee has provided for shortfall of Rs.29,02,000/- for financial year 2003-04 as assessed in the audited accounts of the PF Trust(Date of audit report 25.09.2005) over and above liability already provided on estimated basis during the financial year 2003-04, It was submitted by assessee before ld. CIT(A) that shortfall of Rs. 96.02 lacs for financial year 2004-05 was provided on estimated basis as the audit of the PF Trust was not completed before the closing of the annual accounts of the assessee company . It was submitted by assessee before ld. CIT(A) that as per Rule 25(v) page 14 of the BPCL Employees PF Rules, if there is any shortfall/deficiency between the interest earning of the trust and interest distributed by the trust to its members as per the Central Government notification, such shortfall/deficiency shall be made good by the company. It was submitted that PF trust is for the employees of the assessee company and in case of any shortfall / deficiency in earning of the PF trust, the same shall be recouped by the assessee company to avoid any ultimate loss to member employees , which was acceptable to the assessee company and hence consequently shortfall was debited to Profit and Loss Account and claimed as business expenditure against income of the assessee. Thus, it was claimed that the aforesaid shortfall/deficiency between interest earned by trust and the interest distributed by the trust to its member as per rate notified by Central Government is business expenses of assessee and is allowable as deduction while computing income chargeable to tax. It was also submitted by assessee ITA No.147 and 148/ALLD/2016 Bharat Pumps & Compressors Ltd.

5.2 The ld. Counsel for the assessee on her part vehemently submitted in rebuttal that the amounts are paid towards contribution to PF Trust. Our attention was drawn by ld. Counsel for the assessee to Rule 25(v) of BPCL Employees PF Trust(page 43/paper book) and it was submitted that if the trust does not earn interest income as per rate of interest applicable to PF as notified by Central Government , then deficiency is to be borne by the employer BPCL. Reference was drawn by ld. Counsel for the assessee to provisions of Section 43B and 36(1)(iv) of the 1961 Act. Reliance was also placed by ld. Counsel for the assessee to the decision of Hon'ble Supreme Court in the case of CIT v. Sirpur Paper Mills Limited (1999) 103 ITA No.147 and 148/ALLD/2016 Bharat Pumps & Compressors Ltd.

6. We have considered rival contentions and perused the material on record including case laws cited before us. We have observed that the assessee is a PSU and is in the business of manufacturing of Pumps, compressors and gas cylinders. We have observed that the assessee has made contribution towards shortfall in the interest earning of BPCL Employees PF Trust vis-à-vis interest computed based on rate notified by Central Government for PF, for two years viz. previous years relevant to ay's: 2004-05 and 2005-06. It is brought to our notice that the said PF trust is recognized by Income-tax department. As per Rule 25(v) of the said BPCL Employees Provident Fund Rules(paper book page 29 to 64) which is placed on record in file by ld counsel for the assessee, the employees are entitled for interest on PF at the rates notified by Central Government and any shortfall in the earnings of the PF trust shall be made good by assessee by contributing the shortfall additionally apart from its normal employer contribution towards PF. The said rule is reproduced hereunder :