2015 (5) TMI 478 - AT - Income Tax

Tribunal Upheld Assessee's Favorable Decisions on Various Disallowances and Deductions

The Tribunal upheld the CIT (A)'s decisions in favor of the assessee regarding the deletion of disallowance of broken period interest, deduction of ... Disallowance of broken period interest - CIT(A) deleted the disallowance - Held that:- Issue had arisen in the assessee’s own case for the A.Y 2008-09 and the Tribunal has followed its decision in the assessee’s own cases [2013 (4) TMI 702 - ITAT HYDERABAD] & [2013 (4) TMI 701 - ITAT HYDERABAD] wherein as relying on American Express International Ltd Vs CIT reported in [2002 (9) TMI 96 - BOMBAY High Court] and Karur Vysya Bank Ltd [2009 (7) TMI 1210 - MADRAS HIGH COURT] has held that the broken period interest included in the purchase price of Government securities held by the banking company to comply with SLR requirement is entitled to deduction. Issue under consideration is identical to that of AY 2006-07, respectfully following the decision of the Tribunal in that year, we uphold the order of the CIT(A) in directing the Assessing Officer to delete the addition made on this count - Decided against revenue. Deduction of unrealized interest on NPA - Held that:- Income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assessee to write off such income in concerned assessment year when it was found that it was not recoverable. Thus we direct the AO to allow deduction being unrealised interest offered for tax in the earlier year now reversed by the assessee. See assessee’s own cases [2013 (4) TMI 702 - ITAT HYDERABAD] & [2013 (4) TMI 701 - ITAT HYDERABAD] - Decided in favour of assessee. Disallowance of claim of payment to LIC for Group Leave Encashment Scheme for the employees of the assessee - Held that:- Respectfully following the recent decisions of the Uttarakhand High Court in the case of CIT V/s. Nainital Bank Ltd. (2014 (1) TMI 449 - UTTARAKHAND HIGH COURT); and CIT V/s. Hindustan Latex Ltd. (2012 (6) TMI 713 - KERALA HIGH COURT), in preference to the earlier decision of the Tribunal in assessee's own case for assessment year 2006-07 to concluded that the expenditure has been certified as an expenditure not for personal expenses of the assessee and that the same is wholly and exclusively for the purpose of the business or profession of the assessee – The expenditure is deductible u/s 37 - we accept the contentions of the assessee on this issue, and delete the addition made by the Assessing Officer in this behalf. - Decided in favour of assessee. Disallowance u/s 14A - CIT(A) allowed the claim - Held that:- As assessee itself has disallowed an amount of ₹ 33,41,474, being two month's salary of officers and staff working in Investment Department under S.14A, and the said disallowance made by the assessee itself works out to almost 2% of the tax-free income received CIT(A) correctly following his decision in assessee’s own case for AY 2004-05, directed the Assessing Officer to follow the conclusions drawn in the said years wherein the CIT(A) had deleted disallowance made out of interest expenditure u/s 14A - Decided against revenue. Disallowance of claim on account of Andhra Bank Rural Development Trust - CIT(A) deleted the disallowance - Held that:- the amount spent by the assessee-bank, was not only in discharge of corporate social responsibility to train the rural youth, but also to indirectly to promote its own business, since the rural youth trained were its prospective clients, as the bank also intended to extended credit facilities to such unemployed youth for starting their own enterprises. In this view of the matter, following the decision of in the case of CIT V/s, Infosys Ltd. (2013 (7) TMI 451 - KARNATAKA HIGH COURT) & consistent view taken by coordinate benches of this Tribunal, in similar circumstances, we find no infirmity in the order of the CIT(A). - Decided against revenue. Provision for bad and doubtful debts - whether there is no provision in the Income Tax Act under which such provision can be considered as income? - Held that:- AO has made the disallowances is different from the ground on which the CIT (A) has confirmed the addition. Thus, it is seen that there is no appreciation of facts by the CIT (A). Therefore, the order of the CIT (A) is set aside. Coming to the order of the AO, we find that the assessee has made a provision u/s 36(1)(viia) in accordance with the provisions of the Act and if the assessee is not able to set off the provisions during the relevant A.Y, it is entitled to carry it forward subject to the maximum provision allowed under section 36(1)(viia) and there is no time limit fixed for such utilization. There is no provision in the Act to bring the unutilised provision to tax during the year. The reliance of the AO on AS 29 is also misplaced. In view of the same, we set aside the order of the AO also on this issue and the assessee’s ground of appeal is allowed. Issues Involved:1. Deletion of disallowance of broken period interest.2. Deduction of unrealized interest on NPA.3. Disallowance of payment to LIC for Group Leave Encashment Scheme.4. Disallowance under section 14A.5. Disallowance of claim on account of Andhra Bank Rural Development Trust.6. Consideration of provision for bad and doubtful debts as income.7. Consideration of interest credited by LIC in leave encashment scheme as income.Issue-wise Detailed Analysis:1. Deletion of Disallowance of Broken Period Interest:The Revenue appealed against the deletion of the disallowance of broken period interest paid by the assessee on the purchase of long-term securities. The AO had disallowed this interest, considering it capital in nature. However, the CIT (A) granted relief by following previous ITAT decisions in the assessee's own case, which treated such interest as revenue in nature and allowable. The Tribunal upheld the CIT (A)'s decision, rejecting the Revenue's ground, as no contrary decision was presented.2. Deduction of Unrealized Interest on NPA:The Revenue contested the CIT (A)'s decision allowing the deduction of unrealized interest on NPA, citing the Supreme Court's decision in State Bank of Travancore vs. CIT. However, the Tribunal noted that this issue had been previously decided in favor of the assessee in earlier years. Respectfully following the precedent, the Tribunal upheld the CIT (A)'s decision and rejected the Revenue's ground.3. Disallowance of Payment to LIC for Group Leave Encashment Scheme:The Revenue argued that the CIT (A) erred in allowing the deduction for payment to LIC for the Group Leave Encashment Scheme, citing sections 40A(9) and 43B(f). The Tribunal referred to previous decisions, including those from the Uttarakhand and Kerala High Courts, which supported the assessee's claim. Consequently, the Tribunal upheld the CIT (A)'s decision, rejecting the Revenue's ground.4. Disallowance under Section 14A:The Revenue challenged the deletion of disallowance under section 14A, arguing that the CIT (A) ignored the interest expenditure not directly attributable to any particular income. The Tribunal noted that the assessee had already disallowed an amount under section 14A and that the AO had mechanically applied Rule 8D. Citing previous Tribunal decisions, the Tribunal upheld the CIT (A)'s decision, rejecting the Revenue's ground.5. Disallowance of Claim on Account of Andhra Bank Rural Development Trust:The Revenue contended that the CIT (A) erred in allowing the deduction for expenses related to Andhra Bank Rural Development Trust, arguing they were not wholly and exclusively for business purposes. The Tribunal referred to previous decisions, including those from the Karnataka High Court, which treated such expenses as allowable under section 37(1). The Tribunal upheld the CIT (A)'s decision, rejecting the Revenue's ground.6. Consideration of Provision for Bad and Doubtful Debts as Income:The assessee appealed against the AO's decision to consider the provision for bad and doubtful debts as income. The AO had argued that unutilized provisions should be written back as income. The CIT (A) confirmed the AO's decision, but on different grounds. The Tribunal found that there was no provision in the Act to bring unutilized provisions to tax and set aside both the AO's and CIT (A)'s orders, allowing the assessee's ground.7. Consideration of Interest Credited by LIC in Leave Encashment Scheme as Income:The assessee also appealed against the AO's decision to consider interest credited by LIC in the leave encashment scheme as income. The Tribunal noted that while this issue was previously decided against the assessee, the alternate ground raised by the assessee was valid. The Tribunal remanded this issue to the AO for fresh adjudication, rejecting the primary ground but allowing the alternate ground for statistical purposes.Conclusion:The Tribunal dismissed the Revenue's appeal and treated the assessee's appeal as partly allowed for statistical purposes. The order was pronounced in the Open Court on 24th April, 2015.