2017 (8) TMI 1577 - AT - Income Tax

Tribunal grants relief in tax appeals for 2008-09 & 2009-10, allowing key deductions.

The Tribunal partially allowed the appeals for the assessment years 2008-09 and 2009-10. The delay in filing the appeal was condoned, and deductions for ... Addition under the head “provision for standard assets” as per RBI norms - Deduction u/s.36(1)(viia) for such provision towards bad & doubtful debts - AO was not satisfied with the explanation of the assessee and observed that such provision for standard assets is not permissible expenditure under the act and moreover expenditure on such assets is in the nature of capital expenditure - CIT(A) confirmed the action of the AO on the ground that it is a contingent liability - HELD THAT:- A provision made by the assessee which qualifies for deduction under this section is allowable subject to the amount mentioned in the above section. No material has been brought before us to show that the assessee is not a person who is entitled for deduction as per the provision of section 36(1)(viia) of the Act. Further no material has also been brought before us to show that the provision of ₹ 1,68,13,000/- made by the assessee exceeds the qualifying amount mentioned in the said section. We, therefore, delete the disallowance of ₹ 16,50,000/- and allow this ground of appeal of the assessee. Disallowance of deduction under the head leave encashment u/s.43B(f) - assessee submitted that though provision made is disallowed u/s 43B(f) in the case of Exide Industries Ltd vs UOI [2007 (6) TMI 175 - CALCUTTA HIGH COURT] has held that liability towards leave encashment should be allowed as a deduction even if the same is not paid - HELD THAT:- As A.R. has contended that even though the decision of the Hon'ble Calcutta High Court holding Clause (f) of Section 43D as ultra virus is stayed by the Hon'ble Supreme Court while admitting the SLP filed by the Revenue, the same has not been reversed and, therefore, the Tribunal is bound to follow the same being a binding precedent. He, therefore, prayed that the matter should be restored back to the file of the Assessing Officer for adjudication afresh of the issue in the light of the decision of Hon’ble Supreme Court in the case of Exide Industries ltd (supra). Disallowance being amounts written off/amortization of Government securities - HELD THAT:- In the instant case the undisputed facts are that during the year the assessee has claimed deduction on amortization of loss of government securities as at the end of the financial year as the market value of the securities was lower than the cost price of the securities to the assessee. Similarly, the AO also disallowed provision for non-SLR securities as per Mark to market valuation. The contention of the assessee has been claiming this loss consistently for past so many year and was allowed deduction for the same. Instruction No.17/2008 dated 26.11.2008 issued by the CBDT wherein, at para vi, it has been clearly stated that in the case of HFT and AFS Securities of the Bank, the depreciation and appreciation to be aggregated script wise and only depreciation, if any, is required to be provided in the accounts. No merit in the action of lower authorities for disallowing loss arose on the year end revaluation of securities. Our view is supported by decision of Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd.[2014 (8) TMI 119 - BOMBAY HIGH COURT] ; United Commercial Bank Vs. CIT, [1999 (9) TMI 4 - SUPREME COURT] ; Investment Ltd. Vs. CIT [1970 (4) TMI 15 - SUPREME COURT] and CIT Vs. Bank of Baroda [2003 (3) TMI 80 - BOMBAY HIGH COURT] . Respectfully following all and considering the classification of security so made and the loss arose on account of revaluation of securities are required to be allowed. Ld D.R. has not controverted the submission of the assessee or cited any contrary decision. Addition to be deleted. Issues Involved:1. Condonation of delay in filing the appeal.2. Confirmation of addition under the head 'provision for standard assets.'3. Disallowance of deduction under the head leave encashment.4. Disallowance of amounts written off/amortization of Government securities.5. Disallowance under provision for non-SLR securities as per Mark to market valuation.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal filed by the assessee was barred by a limitation of 127 days. The assessee submitted a notarized affidavit for condonation of delay. The Tribunal found that the assessee had reasonable cause for the delay, and the Revenue did not object seriously. Consequently, the delay was condoned, and the appeal was admitted for hearing.2. Confirmation of Addition Under the Head 'Provision for Standard Assets':The assessee contested the CIT(A)'s confirmation of the addition of Rs. 16,50,000 under the head 'provision for standard assets' as per RBI norms. The Assessing Officer disallowed this provision, considering it a non-permissible and capital expenditure. The CIT(A) upheld this disallowance, citing the Supreme Court decision in Indian Molasses Co. Ltd vs CIT, which held that provisions for contingent liabilities are not deductible. However, the Tribunal found that the CIT(A) did not address the assessee's argument that the provision was within the limits prescribed under section 36(1)(viia) of the Act. The Tribunal noted that no evidence was provided to show that the assessee was not entitled to this deduction. Therefore, the disallowance of Rs. 16,50,000 was deleted.3. Disallowance of Deduction Under the Head Leave Encashment:The assessee argued against the CIT(A)'s confirmation of the disallowance of Rs. 32,13,587 under section 43B(f) of the Act for leave encashment. The Assessing Officer disallowed the provision of Rs. 37,00,000, accepting only the actual payment of Rs. 4,86,413. The CIT(A) allowed the actual payment but disallowed the remaining provision. The Tribunal referred to the Calcutta High Court's decision in Exide Industries Ltd vs UOI, which held that leave encashment is a trading liability and should be deductible even if not paid within the financial year. Although the Supreme Court stayed this decision, it had not been reversed. Therefore, the Tribunal remitted the matter back to the Assessing Officer for fresh adjudication in light of the Supreme Court's decision.4. Disallowance of Amounts Written Off/Amortization of Government Securities:For the assessment year 2009-10, the assessee contested the CIT(A)'s confirmation of the disallowance of Rs. 1,39,42,283 for amortization of government securities. The CIT(A) relied on the Supreme Court decision in Vijaya Bank vs CIT, which held that mere provisions for doubtful debts are not deductible. The Tribunal, however, found that the assessee consistently followed the method of amortization based on market value, which was allowed in previous years. The Tribunal referred to the Supreme Court decision in United Commercial Bank vs CIT, which supported this method. Consequently, the Tribunal deleted the disallowance.5. Disallowance Under Provision for Non-SLR Securities as per Mark to Market Valuation:The assessee also contested the disallowance of Rs. 2,50,125 for non-SLR securities as per Mark to market valuation. The Tribunal noted that the assessee consistently followed this method and referred to the Karnataka High Court decision in Karnataka Bank Ltd vs ACIT, which supported the assessee's practice. The Tribunal found no contrary evidence from the Revenue and deleted the disallowance.Conclusion:The Tribunal allowed the appeal for the assessment year 2008-09 partly for statistical purposes and similarly allowed the appeal for the assessment year 2009-10 partly. The orders were pronounced in the open court on 24/08/2017.