2021 (6) TMI 717 - AT - Income Tax

Tribunal upholds CIT(A) decision on various tax issues, directs verification for deduction.

The Tribunal upheld the CIT(A)'s decision to delete additions under various sections, including disallowance of bonus under Section 43B, excess provision ... Addition u/s 43B - bonus not credited or paid to the employees Account on or before the due date of filing return of income - AO noted that assessee has made provision for bonus payable to staff - CIT(A) deleted the above disallowances - HELD THAT:- Before us the assessee has submitted the ledger account of the bonus payable, certificate of Chartered Accountant and further the names of each of the employee to whom the bonus was paid showing the names of the employees, designation, amount of bonus and Account No. of the employees to which the sum of the bonus was credited. On the basis of above evidences , it is clear that the above amount was paid on 29/09/2012 which is before the due date of the filing of return of income of the assessee. Hence, as the bonus is credited to the account of the employees before the due date of filing of return of income it cannot be disallowed u/s 43B of the Act. Accordingly, ground No. 1 of the appeal is dismissed. Admission of the additional evidence is by the CIT(A) - HELD THAT:- DR could not show us that which additional evidence is admitted by the ld CIT(A) and what is irregularities if so admitted. On reading of the order of ld CIT(A) we could not find that the CIT(A) has admitted any additional evidences or any such additional evidence is produced before him. In view of this Ground No. 2 of the appeal is dismissed. Addition on account of excess provision made for audit fees - CIT(A) deleted the disallowances for non deduction of tax at source stating that there was no requirement of tax deduction at source - HELD THAT:- Provision of audit fees was based on the advances of each of the branch and the fees is computed head wise for each branch based on the advances and equired audit fees , the amount of out of pocket expenditure as per slab is also worked out. Further, on the amount of audit fee the provision of the services tax was also to be made. The fees for head office and consolidation of the branches in audit was also to be separately worked out. Based on this the assessee made the above provision. In view of this it cannot be said that the provision made by the assessee is unreasonable or without any basis. Anyway the excess provision made by the assessee for this year would also be reversed in the next year when the same is written back and new year’s provision is made. Naturally for both the years the tax incidents on the sum is also at the same rate. Naturally, there has to eb some estimation when provision is made, but it cannot be said that it is wayward and without any basis. In spite of this it cannot be said the provision made by the assessee for audit fee was not on the basis of which it was required to be paid. In view of this, we do not find any infirmity in the order of the ld CIT(A) in deleting the disallowances in respect of the audit fees. Addition of ex gratia bonus u/s 43B which according to the AO was not credited or paid before the due date of filing of the return - AO treated it as a ‘bonus’ and held that as the same is not paid before the due date of filing of the return of income it is disallowed u/s 43B - CIT(A) agreed with the same and held that ex gratia payment is different from bonus which is deductible u/s 36 and held that ex-gratia payment is like salary/ incentive which is allowable u/s 37(1) itself and therefore provision of section 43B does not apply to it - HELD THAT:- It is in the form of allowances to the various employees. The resolution also shows that these ex-gratia was paid in view of the higher banking operation and increase in the work load of the staff. The board also decided that the incentive would be paid to the performing employees only and would not be paid to the employees whose performance is not satisfactory. The bonus is a statutory liability according to the Payment Of Bonus Act. Thus, ex-gratia payment therefore do not partake the character of bonus. Therefore according to us the ld CIT(A) has correctly held that the provision of section 43B of the Act does not apply to ex-gratia payment and deleted the disallowance. . In view of this Ground No. 5 of the appeal is dismissed. Addition on account of exemption/ deduction u/a 80P(2) (d) in respect of dividend income received from other cooperative societies - HELD THAT:- According to section 80P(2)(d) any income by way of interest or dividend derived by the cooperative societies from its investment with any other cooperative societiesis not chargeable to tax under that section. The whole of the income of dividend would be exempt in case of cooperative societies carrying on the business of banking or providing credit facilities to its members. Though the ld CIT(A) held that the dividend income is also tainted with mutuality. However, without discussing this aspect we hold that dividend under the provisions of section 80P(2)(d) the above sum is deductible in the hands of the assessee. Therefore the claim of the assessee is otherwise allowable but for different reasons. Thus, in substance Ground No. 6 and 7 of the appeal of the AO is dismissed. Deduction u/s 36(1)(viia) - Claim which was not involved in the assessment order and nor it was claimed by the assessee in its return of income or allowed by the ld AO - HELD THAT:- Even on reading of the order of the ld CIT(A) we find that he has decided the issue on the basis of judicial presidents only. For the purpose of allowances of the claim u/s 36(1)(viiia) though assessee being a cooperative banking society qualifies for the above deduction in respect of provision of bad and doubtful debts made. However, the claim of the assessee is always restricted by the aggregate average aggregate advance made by the rural branches of the bank. The rural branches of the bank are defined in explanation 1 of that section. Therefore, it would be imperative for the assessee to show that the branches of the assessee are ‘rural branches’ and what is aggregate average advance to be computed in the prescribed manner of those branches. Unless this is computed the deduction to the assessee cannot be allowed. The ld CIT (A) has allowed the claim of the assessee without verification of these details. Even before us there are no details produced with respect to rural branches. In view of this, we set aside this ground of appeal back to the file of the ld CIT(A) with direction to the assessee to show the rural branches of the assessee and compute their average rural advance as prescribed. Thereafter after giving proper opportunity of hearing to the assessee as well as to the AO, the claim of the assessee may be decided on the merits. Issues Involved:1. Deletion of addition made under Section 43B related to bonus not credited/paid before the due date.2. Acceptance of additional evidence during appellate proceedings without allowing a reasonable opportunity to the Assessing Officer.3. Deletion of addition made for excess provision for audit fees.4. Deletion of addition under Section 40(a)(ia) for non-deduction of tax at source on audit fees.5. Deletion of addition under Section 43B related to ex-gratia/bonus not credited/paid before the due date.6. Deletion of addition related to disallowance of exemption claimed under Section 80P(d) for dividend income from other cooperative societies.7. Acceptance of additional evidence related to disallowance of exemption claimed under Section 80P(d) without allowing a reasonable opportunity to the Assessing Officer.8. Direction to allow deduction under Section 36(1)(viia) without it being involved in the assessment order or claimed by the assessee.Detailed Analysis:1. Deletion of Addition under Section 43B Related to Bonus:The Assessing Officer (AO) had disallowed a provision of Rs. 66 lakhs for bonus as it was not credited/paid before the due date for filing the return. The assessee provided a Chartered Accountant's certificate showing the bonus was paid before the due date. The CIT(A) deleted the disallowance based on the evidence provided, including a ledger account and employee details showing the bonus payment. The Tribunal upheld the CIT(A)'s decision, confirming that the bonus was paid before the due date, thus dismissing the AO's ground.2. Acceptance of Additional Evidence:The AO contended that the CIT(A) accepted additional evidence during the appellate proceedings without providing a reasonable opportunity for examination. However, the Tribunal found no record of any additional evidence being admitted by the CIT(A). Consequently, this ground was dismissed.3. Deletion of Addition for Excess Provision for Audit Fees:The AO disallowed Rs. 92,070 of audit fees provision, arguing it was unpaid. The CIT(A) allowed the full claim, noting the provision was based on estimated audit fees for various auditors. The Tribunal found the provision reasonable and based on valid estimates, dismissing the AO's ground.4. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of Tax:The AO disallowed Rs. 36,640 for non-deduction of tax on audit fees. The CIT(A) deleted this disallowance, stating that tax was deducted where required. The Tribunal agreed, noting the provision was based on valid estimates and the non-deducted amount was below the threshold, thus dismissing the AO's ground.5. Deletion of Addition under Section 43B Related to Ex-Gratia/Bonus:The AO treated ex-gratia payments as bonus and disallowed Rs. 77 lakhs under Section 43B. The CIT(A) held that ex-gratia payments were incentives, not bonus, and thus deductible under Section 37(1). The Tribunal agreed, noting the ex-gratia payments were based on performance and not statutory like bonus, dismissing the AO's ground.6. Deletion of Addition Related to Exemption under Section 80P(d):The AO disallowed exemption for dividend income from other cooperative societies. The CIT(A) allowed the exemption, considering it under mutuality and Section 80P(2)(d). The Tribunal upheld the CIT(A)'s decision, confirming the exemption under Section 80P(2)(d), thus dismissing the AO's ground.7. Acceptance of Additional Evidence Related to Section 80P(d):The AO contended that the CIT(A) accepted additional evidence without allowing a reasonable opportunity for examination. The Tribunal found no record of such additional evidence, thus dismissing this ground.8. Direction to Allow Deduction under Section 36(1)(viia):The CIT(A) directed the AO to allow deduction under Section 36(1)(viia) for bad and doubtful debts, which was not claimed by the assessee or involved in the assessment order. The Tribunal set aside this issue back to the CIT(A) for verification of rural branches and computation of average rural advance, directing proper opportunity for the AO and the assessee. This ground was allowed with directions.Conclusion:The appeal of the AO was partly allowed, with specific grounds dismissed and one ground set aside for further verification.