Tribunal upholds CIT(A) decision for assessee, allows set-off of brought forward losses

The Tribunal upheld the CIT(A)'s decision in favor of the assessee regarding the deletion of disallowances under section 36(1)(viia)(a) and bonus disallowances. The Tribunal directed the AO to allow the set-off of brought forward losses/unabsorbed depreciation for AY 2008-09, emphasizing the need for proper reconciliation. The Revenue's appeal was partly allowed for statistical purposes, and ITA No. 2871/PUN/2016 was dismissed.

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Issues Involved:

1. Correctness of CIT(A)’s action deleting section 36(1)(viia)(a) disallowances.
2. Bonus disallowance(s) including ex-gratia bonus.
3. Set off of brought forward losses/unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Correctness of CIT(A)’s action deleting section 36(1)(viia)(a) disallowances:

The Revenue’s primary grievance concerns the CIT(A)’s deletion of disallowances under section 36(1)(viia)(a) for the amounts Rs. 45,70,370/- and Rs. 6,03,36,905/- restricted to Rs. 83,00,000/- for the respective assessment years. The CIT(A) noted that the Assessing Officer (AO) restricted the deduction to 7.5% of the total income before set-off of losses, comparing it to the NPA provision. The AO disallowed Rs. 45,70,370/- on the grounds that no such provision was made by the appellant. However, the appellant argued that proper provisions were made in the Profit & Loss Account (P&L A/c) totaling Rs. 712.67 lakhs, thus eligible for the deduction under section 36(1)(viia).

The CIT(A) clarified that the deduction should be restricted to the provision actually made in the books. The appellant made provisions of Rs. 712.67 lakhs, which was below the ceiling of Rs. 2985.88 lakhs (10% of average aggregate rural advances). The AO’s confusion stemmed from a misunderstanding of the legal provisions, as the appellant had the option to claim the deduction under the main sub-section or the 1st proviso. The CIT(A) referenced the ITAT Pune Bench decision in the case of Nanded District Central Cooperative Bank Ltd., confirming that the deduction should be restricted to the actual provision made in the books.

The Tribunal upheld the CIT(A)’s decision, noting that the Revenue’s pleadings did not rebut the appellant’s entitlement amounts and that the Revenue had lost similar grievances in preceding assessment years. Therefore, the Tribunal decided this issue in favor of the assessee.

2. Bonus disallowance(s) including ex-gratia bonus:

The second issue involved the disallowance of Rs. 1,37,24,484/- as bonus and ex-gratia bonus amounts of Rs. 36,34,923/- and Rs. 2,76,876/- for the respective assessment years. The Revenue argued that the assessee, following the mercantile system of accounting, should have claimed the relief based on actual provision rather than a board resolution passed in the succeeding financial year(s).

The Tribunal referenced the co-ordinate bench’s order in ITA No. 617/PN/11 for AY 2007-08, which rejected the Revenue’s contentions. The Tribunal noted that the amounts were actually paid by the assessee before filing the return, and the Board Resolution No. 55 dated 13.3.2007 crystallized the liability for ex-gratia payment to employees. The Tribunal found the Revenue’s objections unfounded and upheld the CIT(A)’s deletion of the disallowance, thus rejecting the Revenue’s grounds on this issue.

3. Set off of brought forward losses/unabsorbed depreciation:

The third issue pertained to the set-off of brought forward losses/unabsorbed depreciation for AY 2008-09. The CIT(A) directed the AO to allow the set-off of brought forward losses/unabsorbed depreciation from AY 2007-08. The Revenue contended that no such losses remained to be carried forward. The Tribunal noted that this issue involved more reconciliation than substantive adjudication and restored the matter to the AO for fresh computation as per law.

Conclusion:

The Tribunal partly allowed the Revenue’s appeal ITA No. 2869/PUN/2016 for statistical purposes and dismissed ITA No. 2871/PUN/2016. The order was pronounced in the open court on 12th May, 2022.

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