AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 724
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion provided on Govt. securities of Rs. 20,98,99,736/- 3. Expenditure claimed on account of provision for staff frauds of Rs. 79,66,277/- 4. Accrued interest on Non Performing Assets amounting to Rs. 2,76,00,000/-. 5. Provision for Grautity of Rs. 20,99,18,264/- and, 6. claim u/s 36(1)(viia) of Rs. 7,74,29,452/-. 4. The assessee filed an appeal before the CIT(A), who deleted the additions pertaining to the items mentioned at 1 to 5 above while he confirmed the disallowance in respect of the item at 6 of the above. 5. Against the relief given by the CIT(A) to the assessee, the revenue is in appeal before us while against the confirmation of addition by the CIT(A), the assessee is in cross appeal before us. 6. As regards the Revenue appeal, the learned counsel for the assessee filed a chart before us stating that all the grounds raised by the revenue are covered in favour of the assessee by the decision of the "A" Bench of ITAT, Hyderabad in assessee's own case for the AYs 2007-08 and 2008-09 in ITA Nos. 1121 and 1459/Hyd/2011, dated 29/04/2011. A copy of the said order is placed before us. 7. The learned DR supported the order of the AO while the learned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee in case of State Bank of Hyderabad in ITA Nos.578 and 779/Hyd/10 dated 7-9-2012. Further, the conclusion arrived at by the assessing officer that the HTM category of securities are investments and cannot be considered as stock in trade is also found to be not the correct view. The Hon'ble AP High Court in case of SBH (151 ITR 703) has held that the amount required to be kept in India as per section 24 of the banking Regulation Act, 1949 in the form of cash, gold and encumbered securities is part of stock in trade of the assessee. Hence, it cannot be held that HTM category of securities is not stock in trade of the assessee. In aforesaid view of the matter, we uphold the conclusion of the CIT (A) to the effect that broken period interest is an allowable deduction. Accordingly, we dismiss the ground raised by the revenue on this issue." 9.1 Respectfully following the said decision of the ITAT, this ground of appeal is rejected. 10. 3rd ground of appeal of revenue is with regard to the disallowance of expenditure claimed on account of amortization provided on Govt. securities. The stand of the revenue is that the expenditure claimed by the assessee does not co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed." 10.2 Respectfully following the said decision of the ITAT, this ground of appeal is rejected. 11. Ground No. 4 relates to the disallowance of expenditure claimed on account of provision for staff frauds by the assessee. The stand of the revenue is that such provision is not allowable as business expenditure. We find that the Tribunal has considered this issue in assessee in assessee's own case for the earlier assessment year (supra) at paras 8 to 11, which are extracted below: "8. Ground No.4 relates to deletion of an addition of Rs.46,45,087/- being provision for staff frauds. During the assessment proceedings, the assessing officer noted that the assessee had made a provision of Rs.44,44,087/- towards staff fraud. In response to the query made by the assessing officer, the assessee submitted that all the advances which have become bad on account of fraud by the staff are treated as loss and accordingly provision has been made. The assessing officer however rejected the contentions of the assessee by observing that the provision for staff frauds could not be equated with the provision of bad and doubtful debts. He was further of the view that frauds by staff ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenditure u/s 37 of the Act. In aforesaid view of the matter, we do not find any infirmity in the order of the CIT (A) in allowing the expenditure claimed by the assessee on account of staff fraud. Hence, this ground raised by the Revenue is dismissed." 11.1 Respectfully following the said decision of the Tribunal, this ground of appeal is rejected. 12. As regards Ground No. 5 relating to addition made by the AO towards accrued interest on non-performing assets, we find that the Tribunal has considered this issue in assessee's case at paras 13 to 17 of its order and has held it in favour of the assessee. However, we find that the Tribunal has not considered the decision of the Hon'ble Supreme Court in the case of Southern Technologies reported in 320 ITR 577 wherein it has been held that the RBI directives were only in the context of presentation of NPAs in the balance sheet and the balance sheet of NBFC has nothing to do with the taxable income, which has to be computed as per the provisions of the IT Act. Though the decision of the Hon'ble Supreme Court is dated 11/01/2010, the same has not been considered by the Tribunal and, hence, the finding of the Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the group gratuity scheme is an approved one hence, the contribution made to such scheme is allowance as deduction u/s 43B of the Act as the payment was made before the due date of furnishing the return of income. It was further submitted that SBI life Insurance is registered with Insurance Regulatory Development Authority and is authorized to manage group gratuity scheme. In support of such convention, the assessee submitted the certificate of renewal or registration with IRDA. The CIT (A) though accepted the fact that the actual payment to the group gratuity fund was made on 22-5-2007 before the due date for furnishing the return of income, however by observing that the assessee, for the first time claimed that the gratuity fund was an approved fund and the evidence in support of such claim was not produced before the Assessing Officer, he rejected the claim of the assessee. The CIT(A) further observed that as the evidence produced before him constitutes additional evidence and since the assessee has not submitted any petition for admission of an additional evidence as per Rule 46A the evidence produced before him cannot be considered. The CIT(A) further held that a claim of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the evidence produced for the first time before him could not be taken cognizance of as there was no petition for admission of additional evidence as per rule 46A of IT Rules. Thus, the CIT (A) rejected the claim of the assessee at the threshold without looking into the evidence produced before him. However, fact remains that the assessee has submitted certain documents in support of his claim that the group gratuity scheme of the SBI Life Insurance Company is an approved gratuity fund and it is also a fact on record that the payment to the said fund was made before the due date of submission of return of income for the relevant assessment year. In aforesaid view of the matter, assessee's claim is required to be examined. Therefore, considering the fact that the evidence produced by the assessee were not considered by the revenue authorities while disallowing the claim of the assessee, we remit the matter back to the file of the assessing officer who shall decide the issue afresh after taking into account all the evidences available on record and further evidences that may be produced by the assessee before him. We direct the assessing officer to afford a reasonable opport....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce of provision for SME advances amounting to Rs. 89,65,000/- only. 19. The learned counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Vs. CIT, 343 ITR 270 (SC) and in the case of Vijaya Bank, 323 ITR 166 (SC). He also placed reliance upon unreported decision of the ITAT, Calcutta Bench in the Allahabad Bank Vs. DCIT in ITA No. 1349/Cal./2009, order dated 16/05/2012. 20. The DR supported the order of the CIT(A). 21. Having heard both the parties and having considered judicial precedents on the issue, we find that the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd (supra) has held as follows: "60. The point to be highlighted is that in case of banks, by way of incentive, a provision for bad and doubtful debt is given the benefit of deduction, however, subject to the ceiling prescribed as stated above. Lastly, the provision for NPA created by a scheduled bank is added back and only thereafter deduction is made permissible under Section 36(1)(vii-a) as claimed." 30. The scope of the proviso to clause (vii) of Section 36(1) has to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a bank should maintain the accounts with separate items for actual bad and irrecoverable debts as well as provision for such debts. It could, for valid reasons, have rural accounts more distinct from the urban, commercial accounts. (a) It is obligatory upon each bank to ensure that the accounts represent the correct statement of affairs of the bank. (b) Maintaining the common account may result in over stating the profits or the profits will shoot up which would result in accruing of liabilities not due. (c) Accounting Standard (AS) 29, issued in 2003, which concerns treatment of `provisions, contingent liabilities and contingent assets'. Under the head `Use of Provisions', clauses 53 and 54 state as under:- "53. A provision should be used only for expenditures for which the provision was originally recognised. 54. Only expenditures that relate to the original provision are adjusted against it. Adjusting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different events." 35. The above clauses justify maintenance of distinct and different accounts. 36. Merely because the Department has some ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 36(1) of the Act. We are unable to persuade ourselves to contribute to this reasoning and statement of law. 39. Firstly, the Full Bench ignored the significant expression appearing in both the proviso to Section 36(1)(vii) and clause (v) of Section 36(2), i.e., `assessee to which clause (viia) of sub- section (1) applies'. In other words, if the case of the assessee does not fall under Section 36(1)(viia), the proviso/limitation would not come into play. 40. It is useful to notice that in the proviso to Section 36(1)(vii), the explanation to that Section, Section 36(1)(viia) and 36(2)(v), the words used are `provision for bad and doubtful debts' while in the main part of Section 36(1)(vii), the Legislature has intentionally not used such language. The proviso to Section 36(1)(vii) and Sections 36(1)(viia) and 36(2)(v) have to be read and construed together. They form a complete scheme for deductions and prescribe the extent to which such deductions are available to a scheduled bank in relation to rural loans etc., whereas Section 36(1)(vii) deals with general deductions available to a bank and even non- banking businesses upon their showing that an account ha....