TaxTMI 
TaxTMI 
2016 (6) TMI 638
X X X X Extracts X X X X
X X X X Extracts X X X X
....49,761. During the original assessment proceedings, the assessee had submitted that the provision was made on actuarial valuation basis and that the actual payment was made to the group gratuity scheme of SBI Life Insurance Co. Ltd., directly on 22.05.2007 i.e., before the due date of filing of the return of income. The A.O. disallowed the claim on the ground that the payment has not been made through the approved gratuity fund. 2.1. The assessee preferred an appeal before the CIT(A) stating that SBI Life Insurance was registered with IRDA and was authorised to manage group gratuity schemes. A copy of the certificate of renewal of registration with IRDA was also furnished. The CIT(A), however, rejected the assessee's claim observing that claim of registration has been made for the first time during the appellate proceedings and that the evidence of registration was an additional evidence which could not be considered. Aggrieved by the order of the CIT(A), the assessee preferred an appeal before the ITAT and the ITAT in ITA.No.502/Hyd/2011 and others dated 29.04.2013 observed that the assessee had submitted certain documents in support of the claim that the group gratuity scheme of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(I) Ltd., 269 ITR 290. iv. Hitech (India) P. Ltd., vs. Union of India v. Sony India (P) Ltd., vs. CIT 285 ITR 213 vi. Hindustan Salts Ltd., vs. CIT 185 CTR 542 5. Having regard to the rival contentions and the material on record, we find that the assessee had made payment of Rs. 2,74,49,769 towards group gratuity fund of SBI Life Insurance on 21.05.2007 i.e., before the due date of filing of the return. It is not the case of making the contribution to "provision for contribution to the approved gratuity fund" but it is the case where the assessee has made the payment of gratuity fund directly to SBI Life Insurance. According to the A.O, the contribution to SBI Life Insurance has to be made through the approved gratuity fund and since it is made directly, the deduction is not allowable under section 40A(7) and also under section 43B of the I.T. Act. We find that the issue of allowability of such deduction had arisen in assessee's own case for the A.Y. 2010-2011 wherein the Tribunal after considering the decision of the Calcutta High Court in the case of Sree Kamakhya Tea Co. P. Ltd., (cited supra) and also the decision of the jurisdictional High Court in the case of Hitech (I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the present case the appellant has not made any provision for gratuity U/s.40A(7) as on 31-03-2010 as the total amount has been paid on 31-03-2010 and accordingly the said payment of gratuity of Rs. 5,61,93,000/- is an allowable deduction U/s.43B of the I.T.Act, 1961. 17. Reliance is placed on the decision of the Hon'ble Andhra Pradesh High Court, in the case of Hitech (India) (P) Ltd. (Supra) have held that: "The second provision imposes a further restriction on the allowability of deduction of any sum referred to in clause (b). It provides that unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date, it shall not be allowed as deduction. For this purpose, the definition of 'due date' as given in the Explanation to clause (va) of sub- section (1) of section 36 is adopted. Sub- clause (x) of clause (24) of section 2 includes within the meaning 'income' any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or other fund set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n had arisen before the Hon'ble Apex Court in the case of CIT vs. M/s. Textool Co. Ltd., in Civil Appeal No.447 of 2003 and the Hon'ble Court vide its decision dated 09.09.2009 has held as under : "This appeal, by special leave is directed against the judgment, dated 4th February, 2002, rendered by the High Court of Judicature at Madras, in Tax Case No. 267 of 1989. By the impugned judgment, the High court has answered the question of law, referred to it by the Income Tax Appellate Tribunal, Madras Bench (for short, "the Tribunal") under Section 256(1) of the Income Tax Act, 1961, (for short, "the Act") at the instance of the Revenue. The question of law, so referred, was as follows: " ... Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in allowing the deduction of Rs*55,84,754/- being the payment made by the assessee company directly to Life Insurance Corporation towards Group Gratuity Fund under Section 36 (l)(V) of the Income Tax Act, 1961?" Material facts relevant for the purpose of the present appeal may be stated thus: For the assessment year, 1983-84, for which the relevant previous year ended on 30th April, 1982, the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... policy and it was only the initial payment and first annual premium had been made directly to the LIC against the said policy. The Commissioner was thus, convinced that by making payment of the amounts in question directly to the LIC, the assessee had not violated any of the conditions stipulated in Section 36(1)(v) of the Act. Accordingly, the Commissioner came to the conclusion that since, on the facts of the case, the objective of the fund was achieved, a narrow interpretation of the provision would be straining the language of Section 36(1)(v) of the Act so as to deny the deduction claimed by the assessee. Consequently, the Commissioner allowed the said amount of Rs. 58,84,754/- as deduction for the relevant assessment year. Being dissatisfied with the view taken by the Commissioner, the Revenue took the matter in further appeal to the Tribunal. Relying on its earlier decision in the case of Janambikai Mills Ltd, the Tribunal dismissed the appeal. As stated above, by the impugned order, the afore extracted question, referred at the instance of the revenue, has been answered by the High Court in favour of the assessee. While answering the question, the High Court has observ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High court, warranting our interference." 6. In our opinion, the assessee's case for the relevant assessment year is similar to the above case. Respectfully following the same, assessee's appeal is allowed. 7. In the result, ITA.No.713/Hyd/2015 of the assessee is allowed. ITA.No.714/Hyd/2015 - A.Y. 2008-2009 8. This is assessee's appeal for the A.Y. 2008-09. In this appeal, the only grievance of the assessee is against the disallowance of deduction of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Section 36(1) is meant for rural debts only as per the decision of the Apex Court in the case of Catholic Syrian Bank reported in 343 ITR 270 (SC) (cited surpa) and therefore, that the assessee is entitled to a deduction of the actual amount created in the books of account towards the provision for rural bad and doubtful debt subject to the ceiling specified in section 36(1)(viia) of the Act, he accordingly, issued a show cause notice as to why the excess claim of deduction under section 36(1)(viia) of Rs. 10,46,19,487 should not be disallowed. The assessee submitted its reply stating that during the A.Y. 2008-09, the law did not provide for making a provision of 7.5% of the total income in the books of account and therefore, the proposal to make the disallowance may be dropped. The A.O. was not convinced with the assessee's contentions. He, therefore, disallowed the claim of excess deduction towards provision of bad and doubtful debts of Rs. 10,46,19,487. On appeal, the CIT(A) confirmed the disallowance giving partial relief to the assessee by observing as under : "5.1. I have considered the facts on record and the submissions of the AR. The appellant had debited a sum of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n. The proviso to clause (vii) of section 36(1) also shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1)(viia)." The Court, therefore, upheld the view that the allowance u/s 36(1)(viia) had to be limited to the amount of provision created by the assessee in its books. 5.6. Similar view has also been taken by the jurisdictional ITAT in the decision cited by the Assessing Officer in the case of State Bank of Hyderabad. 5.7. It follows that not only must the provision for bad debts be debited to the P&L account in order to enable an assessee to claim deduction u/s 36(1)(viia), the amount of deduction allowable is limited by the provision so debited. 5.8. Further, in the case of Catholic Syrian Bank Ltd. vs CIT [2012] 343 ITR 270 (SC), it has been held by the Supreme Court that Sec. 36(1)(viia) applies only to rural advances. Therefore, the deduction under this sub-section must be limited to the amount of provision relating to rural advances in the books of the appellant. 5.9. As noted above, the total provision debited by the appellant was 9000.42 lakhs. Of this, provision of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Aggrieved, the assessee has filed this appeal before us. 12. The Ld. Counsel for the assessee, while reiterating the submissions made before the authorities below, has also relied upon the decision of this Tribunal in ITA.No.1742/2014 for the A.Y. 2010-2011 dated 25.03.2015 in the case of Deccan Grameena Bank wherein, after following the decision of the Coordinate Bench of this tribunal in the case of SBH vs. DCIT (in ITA.No.1232/H/2006), ITAT held that 7.5% deduction of the total income can be claimed independent of any provisions made for bad and doubtful debts. Copy of the said order for the A.Y. 2010-2011 in the case of Deccan Grameena Bank is filed before us. 13. The Ld. D.R. on the other hand, supported the orders of the authorities below and relied uponthe order of ITAT in the assessee's own case for A.Y. 2009-2010 wherein the disallowance was confirmed. 14. Having regard to the rival contentions and the material on record, we find that the only issue is whether the assessee is eligible for deduction under section 36(1)(viia) of the Act @ 7.5% of the total income without creating a provision for the same in its books of account. 14.1. We find that similar issue had aris....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in books of account and the deduction was claimed, just because it was provided by the provisions of Income- tax Act. In this context, it may be relevant to hold that, the deduction was claimed, as provided in Sec. 36(1)(viia) of the Act and no infirmity was pointed out by the AO in this regard. The deduction was made by the assessee as per the provisions of the I.T. Act (Sec. 36(1)(viia) restricting to the 7.5% of the total profits, in addition to deduction of Rs. 1,96,65,088 claimed towards the doubtful and bad debts of rural advances, which was allowed by the AO". 18. The Ld CIT (A) held that it is also a fact that, no other deductions were claimed by the assessee bank u/s 36(1)(vii) towards write off of bad debts. In this context it is relevant to refer to the decision of the ITAT Hyderabad, in the case of State Bank of Hyderabad vs. DCIT dated 28.11.2008 in ITA No.1232/Hyd/2006 wherein the Tribunal held that deduction u/s 36(1)(viia) of the Income Tax Act, not exceeding 7.5% of the total income computed, is to be allowed for provision of bad and doubtful debts. Considering the facts of the case that the deduction claimed by the assessee to the extent of Rs. 4,44,52,560 was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tical issue, has held as under: "It is observed that the assessee in the present case, being eligible bank, is entitled to claim deduction as per the main provision contained in clause (a) of S.36(1)(viia), in respect of any provision for bad and doubtful debts to the extent of an amount not exceeding 7.5% of the total income 'computed before making any deduction under S.36(1)(viia) and Chapter VIA' and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. A perusal of the impugned order of the learned CIT(A) however, shows that it was stated by the assessee before the learned CIT(A) that no provision was made towards average rural advances. If it is so, it is not clear as to what is the basis on which the provision of Rs. 22.40 crores (Rs.5.38 crores in respect of urban advances and Rs. 17.02 crores in respect of rural advances)was made by the assessee during the year under consideration. Moreover, all these facts and figures were furnished by the assessee before the learned CIT(A) for the first time and the Assessing Officer therefore, did not have any opportunity to verify the same. The claim of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of CIT vs. Andhra Bank Ltd., in ITA.No.715/Hyd/2012 for the A.Y. 2007-08 (to which one of us i.e., the J.M. is a signatory) vide orders dated 04.10.2013 has followed the decision cited supra in the case of State Bank of Patiala and has held as under : 34. We have considered the rival submissions and perused the record. In fact this is the first year in which the issue has arisen as the provision made by the assessee in its books of account is less than the amount allowable u/s 36(1)(viia) of the IT Act. The learned CIT(A) after considering the provisions of law as well as the actual provision made by the assessee for bad and doubtful debts, ultimately concluded vide paras 6.9 and 6.10 in his order as under: "6.9 If the intention of the legislature is that deduction should not be linked to the provision made in the accounts, the language of the section will not have the wording ' in respect of any provision for bad and doubtful debts made', instead it would have stated that the scheduled bank would be entitled to a deduction of an amount which is an aggregate of 7.5% of the total income and 10% of the aggregate average advances made by the rural branches without reference to an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence between Rs. 503,49,00,000 and Rs. 295,55,54,682). b) Apart from the above the AO also disallowed the sum of Rs. 295,55,54,682 out of Rs. 503,49,00,000 claimed as deduction u/s.36(1)(viia) of the Act. The reasons given for disallowing claim for deduction of Rs. 295,55,54,682/- u/s.36(1)(viia) of the Act by the AO was that there was already credit balance in the PBDD as on 1.04.2005 Balance B/F was Rs. 912,57,47,169. According to the AO 10% of AARA can be created as provision each year provided there is no brought forward balance as on the first day of the previous year in the PBDD account.10% of the AARA as admitted by the Assessee as per revised census of 2001 was 352.53 crores. According to the AO even if Bad debts written off of Rs. 179,21,88,992 is reduced still the balance in the PBDD account was Rs. 733,35,58,177/-. Since the balance so available in PBDD account was more than 10% of AARA, the AO held that deduction on the basis of new provision of Rs. 295,55,54,682/- cannot be allowed. In this regard the AO referred to the contention of the Assessee which was to the effect that in each year the Assessee can create 10% of AARA and concluded that the expression "not excee....