TaxTMI 
TaxTMI 
2016 (6) TMI 638
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....llowing the provision for gratuity of Rs. 2,74,49,761. 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 suppo....
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....vs. JCIT (ITA.No.139/Cal/1999 (HC) iii. CIT vs. Commonwealth Trust (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. ....
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....he employees' account under the provisions of any law or the terms of the contract of service or otherwise. 16. In 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 supe....
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....ed the same. Whether assessee can make the contribution to group gratuity scheme directly is the question before us. We find that similar question 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 ....
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....Employees Group Gratuity Fund and the trustees in turn had made payment to the LIC in respect of the Textool Co. Ltd.; Employees Group Gratuity Assurance Scheme under the said 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, ....
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.....P. & Anr. (1985) 156 ITR 585). From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of 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 ....
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.....5% of the total income towards bad and doubtful debts and that out of the provision of Rs. 4.33 crores, a sum of only Rs. 3.10 crores pertains to rural debts. Observing that a deduction for provision under clause (viia) of 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 ap....
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....d in the case of State Bank of Patiala where it was held: "The deduction allowable under section 36(1)(viia) of the Income-tax Act, 1961, is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. 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), ....
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.... Rs. 1711.35 crores. The provision of Rs. 85,57,00,000 represents 5% of this closing balance and not of the aggregate average advances made by the rural branches as computed under rule 6ABA. The Assessing Officer is, therefore, directed to re-compute the aggregate average rural advance in accordance with rue 6ABA for the purpose of allowing the deduction. 6.0. In the result, the appeal is partly allowed." 11. 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 upo....
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....ht on record, the assessee claimed a deduction of Rs. 4,44,52,560/- being the deduction @7.5% of the total income, as per the provisions of Sec. 36( l)(viia) before claiming deductions u/s. Chapter VI A and the deduction under said clause, while computing the total income. The AO disallowed the same on the ground that there was no necessity of such provision, with the advances secured and no provision for bad and doubtful debts have been made 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 ....
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....able. The Hon'ble P & H High Court in case of State Bank of Patiala Vs. CIT (supra) while examining the provisions of section 36(1)(viia) held that for claiming deduction under the said provision, assessee bank has to make a provision for bad and doubtful debts in its books of account and deduction u/s 36(1)(viia) in respect of rural advances can only be allowed to the extent of the provision made. The coordinate bench in assessee's own case for AY 2010-11 in ITA No. 51/Hyd/2015 dated 10/04/2015, while dealing with identical 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....
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....he department is allowed for statistical purposes. 14.3. Thus, we find that this issue is now covered in favour of the Revenue and against the assessee by the decision of the Hon'ble High Court of Punjab & Haryana in the case of State Bank of Patiala reported in 272 ITR 54 wherein it has been held that it is necessary to make a provision for bad and doubtful debts in the account books in the same previous year in which such provision is claimed as deduction under section 36(1)(viia). The Coordinate Bench of this Tribunal in the case 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, ....
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.... debts in respect of rural advances was created by debit to profit and loss account of only a sum of Rs. 295,55,54,682 whereas the claim for deduction actually made u/s.36(1)(viia) of the Act was a sum of Rs. 503,49,00,000/-. The AO was of the view that as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), claim for deduction u/s.36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision. The AO therefore proposed to disallow a sum of Rs. 207,93,45,318 (Difference 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 t....