TaxTMI 
TaxTMI 
2018 (4) TMI 553
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.... the facts are identical and issues are common, they are clubbed, heard together and disposed-off by way of this common order for the sake of convenience. ITA No.49/Vizag/2012: (Assessee appeal): 2. Ground Nos.1 & 5 are general in nature, which do not require specific adjudication. 3. Ground No.2 is related to the issue of notice u/s 148 of the Income Tax Act, 1961 (hereinafter called as 'the Act'). In this case, a survey u/s 133A of the Act was conducted and during the course of survey, the A.O. has noticed that the assessee had claimed the deduction for premium payments to LIC Gratuity fund of its employees in violation of the provisions of section 36(1)(v) & section 40A(7)(b) of the Act. The A.O. observed that the gratuity fund/trust was not a recognized gratuity, fund hence the assessee is not entitled for deduction. Accordingly, the A.O. reopened the assessment by issue of notice u/s 148 of the Act. 3.1 This issue is involved for the assessment year 2007-08 and in appeal No.50/Vizag/2012 for the assessment year 2008-09 also. 3.2 On appeal the Ld. CIT(A) upheld the issue of reopening of assessment u/s 147, holding that the claim of deduction for gratuity ....
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.... that the assessee has not satisfied the conditions of section 36(1)(v) and also section 40A(7)(b) of the Act to be eligible for deduction. The fund is neither approved by the CIT nor the assessee maintained the separate books of accounts. The A.O. was of the view that as per section 40A(7) of the Act, unless the assessee makes the payment to the approved gratuity fund, the deduction is not allowable. The A.O. relied on the decision in the case of Shree Sajjan Mills Vs. CIT reported in 156 ITR 585 (SC), Sony India (P) Ltd. Vs.CIT, 285 ITR 123(Del) and the decision in the case of CIT.Vs Pradeshiya Industrial and Investment corporation of U.P. Ltd,325 ITR 583 and disallowed the sum of Rs. 4,60,59,225/- and brought to tax. 5. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) observed that the gratuity funds/trust was not an approved fund/trust. Even though a separate trust was created for the purpose of gratuity, the assessee has been making the payments directly to LIC because of the reason the trust was not an approved trust. The assessee argued before the CIT(A) that since the payments were made directly to LIC, there is a const....
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....for its business purpose. The intention of the statute for obtaining the approval from Commissioner of Income Tax to the group gratuity fund is to prevent the mis-utilisation of the funds by the company or by the Directors of the company. Since the payment was made to the approved schemes of the LIC, the payment made to the LIC under gratuity scheme is completely under the control and management of the LIC of India and the assessee has no control on utilization of the funds. As held by Hon'ble Madras High Court in Textool Company Limited, there is a constructive compliance of the provisions of law and the requirements have been complied with by the assessee. The assessee relied on the decision of coordinate bench in the case of Capital IQ Information System (India) Pvt. Ltd. ITA No.84/Hyd/2013 dated 31.5.2013 for the assessment year 2008-09 of Hon'ble ITAT, Hyderabad 'A' Bench and the decision of ITAT Ahmedabad 'C' Bench in the case of DCIT Vs. Baroda Gujarat Grameen Bank in ITA No.1479/Ahd/2010 dated 6.8.2010 and the decision of ITAT 'A' Bench Chennai in the case of ACIT Vs. M/s. Verizon Data Services India Pvt. Ltd. in ITA Nos.1654, 1703, 1704/Mds./2014 dated 4.9.2015 and argued ....
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..... Thus no double deduction is claimed. The expenditure claimed by the assessee under group gratuity scheme to LIC of India was allowed in the earlier years prior to 2007-08. During the previous year relevant to the assessment year 2007-08, the A.O. disallowed the same since the payment made to LIC of India towards group gratuity scheme is not covered by section 36(1)(v), 40A(7)(b) & 40A(9) of the Act because the assessee has not satisfied the conditions. The argument of the assessee is that since the payments were made to LIC of India in Master policy scheme, the premiums contributed to the LIC of India is allowable deduction and relied on the decisions of coordinate bench of Hyderabad in the case of Capital IQ Information Systems (India) Pvt. Limited (supra). The Hon'ble ITAT Hyderabad Bench while deciding the issue on similar facts held as under: 8. We have heard the arguments of the parties, perused the material on record and have gone through the orders of the authorities below. We find that the issue is squarely covered by the decision of the ITAT, Hyderabad in the case of M/s. Sri Krishna Drugs Ltd. Vs. Department of Income-tax in ITA No.2126/Hyd/2011 for AY 2007.08 ....
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....owed. However, the contention of the assessee is that in view of the judgement of the Madras High Court in the case of Premier Spinning Mills Ltd. (supra) and the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra), it has to be allowed. 5. We have carefully gone through the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra). In the case before the jurisdictional High Court, the Provident Fund was not approved by the CIT. The Andhra Pradesh High Court af ter referring to the judgement of the Bombay High Court in Tata Iron & Steel Co. Ltd. v. D. V. Bapat, ITO (1975) 101 ITR 292, and the judgement of the Supreme Court in Metal Box Company of India Ltd. vs. The Workmen (1969) 73 ITR 53, held that the amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v). In view of this judgment of the jurisdictional High Court, in our opinion, even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37. By respectfully following the binding judgement of Andhra Pradesh High Court in the case of warner Hindustan Ltd.....
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.... made, had not become payable during previous year - Held, yes - Whether in absence of such a case made out by revenue, Tribunal was right in holding that grant of approval of gratuity fund was not relevant for purpose of instant case as said deduction was not being claimed on account of any provision and amount of gratuity was an allowable deduction - Held, yes". 5. Considering the above aspects, we do not find any infirmity in the order of the learned CIT(A) in deleting the addition. There is no merit in the departmental appeal. Same is accordingly dismissed." 10. In the case of Verizon Data Services India Pvt. Ltd. (supra) the coordinate bench of Madras held that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively for the benefit of employees and deduction shall be allowed. The coordinate bench of Madras while deciding the appeal relied on the decision of Hon'ble Madras High court in the case of Textool India Pvt. Limited (supra) (civil appeal No.447 of 2003). In the instant case the assessee has made the payments to the LIC towards group gratuity scheme directly in approved schemes. The assessee has also ob....
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....ssment was completed u/s 143(3) of the Act. However, the assessment is reopened within 4 years after having received the information that the assessee had made the incorrect claim leading to escapement of income. The Ld. AR of the assessee has reiterated the submissions made in the earlier order. As per the detailed discussion made in order No.49/Vizag/2012 discussed above, we uphold the issue of notice u/s 148 of the Act and assessee's appeal on this ground is dismissed. 16. Ground No.3 is related to disallowance made by the A.O. in respect of the gratuity premium paid or payable to LIC of India. This issue is discussed in detail and decided in favour of the assessee in appeal No.49 of 2012 for the A.Y. 2007-08 in this order. Accordingly, we hold that the group gratuity premium paid to LIC of India is an allowable deduction and allow the appeal of the assessee. 17. Ground No.4 is related to the disallowance u/s 40(a)(ia) of the Act made by the A.O. for a sum of Rs. 6,58,091/-. During the assessment proceedings, the A.O. found that the assessee had made the payment of Rs. 2,63,123/- for the purpose of advertisement expenses for which the assessee required to deduct the tax at....
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....e following cases and brought to tax: 1. Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT 227 ITR 172 (SC) 2. 37 ITR 66 (SC) Indian Molaysis Company Private Ltd. 3. Shree Sajjan Mills Private Limted 156 ITR 585 4. Mysore Lamps 185 ITR 96 (KR) 23. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed the addition made by the A.O. While confirming the addition of the A.O., the Ld. CIT(A) held that the debt in question for which the overdue interest is claimed, is not the debt in which the recovery is doubtful and non recovery case. The CIT(A) further observed that out of the total interest credited to the P&L account, the Lions share of debts are standard assets but not the doubtful debts which require to be considered as a bad loan. The assessee had claimed the 24% of interest as overdue interest and as per the information furnished by the assessee, sub standard, doubtful and lost asset accounts for Rs. 1870.95 lakhs against the total debts of Rs. 62,888.20 lakhs which works out to 2.97% of which indicates that the claim made by the assessee for NPA interest is not commensurating w....
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....erest portion is in accordance with the RBI norms /cooperative audit principles; (d) Assessee could not establish that the loans have become bad and/or are not backed by sufficient assets to say that the interest on these loans did not accrue to the assessee; (e) Assessee's reversal of interest income/deferement of interest income Is not an expenditure which is allowable either under 36(1)(vii)/36(i)(viia)/37(1) of Income-tax Act, 1961; (f) The ratio laid down by the Hon'ble Supreme Court in the case of Southern Technologies with regards to the theory of real income which states that computation of real Income is subject to the provisions of that act squarely applies to the assessee's case; (g) RBI norms are not binding on Income-tax Department as per the unambiguous decision of Hon'ble Supreme Court in the case of Southern Technologies and also as held by the Hon'ble Delhi Special Bench in the case of New India Industries Limited Vs. ACIT 18 SOT 51. (h) Overriding nature of section 45Q of RBI Act, it is restricted to the Non Banking Finance Companies only and It is not applicable to the cooperative banks. (i....
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....st on sticky loans is taxable, there are two consequential issues which are required to be adjudicated viz (i) credit for the interest income shown on receipt basis from the earlier overdue interest and (ii) the credit for the overdue interest which will be received in the future years pertaining to the disallowance made during the rear. Regarding the first issue I hold that no separate set-off of the interest received from tie earlier years needs to be given as there is no disallowance of overdue interest made in earlier assessment years. With regard to the second issue I direct the AO to give set-off in the subsequent assessment years to the income of overdue interest offered by the assessee on receipt basis as the said interest is already being taxed in the current year on accrual basis. 24. The CIT(A) distinguished the decision in the case of DCIT Vs. Durga Cooperative Urban Bank Limited in ITA No.511/Vizag/2010 decided by this Tribunal and held that the assessee has to prove that the interest is not recognizable due to uncertainty in collection of income and it is for the A.O. to accept the claim or not even in real income theory. 25. The CIT(A) held that the interest on....
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.... recognise income from non-performing assets on accrual basis but can book such income only when it is actually received - Until a circular is revoked, the same continues to be in force and the Circular F.No.201/21/84-ITA-II, dt.9th Oct.1984 having been issued to mitigate the hardships caused to the class of assessees covered by the circular, such assessees would be entitled to the benefit thereof-Merely because by virtue of the provisions of s. 43D, a certain class of assessees is given benefit under the provisions of the Act would not mean that the same would override the circular-Tribunal was therefore right in laws and on facts in holding that interest on non performing assets is not taxable on accrual basis looking to the guidelines of the RBI. Hon'ble High court with regard to recognition of income in para No.19 to 23 held as under: 19. Section 45Q of the RBI Act, which is relevant for the present purpose, reads thus: "45-Q. Chapter III-B to override other laws.-The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by vir....
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....doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India. These deviations prevail over certain provisions of the Companies Act, 1956 to protect the depositors in the context of income recognition and presentation of the assets and provisions created against them. Thus, the P&L account prepared by NBFC in terms of the RBI Directions, 1998 does not recognise "income from NPA" and, therefore, directs a provision to be made in that regard and hence an "add back". It is important to note that "add back" is there only in the case of provisions." [Emphasis supplied] 22. Therefore, in terms of the above decision, where an assessee makes provision for NPA and seeks deduction of such amount under section 36(1)(vii) or section 37 of the Act, then in the computation of income, the RBI Guidelines would have no role to play, and hence, an add back. Insofar as income recognition is concerned, the Supreme Court has held thus: "Applicability of Section 145 57. At the outset, we may state that in essence the RBI Directions, 1998 are prudential/provisioning norms issued by RBI under Chapter III-B of....
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.... have no role to play. Hence, the Assessing Officer has to follow the RBI Directions. Hon'ble Gujarat High Court has considered the decision of Hon'ble Supreme Court in the case of Southern Technologies which was relied by the Ld. CIT(A) and held that since section 45Q of the RBI Act shall have overriding effect over the income recognition, followed by the cooperative banks also the A.O. has to follow the RBI directions. In para No.14, the Hon'ble High Court has considered the issue with regard to the method of accounting applied for recognizing the income and held that the method of accounting followed by the assessee is in accordance with the accounting practice. The assessee also relied on the decision of Hon'ble High Court of Bombay in the case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd. (2015) 128 DTR (Bom) 0209 head notes, which reads as under: Income-Accrual-Interest on sticky advances-Assessee being a co-operative bank also governed by the RBI and thus the directions with regard to the prudential norms issued by the RBI are equally applicable to the cooperative banks-Tribunal was therefore justified in deleting addition on account of interest on sticky advances....
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....doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order." 8. An identical issue came up for consideration before the ITAT Pune Bench in the case of Vaidyanath Urban Co-op. Bank Ltd. Vs. CIT in ITA No.413/PN/2014 dated 31.3.2015, wherein the ITAT under similar set of facts held as under: "10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of Indi....
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....sent case, the assessment was made on the basis of the CBDT's circular of 9th Oct., 1984, since the assessment pertains to asst. yr. 1981-82 to which the circular of 9th Oct., 1984, is applicable. Under sub-s. (2) of s. 119, without prejudice to the generality of the Board's power set out in sub-s. (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter al/a, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under s. 119 which are binding on the authorities in the administration of the Act. Under s. 119(2)(a), however, the circulars as contemplated therein cannot be adverse t....
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....wed. 29. Ground No.7 is with regard to the charging interest u/s 234B&C which is mandatory in nature and the Ld. A.R. has not made any argument in this regard Accordingly, the assessee's appeal on this ground is dismissed. 30. In the result, the appeal of the assessee for the A.Y. 2008-09 is partly allowed. ITA No.78/Vizag/2012 (Revenue appeal): 31. When this appeal is taken up for hearing, the Ld. Counsel for the assessee has submitted that the tax effect involved in this appeal is below Rs. 10 lakhs. As per the circular No.21/2015 dated 10.12.2015 of CBDT being retrospective in nature, the appeal filed by the revenue is not maintainable. The Ld. D.R. has not raised any objection. In view of the above, the appeal filed by the revenue is not maintainable. Hence, the same is dismissed. 32. In the result, the appeal filed by the revenue in ITA No.78/Vizag/2012 is dismissed. ITA No.476/Vizag/2012: (Revenue appeal) 33. Ground Nos.1 & 9 are general in nature, which do not require specific adjudication. 34. Ground No.2 is related to the additional evidence placed by the assessee before the CIT(A). The revenue has filed an appeal stating that the assessee has filed....
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.... order in para Nos.7.1 to 7.2 as under: 7.1 With regard to third ground on disallowance of prior period expenses amounting to Rs. 31,95,707/- the appellant had submitted its explanation as under:- "The appellant contends that the entire amount of Rs. 31,95,707/- was actually paid on 21.8.2009 (relevant for A.Y. 2010-11) and was therefore not a prior period item for the current year. In fact the appellant had not at all debited the said amount to the profit and loss account during the year under dispute. It was debited during the financial year 2009-10 and was claimed in the next year only. However, the statutory auditors have inadvertently mentioned about the same in their Tax Audit report in Form no 3 CD and the Assessing Officer has disallowed the same basing on such observation in Form 3CD. In fact it was not claimed during the year under reference. It is, therefore, prayed that the same may kindly be directed to be allowed." 7.2. I have considered the submissions made by the appellant. The actual payment was made during the financial year relevant for the A.Y.2010-11 as per the vouchers produced by the assessee. It was claimed that there was no claim ....
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....indings, the appeal of the assessee on this ground stands allowed. 44. Ground No.2 is related to the disallowance of amortization expenditure. The A.O. disallowed a sum of Rs. 2,82,989/- the expenditure debited to P&L account holding that the sum as capital expenditure. 45. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld.CIT(A) upheld the same. During the appeal hearing, the Ld. A.R. argued that the expenditure was relatable to the internal furnishings in the leased premises and the A.O. has neither allowed depreciation nor allowed the amortization of expenditure. Therefore, requested to allow the amortization of expenditure or the depreciation. However no details were furnished either before the A.O. or before the CIT(A). During the appeal hearing also, the assessee has not furnished any details. Therefore, we set aside this issue to the file of the A.O. to examine the issue with regard to the nature of expenditure and allow the depreciation as per law. 46. Ground No.3 is related to the addition u/s 40(a)(ia) of the Act. During the appeal hearing, the A.O. found that the assessee had paid interest of Rs. 13,50,831/- to the Inco....