TaxTMI 
TaxTMI 
2018 (8) TMI 192
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....s premium paid to LIC under 'Group Gratuity Scheme'. As per Part 'C' to Schedule-IV of the Income Tax Act (hereinafter called as 'Act'), any such contributions should be under a scheme duly approved by the Chief Commissioner or Commissioner of Income Tax, for allowing as eligible deduction. The contributions made for Group Gratuity Fund approved by an appropriate authority are only allowable expenditure under the provisions of Sec.36(1)(v) of the Act. In the instant case, the assessee made contribution to Group Gratuity Scheme of LIC of India which does not have approval of concerned authority. Therefore, the sum of Rs. 76,15,159/- was disallowed u/s 36(1)(v) of the Act and added back to the income. This issue is involved for the assessment years 2013-14 and 2014-15. 3. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) followed his own order for the earlier years in the assessee's own case and allowed the actual payment u/s 37(1) of the Act. For ready reference, we extract relevant part of the order of the Ld.CIT(A) which reads as under : " During the course of appellate proceedings, the Ld.AR of the appellant brought to t....
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....ion 37 of the Act. The similar view has been taken by the Ho 'ble ITAT, Delhi "B" Bench in the case of ITO vs MMTC Ltd, 3 ITD (Del) 305. Further, the Hon'ble ITAT in the case of DCI?', Circle-3(2), Hyderabad Vs Sri Krishna Drugs Ltd., in ITA No. 198/Hyd/2011, dated 16.12.2011,has also held that payment to Group Gratuity Fund of LIC of India is allowable as business expenditure u/s 37(l) of the Act, even though not recognized by the Commissioner of income Tax. The Hon' ble Tribunal has relied on the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd, while allowing the payment of premium to the LIC group Gratuity Fund. In view of the detailed discussion of the facts and court judgments the payment made to Group Gratuity Fund of LIC of India, is allowable as business expenditure u/s 37(1) of the Act, even though it is not recognized by the Commissioner of Income Tax. Hence, the addition made by the A.O. is deleted and assessee 's ground of appeal is allowed." In view of the above and considering the decision, the addition made by the Assessing Officer is hereby deleted." 4. Aggrieved by the order of the CIT(A), the reven....
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....d 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 dated 11.4.2012, where the JM was one of the party. The Tribunal in the said case held as follows: 3. The second ground raised by the Revenue is as under: "The learned CIT(A) erred in holding that unrecognised gratuity fund is allowable u/s. 37(1),when the case is hit by the provisions of section 40A(9) and especially when the assessee failed to comply with the provisions of section 36(1)(v)." 3. After hearing both the sides, we find this issue is covered in favour of the assessee and against the Revenue in I.T.A. No. 198/Hyd/2011 in assessee's own case for A.Y. 2006-07 order dated 16.12.2011 wherein this Tribunal held as follows: "3. After hearing both the parties, we are of the opinion that similar issue came up for consideration in assessee's own case for assessment year 2002-03 in I.T.A. No. 349/Hyd/2006. The Tribunal decided the issue in favour of the assessee vide its order dated :15.2.2....
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....ent 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. (supra), we uphold the order of the CIT(A). In view of the above discussion, we dismiss the ground taken by the Revenue." 5. In view of the above decision of this Tribunal, the ground raised by the Revenue is dismissed." 9. Since the issue under consideration is materially identical to the one decided by the ITAT in the case of M/s. Sri Krishna Drugs Ltd. (supra), respectfully following the same, we set aside the order of the CIT(A) and allow the ground of appeal of the assessee." 9. Similarly, ITAT Ahmedabad Bench in the case of Baroda Gujarat Grameen Bank cited (supra) held that the payment made to LIC of India is not a provision but it is actual expenditure claimed under the gratuity contribution. Hon'ble ITAT Ahmedabad Bench held that since assessee has not claimed the provision and claimed on actual basis, the expenditure is allowable deduction. For ready reference, we reproduce par....
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.... 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 obtained the policy in favour of the bank. The assessee has no control over the funds contributed to LIC towards the gratuity. The assessee is receiving the gratuity payment directly from the LIC of India as per the scheme which is paid to the employee on happening of the event i.e. retirement or death or resignation. Therefore, the facts of the assessee's case are squarely covered by the decisions cited supra. The coordinate bench of Hyderabad while delivering the ruling relied on the decision of jurisdictional High Court in the case of Warner Hindustan Ltd. Since the facts are identical, respectfully following the view taken by the coordinate benches, we hold that the assessee is entitled for the deduction for payment of gratuity to LIC and accordingly, we set aside the order of the lower authorities and allow the appeal of the assessee. 8.1 Since the facts are identical, respectfully following the view taken ....
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....able in the sense that the bank has no doubt of recoverability and the same is continued though as per the guidelines of RBI provision for standard asset is to be created as a precautionary measure, the same cannot be allowed as the deduction u/s 36(1)(viia) of the Act. Whereas the assessee's case is that the entire amount of Rs. 2,65,10,567/- including the provision against standard assets is covered u/s 36(1)(viia) of I.T.Act. The Ld.AR argued that the nomenclature is immaterial and as long as the assessee makes a provision within the limits prescribed u/s 36(1)(viia) r.w.r.6ABA of I.T.Act, the assessee is entitled for deduction. Before deciding the issue it is necessary to go through section 36(1)(vii) and Section 36(1)(viia) which reads as under : "subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: [Provided that in the case of [an assessee] to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit bala....
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....ding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:]" Careful reading of section 36(1) and (viia) shows that the word used in Sections is Bad debt and Bad and doubtful debt but not the standard asset. Both the sections are interrelated and the allowance is subject to satisfactions of the terms and conditions specified in section 36(2) of the IT Act. Deduction is allowed under section36(1)(vii) if the debt is written off in the books of accounts subject to the condition that the same is offered as income in the earlier year or incurred in the ordinary course of business in the case of money lender. The same conditions required to be satisfied for the purpose of Bad and doubtful debts also. i.e the debt should have been incurred in the ordinary course of business and classified as doubtful debt. The bad debt which is written off and claimed as deduction required to be offered to income when it is recovered. Similarly the provision made for bad and doubtful debt recovered subsequently required to be offered to income as and when it is recovered. Therefore the deduction of Provision for Bad and doubtfu....
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....ndard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. 4.1.2 Doubtful Assets With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable. The provisioning requirements for all types of standard assets stands as below. Banks should make general provision for standard assets at the following rates for the funded outstanding ii) Theprovisions on standard assets should not be reckoned for arriving at net NPAs. (ii) The provisions on standard assets should not be reckoned for arriving at net NPAs. (iii) T....
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....Estate (CRE) Sector at 1.00 per cent; (c) advances to Commercial Real Estate - Residential Housing Sector (CRE - RH) at 0.75 per cent1 (d) housing loans extended at teaser rates and restructured advances as as indicated in Para 5.9.13 and 12.4 respectively; (e) all other loans and advances not included in (a) (b) and (c) above at 0.40 per cent. (ii) The provisions on standard assets should not be reckoned for arriving at net NPAs. (iii) The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet." Prudential norms shows that it is a general provision which should not be reckoned for the purpose of reckoning the NPA, should not be netted from gross advances to be shown separately as contingent provision against standard assets. In the Income tax, the provisions are not allowable deduction and only the expenditure actually incurred or ascertained as per the system of accounting is the allowable expenditure except the provision for Bad and doubtf....
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....sets as good and recoverable, any provision made on such assets cannot be considered as a provision for bad and doubtful debts. The debt itself being good, a provision made on good debt cannot be considered as a provision for bad and doubtful debts. May be, the RBI has made a regulation for 10% provision for standard assets also a prudential norm. This can however be considered as a measure prescribed in abundant caution, to deal with a situation where banks are not to suffer shock of sudden delinquency that could happen in future. There is always a possibility that an asset, which is fully recoverable, may not be so at future date. Nevertheless, possibility of happening of such a contingency cannot be a sufficient reason to consider a provision made on standard assets also as a provision for bad and doubtful debts. Therefore, claim of the assessee that provision for standard assets also has to be considered for applying the condition set out under Section 36(1)(viia) is not in accordance with law." Coordinate Bench of ITAT, Hyderabad 'A' also expressed the similar view in the case of M/s. Andhra Pradesh Grameena Vikas Bank, Warangal Vs. ACIT, Warangal, ITA Nos. 502/H/11- ....