TaxTMI 
TaxTMI 
2020 (1) TMI 995
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.... CIT(A) against which the revenue is in appeal. Since common issues are involved in these appeals, as well as cross-objections, these appeals and cross-objections were heard together. We deem it convenient to pass a common order. 1391/Bang/2016 (Revenues' Appeal for Asst. Year 2012-13) 2. Ground Nos.1 & 2 raised by the Revenue by the revenue reads as follows:- 1. Whether on facts & circumstances of the case, is the learned CIT(A) correct in holding that the Assessee is entitled to deduction u/s.36(1)((vii) as well as U/s.36(1)(viia), of the Income Tax Act, 1961, without the restriction imposed by the provisions of Se.36(2)(v) of the Income Tax Act, 1961.. 2. Whether on the facts & circumstances and in law, the CIT(A) is correct in allowing deduction /s.36(1(vii) as well as u/s.36(1)(viia) of the Income Tax Act, 1961 thereby allowing the provisions of sections to operate independently and allowing the Assessee double deduction. 3. The Assessee is a rural regional bank engaged in the business of banking. In the course of assessment proceedings u/s 143(3) of the Income-tax Act, 1961 (Act) for AY 2009-10, the AO noticed that the asssessee had claimed deductio....
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....claimed if the sum claimed as deduction has not been debited by the assessee as provision for bad and doubtful debts account in the profit and loss account and accordingly refused to allow the claim of deduction as made by the Assessee. 6. On appeal by the assessee, the CIT(A) allowed the claim of the assessee as made in the revised return of income and in doing so followed the decision of the ITAT, Bangalore Bench in the case of Syndicate Bank Vs. DCIT, (2001) 72 TTJ (Bang) 744. 7. Aggrieved by the order of the CIT(A), the revenue has raised ground Nos.1 & 2 before the Tribunal. At the time of hearing it was agreed by the parties that similar issue had come up for consideration before the ITAT in Assessee's own case for AY 2009-10 & 2010-11 in ITA No.673 & 674/Bang/2014 order dated 25.4.2018 and this Tribunal reversed the order of the CIT(A) and held that the deduction u/s.36(1)(viia) of the Act cannot be allowed unless the provision is created by debited to provision for bad and doubtful debts account. The following were the relevant observations of the Tribunal:- "7. We have heard the rival submissions. The learned DR submitted that as laid down by the Hon'ble Pun....
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....rdance with the guidelines issued by it in this behalf, for an amount not exceeding 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." 9. In the case of Syndicate Bank (supra) 78 ITD 103 (Bang.), the Bangalore Bench of ITAT took the view that irrespective of the debit to the profit and loss account on account of provision for bad and doubtful debts (PBDD), an Assessee is entitled to 10 percent of the AARA as deduction u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the aforesaid decision was as follows: "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the aggregate ave....
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....sallowance of interest could be resorted to u/s.40(a)(ia) of the Income Tax Act, 1961 for nondeduction of tax at source in respect of interest paid during the financial year disregarding the decision of the Hon'ble High Court of Karnataka, Dharwad Bench in ITA Nos.100111- 120/2015, ITA No.100012/2016 to ITA Nos.100017/2016 dated 26-02-2016 in the case of Ryatar Sahakari Sakkare Karkane Niyamit, Timmapur, Mudhol Taluq." 10. The issue that arises consideration on Gr.No.3 raised by the revenue is with regard to the disallowance of interest expenses made by the AO u/s 40a(ia) of the Act. In terms of Sec.40(a)(i) of the Act, if tax is deductible at source under Chapter XVII-B of the Act and where it is not so deducted at source on the amount of any interest or royalty, fees for technical services or other sum chargeable under the Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company, the same shall not be allowed as deduction while computing "Income from Business". In terms of sec.40(a)(ia) of the Act, if tax is deductible at source under Chapter XVII-B of the Act and where it is not so deducted at source on the amount of any i....
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.... section 9;" 11. Under Section 194A of the Act which is a section appearing in Part XVIIB of the Act, the Assessee was obliged to deduct tax at source where interest paid is in excess of Rs. 10,000/- per annum. During the assessment proceedings it was noticed by the AO that the Assessee has paid total interest of Rs. 411,29,54,190/- during the FY 2011-12 (relevant to AY 2012- 13). Out of the above a sum of Rs. 80,49,49,266/- was interest paid above Rs. 10,000/- to each of the depositors but no tax at source was deduction because the depositors had furnished Form No.15G/15H. With regard to non deduction of Tax at source (TDS) on Term Deposits where payment on interest was in excess of Rs. 10,000/- , the Assessee submitted that depositors have sought exemption from TDS on payment of interest by submitting declaration in form no. 15G/H and in those cases, the various branches have not deducted TDS based on 15G /H submitted by the depositors. The AO was however of the view that apart from obtaining declaration in Form No.15G/H, the Assessee ought to have furnished those forms to Commissioner of Income Tax, within the prescribed period. Since the Assessee failed to do so, the AO held....
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....ated 25.4.2018, held that no disallowance u/s.40(a)(ia) of the Act can be made for non furnishing of form No.15G/H before the CIT. The following were the relevant observations of the Tribunal. "39. Before the Tribunal, on the issue of disallowance of a sum of Rs. 28,98,43,706, the learned counsel for the Assessee submitted that once the depositors give Form No.15G/H, the law empowers the Assessee to make payment of interest without deduction of tax at source. The requirement of filing the form so obtained before the prescribed authority within the prescribed period was only a procedural requirement and it was mandatory and for failure to file the form before the prescribed authority no disallowance can be made u/s.40(a)(ia) of the Act. For the above proposition the learned counsel for the Assessee relied on the decision of the Hon'ble Karnataka High Court in the case of Sri Marikamba Transport Co. 231 Taxman 484 (Karn.) wherein the Hon'ble Karnataka High Court as follows: "4. The combined reading of these two provisions make it clear that if there is any breach of requirements of Section 194C(3), the question of applicability of Section 40(a)(ia) arises. The exclu....
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....f TDS, where it ought to have been done, thus inviting the disallowance of the same u/s 40a (ia) of IT Act. Like so the claim of interest payment stated to be made to Government was not properly supported with the evidences thus inviting the disallowance of the same u/s 40a (ia) of IT Act." 9.4. Thus an amount the Rs. 12,98,57,409 for non-deduction of TDS on the interest paid exceeding Rs. 10,000/- and an amount of Rs. 28,98,43,076/- where no 15G/15H forms were stated to be submitted or interest stated to be paid to Government Department, is disallowed u/s 40a(ia) of IT Act. Thus the total amount of Rs. 41,97,00,485/- disallowed and added back to the income returned by the assessee." 41. Without prejudice to his reliance on the order of the AO, the ld DR submitted that the disallowance to the extent of payment to government should be set aside to the AO and the assessee should be asked to furnish the required details. 42. We have given a careful consideration to the rival submissions. As far as disallowance of interest of a sum of Rs. 28,98,43,076/- is concerned to the extent of the disallowance relates to interest paid to persons furnished Form ....
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....e disallowance of interest expenses u/s.40(a)(ia) of the Act, to the extent of the disallowance relates to interest paid to persons furnished Form 15 G and Form 15 H to the assessee as no disallowance can be made u/s 40a(ia) of the Act as held by the Hon'ble Karnataka High Court in the case of Sri Marikamba Transport Co., (Supra). The requirement of filing of Form 15G and 15H with the prescribed authority viz., CIT is only procedural and that cannot result in a disallowance u/s 40a(ia) of the Act. Consequently, we uphold the order of CIT(A) and dismiss Gr.No.3 raised by the Revenue. 17. In the result, the appeal by the Revenue is partly allowed. ITA No.1392/Bang/2016 (Revenues' Appeal for Asst. Year 2013-14) 18. As far as AY 2013-14 is concerned, the grounds of appeal raised by the revenue are identical to Grounds raised in the appeal for AY 2012-13. The grounds raised in the appeal for AY 2013-14 read thus: "1. Whether on facts & circumstances of the case, is the learned CIT(A) correct in holding that the Assessee is entitled to deduction u/s.36(1)((vii) as well as U/s.36(1)(viia), of the Income Tax Act, 1961, without the restriction imposed by the provisions ....