TaxTMI 
TaxTMI 
2022 (6) TMI 896
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....om Rs.3 crore made by the AO on account of disallowance of provision on interest on deposits on the basis of working provided by the assessee. The Ld.CIT (A) has allowed the relief was allowed merely on the ground of production of certificate by bank.' 2.2 Ms. Maheshwari, the ld. CIT-DR, would toward this take us through the assessment as well as the impugned order. It was, she would submit, only at the first appellate stage, that the assessee furnished the working of the interest payable as at the year-end, i.e., 31/03/2013, for which the provision was disallowed in assessment, explaining that due to the ongoing implementation of the core banking services (CBS), the interest payable on the deposit accounts for the latter half of the year, i.e., from October 2012 to March 2013, remained to be applied, resulting in an ad hoc manual provision for Rs. 300 lacs when it was later realized that no provision had been made by CBS. Subsequent actual working of the interest payable for the said period, however, revealed it to be at Rs. 240 lacs. The ld. CIT(A) allowed part relief on that basis, refurbished by a bank certificate, without allowing any opportunity to the AO to verify the claim....
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....and it's findings, it is wholly incorrect to say, as Sh. Agrawal would before us, of the matter not surviving the disposal of the assessee's appeal by the Tribunal. Under the circumstances, we only consider it proper to remit the matter back to be file of the ld. CIT(A) for causing compliance of rule 46A. And decide after allowing due opportunity of hearing to both the sides before him per a speaking order and in accordance with law. In this regard, we discern certain aspects of the matter that call for consideration/inquiry in the matter, which we therefore bring forth. It is not clear whether the manual provision referred to stands made in the books of account, or outside them, as in the computation of taxable income, an aspect not clear from the material on record. A provision outside books, though not disqualified per se, and valid where otherwise in order, the subsequent accounting treatment assumes relevance as the same would require an adjustment (to that extent), in computing taxable income, of the profit/loss disclosed per the operating statement for the period in which the said interest is accounted for in books. It also gives rise to the question of as to how the assess....
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....s); and c) Building Fund (Rs. 9.60 lacs) , i.e., toward certain contingencies and/or applications. The ld. CIT(A) allowed the same on the basis that the same were in view and in terms of the guidelines and the directions by the regulatory bodies, being RBI and NABARD. 5. We have heard the parties, and perused the material on record. The accounting treatment apart, the income chargeable to tax is to be computed as per the provision of the Act (see, inter alia, Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC); Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC)). It is not clarified at any stage, including before us, as to under which provision of law the impugned sums are being claimed as deduction in the computation of income chargeable to tax as income from business, assessable u/s. 28. The ld. CIT(A) has not clarified the specific guideline or direction where-under the 'reserve' has been created, as for example 'building fund', nor has the same been pointed out to us. In fact, the nature of the sum/s under reference as an appropriation (of profit) or as 'reserve' is not in dispute. The same is only an appropriation of profit, set aside for some specific....
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....f the audit report, the ld. CIT(A) states it to be nil. How could this be? Does it mean that the audit report, which is the assessee's evidence and, further, only based on its' accounts, is factually wrong? Further, even so, does it further mean that either the provision (as on 31/03/2013) has been reversed on 01/04/2013 (by credit to the profit & loss account), or the entire gratuity payable outstanding for payment as on 31/3/2013 paid during fy 2013-14, the relevant financial year? No answer was forthcoming during hearing. Rather, one wonders as to why the assessee has maintained two accounts of gratuity payable. Even Shri Agrawal would state that the two provisions (and the corresponding disallowances) be regarded separately. As it appears to us, the two accounts (which represent liability on the same account) arise only on account of a change in the manner of account-keeping, i.e., from manual to CBS. Taking the two provisions together, which can have no adverse impact, the position (as per the assessee) is summarized as under:- (Amount in Rs. lacs) Provision as on 31/03/ 2014 2013 GP A/c 1 - 109.37 GP A/c 2 161.31 179.29 Total (GP 1 + GP 2) 161.31 ....
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....ions of Rs.6,97,23,579/- accepting the detailed working of NPA without giving any opportunity to the AO to ascertain the veracity of the claim made.' The AO, in assessment, allowed it at Rs. 22.76 lacs, disallowing the balance Rs. 697.24 lacs. The ld. CIT(A), in first appeal, justified the claim u/s. 36(1)(viia) at Rs. 720 lacs, i.e., at 7.5% of income (before any provision) plus 10% of the aggregate average advances made by the rural branches of the bank. 9. Before us, while the Revenue's case was of non-verification of its' claim by the assessee before the AO, the assessee would submit otherwise; Shri Agrawal adducing letter dated 10/11/2016 to the AO, enclosing the working of the provision at Rs. 720 lacs. He was, however, on asking, unable to answer as to if the assessee had reversed the opening provision or, in the alternative, made incremental provision or made a fresh provision (i.e., on the basis of the average balance obtaining during the relevant year), in addition to the carried over provision. The AO has, restricting the allowance for the provision for bad and doubtful debts to only 7.5% of the income, relied on the Auditors' observations in the report, which reads as....
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....n respect of the unrealized interest, which is at hundred percent there of and, then, on the balance outstanding in the borrower account (i.e., to the extent it includes interest), according to the rate specified for the relevant category of the sub-standard asset under which the NPA a/c falls, resulting thus in an overall provision against the unrealized interest in excess of the amount thereof. The matter has been examined in detail by this Tribunal in ITO vs. Jila Sahkari Kendriya Bank Maryadit, Seoni (ITA Nos. 97, 99 & 100/Jab/2018, dated 29/04/2022), and the matter restored to the file of the AO for verification and fresh determination in light thereof. Our detailed observations in the said order, discussing these aspects in greater detail, would be equally applicable to the assessee's case as well and, thus, relied upon. In the instant case, the issue gets further compounded due to no proper identification of the NPA accounts in place, as observed by the Auditor. The provision afore-said, to the extent it relates to an account which is not a NPA, is wholly unwarranted, i.e., other than that eligible qua a standard asset. That is, the verification for which the matter stands ....
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....t-matter of the appeal in the light of the evidence, and consistently with the justice of the case. This is as the Auditors' report is an expert opinion, based on the assessee's own accounts, of which this Tribunal is therefore to have due regard and, besides, has not been rebutted or countered at any stage, including before us. Reference here may also be made to rules 11 & 27 of the Income Tax (Appellate Tribunal) Rules, 1963. Our decision in this regard is also guided by the consideration that perhaps the CBS has been by now fully implemented by the Bank, so that the assessee may be in a position to arrive at a proper classification of NPA accounts (as at the relevant year-end). We may also clarify that the reversal of provision for bad and doubtful debts (as at the year-end), which is liable to be reversed on the opening day of the following year, is only insofar as it is based on the average balance of advances by the rural branches of the bank. This is as otherwise the bank would be provisioning in respect of assets obtaining no longer, i.e., being not on it's books inasmuch as the same stand since recovered. The provision could continue ad infinitum, surpassing, in time, the ....