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2023 (7) TMI 1448
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....the sake of convenience and brevity. 3. Grounds of appeal raised by the Revenue, in ITA No.4/SRT/2020, for AY.2011-12, are as follows: "(i) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,73,75,000/- out of deduction claimed by the assessee u/s 36(l)(viia) of the Act. (ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has not appreciated that the amount of Rs.1,73,75,000/- does not form part of the "provision for Bad and Doubtful debts", therefore, the deduction claimed by the assessee is not allowable under the provisions of Sec.36(1)(viia) of the Act. Thus, the AO had rightly disallowed the claim of the assessee and added the same to the total income of the assessee. (iii) Without prejudice to grounds no. (i) & (ii), on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition made on account of provision for Bad and Doubtful debts of Rs.50,00,000/- created against standard assets when in principle the CIT(A) had concluded that the provision for bad debts is for erosion in value of assets and IT Act has no provision....
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...., illegal, unwarranted of facts is liable to be quashed. 2. On the facts and in the circumstances of the case as well in law, the CIT(appeals) erred in confirming the disallowances of office expenses and contingent expenses purely on estimate and adhoc basis for Rs.7,00,000/-, without appreciating in the right lawful and proper perspectives the detailed explanations supported by the corroborative evidences, materials, etc. and hence, not justified. 3. On the facts and in the circumstances of the case as well in law, the CIT(Appeals) erred in confirming the disallowance of Rs.13,48,049/- for the alleged default u/s 40(a)ia) r.w.s 194C of the Act, treating the payment towards the purchase of internet bandwidth being the transactions falls within the ambit of "sale of Goods Act", as the payments towards the technical services u/s 194C of the Act and hence, not justified. 4. On the facts and in the circumstances of the case as well in law, the CIT(Appeals) has erred in directing the AO to allow the deduction claimed of Rs.1,73,75,000/- u/s 36(1)(viia)(a) of the Act, only to the extent of 7.5% of the total income (computed before making any deduction under thi....
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....nces of the case as well in law, both the lower authorities have erred in overlooking and summarily rejecting the detailed submissions with explanations made duly substantiated by the authentic and cogent evidences and hence, the order passed by the CIT(Appeals) confirming addition to the extent of Rs.2,59,30,151/- arbitrary, capriciously and based on lopsided, imaginary and factually incorrect inferences, deserves to be annulled or nullified. 8. Your assessee further reserves its right to add, alter, modify or to amend any of the aforesaid grounds before or at the time of hearing of an appeal." 5. Grounds Nos. 1, 2 and 3 raised by the Revenue and ground Nos. 4 and 5 raised by the assessee are identical and same. These grounds relate to deleting the disallowance of Rs.1,73,75,000/- out of deduction claimed by the assessee u/s 36(l)(viia) of the Act and also deleting the addition made on account of provision for Bad and Doubtful debts of Rs.50,00,000/- created against standard assets and this amount of Rs.50,00,000/- is already included in the total disallowance of Rs.1,73,75,000/-. 6. The main grievance of ld DR for the revenue in these grounds are that these disallo....
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....peal in favour of the assessee by passing the following order: "15. We have considered the rival submission of the parties and have gone through the orders of lower authorities and above cited case laws carefully. Before adverting to the facts and the observation of lower authorities, we may reproduce the relevant provision of section 36(1)(viia) reads as under: '(viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: Explanation: - In this clause, (vi) "co-operative bank", "primary agricultural credit society" and "primary co- operative agricultural and rural developmen....
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....of aggregate average advances made by rural branch. 17. We find that the assessing officer has not doubted the number of rural branches as defined under section 36(1) (viia) (d)(ia) or the total of the advances made by rural branches of assessee-bank and the computation made in the prescribed manner. 18. We further find that the assessee claimed that similar deduction was allowed in assessment years 2008-09, 2009-10 in assessment passed under section 143(3) and in assessment years 2015-16 & 2016-17 in accepted in assessment order under section 143(1). However again in assessment year 2017- 18 it was allowed in assessment order passed under section 143(3). The Assessing Officer disallowed the deduction under section 36(1)(viia)(a) in assessment year 2012-13. However, on appeal before Ld. CIT(A) the assessee was granted relief and on further appeals of the Revenue is pending before Tribunal. These facts were not controverted by Revenue. Thus, the assessee is liable to be succeeded on the principles of consistency. 19. The Hon'ble Supreme Court in Catholic Syrian Bank Vs CIT (supra) after discussing the scope of section 36(1)(vii) and (viia) held that both t....
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....efer to UCO Bank, Calcutta v. CIT [1999] 4 SCC 599 . 19. In the present case, after introduction of Section 36(1)(viia) by the Finance Act, 1979, [(1981) 131 ITR (St.) 88], with effect from 1st April, 1980, Circular No. 258 dated 14th June, 1979 was issued by the Board to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist the scheduled commercial banks in making adequate provision from their current profits to provide for risks in relation to their rural advances. The deductions were to be limited as specified in the Section. A ' rural branch & apos; for the purpose of the Act had meant a branch of a scheduled bank, situated in a place with a population not exceeding 10,000, according to the last preceding census of which the relevant figures have been published. Under clause 13.3, the Circular found it relevant to mention that the provisions of new clause (viia) of Section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of deduction of the bad debts. In other words, the sched....
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....s a deduction in computing the taxable profits. 17.4 Section 36(1)(vii) of the Act has also been amended to provide that in the case of a bank to which section 36(1)(viia) applies, the amount of bad and doubtful debts shall be debited to the provision for bad and doubtful debts account and that the deduction admissible under section 36(1)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account. 17.5 Section 36(2) has been amended by insertion of a new clause (v) to provide that where a debt or a part of a debt considered bad or doubtful relates to advances made by a bank to which section 36(1)(viia) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debt account made under clause (viia) of section 36(1)." 22. Still another circular being Circular No.464, dated 18th July, 1986 [(1986) 161 ITR(St.) 66] was issued with the intention to explain the amendments made by the Income Tax (Amendment) Act, 1986. Clause 5 of the Circular dealt with the modi....
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....banks upto 5 per cent of their total income and an additional 2 per cent of the aggregate average advances made by the rural branches of the banks. These percentages stood altered by subsequent amendments in 1993 and 2001. 24. Clear legislative intent of the relevant provisions and unambiguous language of the circulars with reference to the amendments to Section 36 of the Act demonstrate that the deduction on account of provisions for bad and doubtful debts under Section 36(1)(viia) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. Another material aspect of the functioning of such banks is that their rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the principal or head office branch. Thus, this Court would be more inclined to give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert the same. The Circulars in question show a trend o....
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....ction under the provisions of Section 36(1)(viia) and proviso to Section 36(1)(vii). This does not appear to be the intention of the framers of law. The scheduled and non- scheduled commercial banks would continue to get the full benefit of write off of the irrecoverable debts under Section 36(1)(vii) in addition to the benefit of deduction of bad and doubtful debts under Section 36(1)(viia). Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of Section 36(1)(viia)(a), may be allowable without insisting on an actual write off. 26. The Special Bench of the ITAT had rejected the contention of the Revenue that proviso to Section 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board, held that a bank would be entitled to both deductions, one under clause (vii) of Section 36(1) of the Act on the basis of actual write off and the other on the basis of clause (viia) of Section 36(1) of the Act on the mere making of provision for bad debts. This, according to the Revenue, would lead to double deduction and the proviso to Section 36(1)(vii) was introduced with the intention to prev....
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....eal of the assessee for A.Y. 2008-09 had observed as under :- "8 We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs.50,00,000/- which included a sum of Rs.13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs.36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. "36(1)(viia) In respect of any provision for bad and doubtful debts made by (a)a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside I....
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.... money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1)(vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same. We have perused the aforesaid order of the Tribunal and finding ourselves to be in agreement wit....
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....are reproduced below. "36(1)(viia) In respect of any provision for bad and doubtful debts made by (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one- half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a schedule bank or a non-scheduled bank referred to in this sub- clause shall, at its option, be allowed in any of the relevant assessment years deduction in respect of any provision made by it for any assets classified by the Assessment Year: 2013-14 Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year. Provided furthe....
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....assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a Assessment Year: 2013-14 very exhaustive and speaking order and we do not find any infirmity in the same. Therefore following the above Tribunal order, we do not see any infirmity in the order of Ld. CIT(A). 13. In view of the above fact and circumstances the grounds of appeal raised by Revenue in ITA No. 580 & 569 are dismissed. In view of the above precedents the ground no. 2 is also dismissed." 22. We find that Chennai Tribunal in Tamilnadu State Apex Co-operative Bank Vs ACIT (supra) while considering the provision for non-performing asset under section 36(1)(viia) held that where the assessee-bank had claimed deduction for 'Provision for Non-Performing Assets' under section 36(1)(viia), in view of fact that taxonomy of provision had been done by assessee to keep it in line with RBI and NABARD guidelines, but in pith and substance provision had been created for 'Bad and Doubtful Debts', deduction was claimed in accordance with section 36(1)(viia) and assessee was entitled to benefit of same. 23. Further Bangalore ....
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.... is squarely covered by the judgment of this Tribunal in assessee's own case (supra), and there is no change in facts and law, therefore, respectfully following the binding judgment of the Tribunal, we dismiss ground nos. 1, 2 and 3 raised by the Revenue and we allow ground Nos. 4 and 5 raised by the assessee. 12. Ground No.4 raised by the Revenue, relates to disallowance of reimbursement of medical expenses and tea allowance of Rs.87,57,430/- (Rs.66,02,500 + Rs.21,46,930). 13. We have heard both the parties. Learned DR for the Revenue argued that medical expenses and tea expenses are deleted by ld CIT(A) without considering the fact that it is not reimbursement of expenses. The ld DR stated that it is part of expenses and further if it is related to total compensation paid to the employees then disallowance should have been upheld u/s 40(a)(ia) of the Act for failure to deduct TDS on the said amount. However, ld Counsel for the assessee defended the order passed by the ld CIT(A). We note that assessee bank has paid Rs.66,07,500/- as allowance towards reimbursement of medical expenses incurred by the employees of the Bank by virtue of agreement between the employees union and....
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....No.4 raised by the Revenue. 14. Ground No.5 raised by the Revenue relates to disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/-. 15. We have heard both the parties. Learned DR for the Revenue submitted that on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/- without appreciating the fact that the assessee is using this fund to cover up shortfall and pay employees contribution which is in fact to be collected from its employees and hence not an allowable expenses in the hands of the assessee. On the other hand, Ld. Counsel submitted that the assessee bank has made the contribution towards the shortfall in Provident Fund's Statutory Interest Rate of 9.5%. This shortfall has been made good from the Fund created namely, "Staff Provident Fund (Interest)", specifically for this sole purpose. The fund has been created from Profit remained after payment of income tax. Hence, in the year of actual expenditure (i.e. Contribution towards Shortfall in maintaining the Statutory Rate of Interest of....
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....onth of credit to the end of the current year; (iv) The total amount of interest shall be rounded to the nearest whole rupee (fifty paise counting as the next higher rupee). (e) If the Board of Trustees are unable to pay interest at the rate declared for Employees' Provident Fund by the Govt. of India under Para 60 of the Employees' Provident Funds Scheme, 1952 for the reason that the return on investment is less or for any other reason then the deficiency shall be made good by the employer. (f) In determining the rate of interest, the Board shall satisfy itself that no excess amount is drawn from the Revenue Account as a result of debit thereto of the interest credited to the individual accounts." 16. Thus, ld Counsel submitted that from the above, it is very much evident that in case of any Shortfall in maintaining the Interest Rate in the Provident fund of the employees, it is the responsibility of the Employer. Further, the creation of Employees Provident Fund Trust is Statutory Duty of the employer. The assessee co-operative bank has fulfilled all its statutory liability towards the Employees Provident Funds Act and hence, the payment made....
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.... of bank and Employees of regulatory Departments in Government & Banking sector. Actual break up of expenses pertaining to gifts for each category of receipts is not given. The expenses incurred for gifts to Directors of assessee bank & to employees of the Government Departments are not allowable expenses within the meaning of sec 37 and explanations. Since there is no bifurcation given, therefore ld CIT(A) estimated 50% of above as expenses incurred for giving such disallowable gifts. We note that small gifts given to customers of the bank on the occasion of new year and Dewali festivals are kind of expected and traditional expenses, hence reasonable expenses were allowed by ld. CIT(A). How ever gift given to directors of assessee bank and government employees are not allowable expenses u/s 37 of the Act. Hence conclusion reached by ld CIT(A), therefore, are correct, hence we dismiss ground no.6 raised by the Revenue and we also dismiss ground No.2 raised by the assessee. 20. Ground No.7 raised by the Revenue is general in nature hence does not require. 21. Now, we shall take assessee`s reaming grounds of appeal in ITA No.590/SRT/2019. 22. Ground No.3 raised by the assess....
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....tached are of monthly charges for connectivity like telephone bill but all bills/payments are not as such and are for different purpose vide Item No. 10 of show cause notice, a copy of ledger was specifically asked which is not furnished though, it is main and important document for this expenditure. First paper furnished with reply dated 16.12.2013 on this issue is copy of resolution No.27 passed by executive committee of bank on 26.04.2010 regarding connectivity work to be assigned to M/s. Sanghvi Infotech Pvt. Ltd. for amount of Rs.78,55,348/- on monthly basis. The details of resolution includes all terms & conditions. These details of resolution clearly reveal providing of technical services as agreed to the bank assessee. The payment of this service clearly attracts T.D.S. provisions u/s.194J of the Act in respect of initial installation of networking and u/s 194C of the Act in case of annual maintenance contract subsequently. There are copies of bills from the Sanghvi Infotech Pvt Ltd attached along with explanation which is listed as per Annexure 'A' made part of this order. From these 5 bills listed as per Annexure 'A', it is clear that the payments are not ....
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....f appeal memo). Moreover, the detailed explanation has also been provided to the CIT(A), vide written submission dated 25.01.2016. The relevant bills as well as copy of voucher (on example basis) are placed with paper book-1 (page nos. 12 to 14), therefore addition made by the assessing officer may be deleted. 28. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 29. We have heard both the parties. We note that during the assessment proceedings, the assessing officer has asked the assessee to submit a copy of ledger account for these expenses, however the assessee did not furnish the same before the assessing officer, which was specifically asked from the assessee to submit before AO. Besides, the nature of expenditure of Rs.13,48,049/- was not explained by the assessee before the lower authorities. Therefore, we are of the view that one more opportunity should be given to the assessee to explain the nature of expenditure before the assessing officer. Therefore, we remit this issue back to the file of the assessing o....
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....d" has no effect in P & L account but only reflected in the balance sheet of the assessee bank. From this copy of ledger, it is made out that from this account, amount of Rs.46,77,885/- is transferred to reverse account of No.2201. Likewise, there is transfer of profit to fund for Rs.1,00,00,000/- on the last day of the year without crediting the interest to the income and transferring in P & L account. Fact remained that TDS deducted on this interest income, is claimed by the assessee bank for credit of tax but corresponding income is not included in the total interest income of assessee bank in the P & L account. The explanation offered is silent on the issue of income of Rs.65,07,102/- on account of redemption of security not included in the P & L account. This income has arisen in the year under consideration, TDS on same income is also claimed by the bank but there is no inclusion of said income in total income of assessee bank. In view of same, an amount of Rs.65,07,102/- was added by assessing officer. 33. Aggrieved by the order of Assessing Officer, the assesse carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. Aggr....