Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, Camp Bench at Jalandhar
Before: Shri N.K. Saini & Shri Ravish Sood
PER RAVISH SOOD, JM The present cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT (Appeals)-2,
P a g e | 2 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
Jalandhar, dated 27.09.2017, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short ‘IT Act’) for A.Y. 2014-15, dated 16.12.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:-:
“1. The Ld. C.I.T.(A) has erred in not appreciating the facts of the case and provisions of law circulars issued by C.B.D.T.
The Ld. C.I.T.(A) has erred in upholding the addition made by the Assessing Officer by disallowing interest paid to I.K.G Punjab Technical University Rs. 24558987/- u/s 40(a)(ia) of Income Tax Act.
The Ld. C.I.T.(A) has erred in not appreciating the reasonable explanation and bonafide act of the appellant assessee on the declaration given by the I.K.G Punjab Technical University.
The appellant assessee craves leave to raise and urge any other ground of appal as may be deemed proper at the time of hearing.”
On the other hand, the revenue has challenged the order of the CIT(A) on the following grounds of appeal:
“1. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on facts by deleting the addition of Rs. 1,99,19,242/- without appreciating that Rs. 22,12,519/- was only allowable u/s 43B(f) of the I.T. Act being amount actually paid as Leave Encashment and not the amount paid to LIC, Bajaj Allianz and Metlife plus the interest accrued thereon deposits of Rs. 1,75,78,084/- made by the A.O. on account of Excess Claim by the assessee under the Head “Leave Encashment”.
That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on facts that the provisions of section 43B(f) of the I.T. Act are overriding as the assessee has not made payments only of Rs. 22,12,519/- to the employees whereas he has claimed Rs. 45,43,670/- as provisions for leave encashment and the accrued interest of Rs. 1,75,78,084/- on the deposits made by it in the schemes of LIC, Bajaj Allianz and Metlife.
That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on facts of the case in relying on the decision of Hon’ble High Court of Kerala (in ITA High Court in case of Excide Industries 292 ITR 470 (Calcutta) whose operation has been stayed by Hon’ble Supreme Court.
That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,53,47,000/- made by the AO by disallowing the provision for bad and doubtful debit on standard assets.
That while allowing the relief of Rs. 3,53,47,000/- Ld. CIT(A) has not appreciated that the A.O has clearly held that out of provision of Rs. 8,85,32,000/- only Rs. 5,31,85,000/- were on account of bad and doubtful debts and the balance amount of Rs. 3,53,47,000/- was on account of Standard Assets and as per provisions of section 36(1)(viia) only provision for bad and doubtful debts was allowable as deduction.
That while allowing the relief of Rs. 3,53,47,000/-, Ld. CIT(A) has failed to appreciate that it was a contingent liability and was not allowable as business expenditure. The P a g e | 3 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
department has already filed appeal before the Hon’ble High Court u/s 260A for the Asstt. Year 2011-12 and 2012-13 against the order of the ITAT on this issue.
It is prayed that the order of the Ld. Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.
The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off.”
Briefly stated, the assessee which is a co-operative society engaged in the business of banking had e-filed its return of income for A.Y. 2014-15 on 30.11.2014, declaring total income at Rs. 72,39,24,800/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the IT Act.
During the course of the assessment proceedings it was observed by the A.O that the assessee bank had made interest payments amounting to Rs. 2,45,58,987/- to M/s I.K.G. Punjab Technical University (hereinafter referred to as ‘PTU’) on their FDR’s amounting to Rs. 31 crores (approx.) held with the assesses branch offices at Mansoorwal Dona and Ibban. On a query raised by the A.O wherein the assessee was called upon to furnish the details of the deposits and as to whether TDS was deducted on the interest payments made to the aforementioned institution, it was submitted by the assessee that as PTU had submitted letters that its income was exempt under Sec. 10(23C)(iiiab) of the IT Act, therefore, for the said reason no TDS was deductible from the interest so paid to it. In order to fortify its aforesaid contention the assessee vide its reply dated 09.11.2016 placed on record with the A.O the letters submitted by PTU with the assessee bank. In pursuance to the notice issued under Sec. 133(6) to the director-finance, PTU, the latter vide its letter dated 02.12.2016 inter alia submitted that as the income of the University viz. PTU was exempt under Sec. 10(23C)(iiiab) of the IT Act, therefore, it had not filed its return of income for the year under consideration i.e. A.Y. 2014-15. The A.O after necessary deliberations on the issue under P a g e | 4 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
consideration concluded that PTU was not wholly or substantially financed by the Government, which was a precondition for claim of exemption envisaged in Sec. 10(23C)(iiiab) of the I.T Act. In the backdrop of the aforesaid facts, the A.O held a conviction that PTU had made a wrong declaration with respect to its claim of exemption under Sec. 10(23C)(iiiab). The A.O further observed that the assessee bank had failed to ask the depositor i.e. PTU to produce a certificate from the Income Tax Department for nil deduction of TDS on interest payment on FDR as required under Sec. 197 of the IT Act. On the basis of his aforesaid conviction, the A.O concluded that as the assessee had failed to deduct TDS under Sec. 194A on the interest payment of Rs. 2,45,58,987/- paid on the fixed deposits of PTU, therefore, the said amount was liable to be disallowed under Sec. 40(a)(ia) of the IT Act. On the basis of his aforesaid deliberations the A.O disallowed the interest expenditure of Rs. 2,45,58,987/- by invoking the provisions of Sec. 40(a)(ia) of the IT Act. Apart therefrom, it was observed by the A.O that the assessee had claimed an expenditure of Rs. 45,53,677/- on account of provision for leave encashment. It was noticed by the A.O that as per the past history of the case the assessee bank had been claiming the deduction on the basis of investments made for the aforesaid purpose with the LIC, Bajaj Allianz and PNB Metlife. Any payment for leave encashment in future was to be made out of the said respective funds. It was observed by the A.O that the department had not been allowing the deduction in respect of the said expenditure as the same was not supported by any provisions of the Income Tax Act, and the deduction if any was to be allowed only on the actual payments made to the employees. Further, it was observed by the A.O that the assessee bank was also not showing the interest accrued on the said investments for the reason that the same also formed part of the provision made for P a g e | 5 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
the leave encashment and was reinvested in the policy itself. The A.O after deliberating on the contentions advanced by the assessee was however not persuaded to accept the same. Apart there from, it was observed by the A.O that Sec. 37(1) of the IT Act did not cover any provisions made for the purpose of meeting any future liability. On the basis of his aforesaid observations, the A.O following the view taken by his predecessor in the case of the assessee for the immediately preceding year allowed only the amount actually paid to the employees on account of leave encashment as a deduction, while for the provision made during the year along with the interest accrued on past deposits which were claimed to have been reinvested were added back to its income. In the backdrop of his aforesaid deliberations the A.O made a net addition out of provision for leave encashment of Rs. 1,99,19,242/-. Further, it was noticed by the A.O that the assessee bank had claimed expenses of Rs. 8,85,32,000/- as provisions for bad and doubtful debts. Out of the aforesaid amount Rs. 3,53,47,000/- were the provisions against standard assets. It was noticed by the A.O that the aforesaid amount was not actually paid but only a provision was made for it. It was observed by the A.O that the department in the past was not allowing the provision made against standard assets for the reason that these were the debts which were secured against securities pledged against them. In sum and substance, the A.O held a conviction that the aforesaid debts could not be claimed to have become bad as there were adequate securities against them which could be sold to realize the same. It was further noticed by him that a similar view was taken by his predecessor while disallowing the provision made against the standard assets while framing the assessment in its case for A.Y. 2013-14. On the basis of his aforesaid deliberations the A.O restricted the provision for bad debts to the extent the same was made exclusively for the purpose of doubtful and P a g e | 6 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
loss assets only. In fact, the A.O was of the view that the provisions in respect of standard assets represented only a contingent liability which thus could not be allowed as a business expense. The A.O observed that though the issue had been decided in the favour of the assessee by the ITAT, Amritsar in the assesses own case for A.Y. 2008- 09, however, as the tax effect was less than the monetary limit prescribed for filing of the appeal before the Hon’ble High Court of Punjab & Haryana, therefore, no appeal was filed. It was further observed by the A.O that the revenue being aggrieved with the order of the CIT(A) in context of the issue under consideration in A.Y. 2012-13 and A.Y. 2013-14 had preferred appeals before the ITAT, Amritsar. On the basis of his aforesaid observations the A.O disallowed the provision amounting to Rs. 3,53,47,000/- against the standard assets and added the same to the total income of the assessee.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). Insofar the disallowance under Sec. 40(a)(ia) of the interest expenditure of Rs. 2,45,58,987/- made by the A.O was concerned, it was observed by the CIT(A) that as the income tax act did not provide any exemption for non deduction of tax at source unless a certificate was issued by the A.O of the recipient assessee for non deduction of tax at source or for deduction of tax at source at a lower rate, therefore, in the absence of any such certificate it could safely be concluded that the assessee had made the interest payment to PTU in contravention of the provisions of Sec. 197 of the IT Act. Accordingly, the CIT(A) confirmed a disallowance of Rs. 2,45,58,987/- made by the A.O under Sec. 40(a)(ia) of the IT Act. As regards the addition of Rs. 1,99,19,242/- made by the A.O on account of provision for leave encashment and interest accrued on previous investments, it was observed by the CIT(A) that he while disposing off the appeal of the P a g e | 7 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
assessee in context of the issue under consideration had followed the view taken by his predecessor in the preceding years wherein the addition made by the A.O on this account was upheld under Sec. 43B(f) of the IT Act. However, it was further observed by him that on further appeal the issue had been restored back by the Tribunal for the said preceding year for examination after giving an opportunity to the assessee. Adverting to the facts involved in the case of the assessee for the year under consideration, it was observed by the CIT(A) that admittedly the assessee had paid a premium of Rs. 45,53,677/- for a group insurance leave encashment policy taken by it. The CIT(A) observed that the aforesaid amount was disallowed by the A.O on the ground that as the same was a contingent liability, therefore, the same was not allowable as an expense under Sec. 37(1) of the IT Act. The CIT(A) after deliberating on the facts of the case concluded that the payment of premium for group insurance leave encashment policy was an expense that was allowable under Sec. 37(1) of the IT Act. Further, it was observed by him that as the interest accrued on the Group Insurance Leave Encashment Policy was not debited in the assesses profit and loss account and was rather reinvested in the said policy, therefore, the same could not be added as the income of the assessee. Alternatively, it was observed by him that even if it was credited as an income, then the same would also be eligible for corresponding deduction as having been reinvested in the said policy. The CIT(A) while observing as hereinabove relied on the judgment of the Hon’ble High Court of Kerala in the case of CIT On the basis of his aforesaid deliberations the CIT(A) deleted the addition of Rs. 45,53,677/- made by the A.O on account of provision for leave encashment and also the balance amount of addition of Rs. 1,53,65,565/- on account of interest accrued on Group Insurance
P a g e | 8 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
Leave Encashment Policy. Adverting to the disallowance of Rs. 3,53,47,000/- made by the A.O on account of provision for bad and doubtful debts made against standard assets, it was observed by the CIT(A) that the said issue was decided in favour of the assessee by the Tribunal vide its order dated 22.06.2016 in the assesses own case for A.Y. 2008-09. In the backdrop of the aforesaid facts, it was observed by the CIT(A) that as there was no change in the facts of the case during the year under consideration, therefore, the addition of Rs. 3,53,47,000/- made by the A.O on account of provision for bad and doubtful debts on standard assets during the year under consideration was liable to be vacated.
That both assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorized Representative (for short ‘A.R’) for the assessee submitted that as PTU had submitted letters with the assessee bank therein claiming that its income was exempt under Sec. 10(23C)(iiiab) and thus TDS was not deductable from the interest on the fixed deposits that was paid to it, therefore, for the said reason the assessee had not deducted tax at source on the interest payment of Rs. 2,45,58,987/- paid to the said institution. It was submitted by the Ld. A.R that the issue was covered by the CBDT Circular No. 4/2002, dated 16.07.2002, which therein prescribed that in case of certain funds or authority or boards or bodies, by whatever name called, whose income is unconditionally exempt under Sec. 10 of the IT Act and who are statutorily not required to file return of income as per Sec. 139 of the IT Act, there would be no requirement for tax deduction at source since the income is any way exempt under the income tax act. It was thus the contention of the Ld. A.R that as the assessee bank was not obligated to deduct tax at source on the interest paid on the fixed
P a g e | 9 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
deposits of PTU, as the latter had by way of certificates filed with the assessee bank claimed that as its income was exempt under Sec. 10(23C)(iiiab), therefore, no TDS was liable to be deducted on the aforesaid interest paid on its deposits. The Ld. A.R adverting to the appeal filed by the revenue submitted that the Grounds of appeal No. 1 and 2 pertaining to deletion by the CIT(A) of the addition of Rs. 1,99,19,242/- made by the A.O on account of provision for leave encashment and also the addition on account of interest accrued on Group Insurance Leave Encashment Policy was squarely covered in favour of the assessee by the order of the ITAT, Amritsar in the case of The Hoshiapur Central Co-operative Bank Ltd. Vs. Dy. CIT, Hoshiarpur (ITA No. 683/Asr/2014; dated 16.07.2018). The Ld. A.R took us through the observations of the Tribunal in context of the aforesaid issue under consideration. Insofar the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of provision for bad and doubtful debts made against standard assets was concerned, it was averred by the Ld. A.R that the said issue was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09 i.e. Dy. CIT, Jalandhar Vs. M/s Punjab Gramin Bank, Kapurthala (ITA No. 134(Asr)/2015; dated 22.06.2016).
Per contra, the Ld. Departmental Representative (for short ‘D.R’) relied on the order of the lower authorities. Insofar the disallowance of interest expenditure of Rs. 2,45,58,987/- made by the A.O under Sec. 40(a)(ia) of the IT Act was concerned, it was submitted by the Ld. D.R as the assessee had neither deducted the tax at source under Sec. 194A on the interest paid to PTU on the fixed deposits held by the latter with the bank, nor obtained any certificate for non deduction of tax at source as envisaged in Sec. 197 of the IT Act, therefore, the lower authorities had rightly disallowed the said amount under Sec.
P a g e | 10 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
40(a)(ia) of the IT Act. Insofar the addition of Rs. 1,99,19,242/- made by the A.O on account of provision for leave encashment and on account of interest accrued on Group Insurance Leave Encashment Policy was concerned, the Ld. D.R relied on the order passed by the A.O. As regards the addition of Rs. 3,53,47,000/- made by the A.O towards provision for bad and doubtful debts on standard assets, the Ld. D.R took support of the order of the A.O and submitted that the CIT(A) had wrongly deleted the said addition.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Insofar the disallowance of the interest expenditure of Rs. 2,45,58,987/- paid by the assessee bank on the fixed deposits of PTU is concerned, we find that it is the claim of the assessee that as PTU had submitted letters claiming that as its income was exempt under Sec. 10(23C)(iiiab) of the IT Act, therefore, no TDS was liable to be deducted on the interest that was to be paid on its fixed deposits lying with the assessee bank. We have perused the letter dated 04.01.2012 issued to the assessee bank by PTU, wherein the latter at the time of making certain deposits with the bank had intimated that as it was established by the Government of Punjab under the Punjab Technical University Act, 1996 (Act 1 of 1997), vide notification dated 16.01.1997 by the Department of Legal and Legislative Affairs, Punjab, solely for the educational purposes, therefore, as per Sec. 10(23C)(iiiab) of the income tax act, 1961 it was not liable to pay tax, hence no tax be deducted at source on the interest on its deposits with the bank. In fact, in reply to the information called for by the A.O under Sec. 133(6) of the IT Act, it was stated by PTU vide its letter dated 02.12.2016 that as it was a university working solely for the purpose of education and government
P a g e | 11 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
had made substantial contribution/grant in the shape of land which was made available to the university at the various campuses across Punjab for the fulfilment of its objectives, hence its income was exempt under Sec. 10(23C)(iiiab) of the IT Act. We find that as per the CBDT Circular No. 4/2002; dated 16.07.2002-Para 2(ix) as the income of any university or other educational institution referred to in sub- clause (iiiab) of clause (23C) to section 10 is unconditionally exempt and they are not statutorily required to file return of income as per Sec. 139 of the IT Act, therefore, there would be no requirement for tax deduction at source since their income any way is exempt under the income tax act. We find that as the assessee bank was conveyed by PTU that as it was a university whose income was exempt under Sec. 10(23C)(iiiab) of the IT Act, thus no TDS was required to be deducted on the interest that was to be paid by the assessee bank on its FDR’s lying with it. On a perusal of the orders of the lower authorities, it stands revealed that the latter had declined to accept the claim of PTU that its income was exempt under Sec. 10(23C)(iiiab) of the IT Act. Rather, the A.O had categorically observed that PTU had made a wrong declaration w.r.t. claim of exemption under Sec. 10(23C)(iiiab). Apart there from, the A.O in order to buttress his aforesaid observations had relied on the judgment of the Hon’ble Supreme Court in the case of Visvesvaraya Technology University Vs. ACIT [Civil Appeal No. 4361-4366 of 2016 (arising out of SLP (C) No. 5354-5359 of 2014)]. We have deliberated at length on the issue under consideration and are of the considered view that no concrete finding on the basis of any irrefutable documentary evidence has been placed on record either by the assessee or by the revenue in support or contradiction of the claim of PTU that its income was exempt under Sec. 10(23C)(iiiab) of the IT Act. In case the income of the aforementioned university i.e. PTU is exempt under Sec. 10(23C)(iiiab),
P a g e | 12 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
then in the backdrop of the CBDT Circular No. 4/2002; dated 16.07.2002 no obligation would be cast upon the assessee for deducting tax at source on the interest paid on the fixed deposits under consideration. We thus in terms of our aforesaid observations restore the matter to the file of the A.O, who is directed to conclusively verify the aforesaid claim of the assessee that as to whether the income of PTU was exempt under Sec. 10(23C)(iiiab) of the IT Act, or not. Needless to say, the assessee shall in the course of the set aside proceeding be afforded a reasonable opportunity of being heard and therein substantiate its aforesaid claim. Apart there from, in case if the verification made by the A.O reveals that the income of PTU was not exempt under Sec. 10(23C)(iiiab), but the latter had furnished its return of income under Sec. 139 and had taken into account the amount of interest income in such return of income and paid tax on the same, then as per the 2nd proviso of Sec. 40(a)(ia) read with the 1st proviso to Sec. 201(1) of the IT Act, the aforesaid amount would not be liable to be disallowed under Sec. 40(a)(ia) of the Act. The Ground of Appeal No. 1 raised by the assessee is allowed for statistical purposes.
The appeal filed by the assessee is allowed for statistical purposes. A.Y. 2014-15
We shall now advert to the appeal of the revenue. The revenue has assailed the deletion by the CIT(A) of an addition of Rs. 1,99,19,242/- that was made by the A.O on account of provision for leave encashment and interest accrued on previous investments. On a perusal of the order of the A.O, it stands revealed that the latter after
P a g e | 13 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
considering the payment made by the assessee for leave encashment to the insurance company and adding the interest accrued on these deposits made earlier and deducting therefrom the amount actually paid as leave encashment during the year under consideration, had made an addition of Rs. 1,99,19,242/-. It is the claim of the A.O that as only a payment of Rs. 15,64,932/- had actually been made to the employees on account of leave encashment, therefore, only this amount can be said to have been incurred and therein allowable as a deduction during the year under consideration. Insofar the expenses of Rs. 45,53,677/- claimed by the assessee as an expense on account of premium paid to insurance company under Group Leave Encashment Scheme is concerned, the same we find had been disallowed on the ground that any provision made for the purpose of any future liability is not to be allowed as a deduction under Sec 37(1) of the IT Act, as the said statutory provision takes within its sweep deduction of only those expenditures which had been laid down or incurred wholly and exclusively for the purpose of the business of an assessee. Apart there from, the A.O had made a further addition of Rs. 1,53,65,565/- on account of interest accrued on previous investments made under Group Leave Encashment Scheme Policy.
We have given a thoughtful consideration to the issue pertaining to the disallowance of the provisions for leave encashment and addition of the interest accrued on the previous investments made by the A.O, which thereafter had been vacated by the CIT(A). Insofar the provisions of Sec. 43B(f) of the IT Act are concerned, we are in agreement with the view taken by the CIT(A) that as the actual premium has been paid by the assessee, therefore, the said statutory provision which comes into play only where the actual premium has not been paid but a deduction has been claimed, would however not P a g e | 14 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
be applicable in the present case as the aforesaid premium has been paid by the assessee. Admittedly, the assessee had paid a premium of Rs. 45,53,677/- for taking the Group Insurance Leave Encashment Scheme Policy during the year. In our considered view, as observed by the Hon’ble Supreme Court in the case of Bharat Earth Movers Vs. CIT (2000) 245 ITR 428 (SC), if a business liability arises in the accounting year, then the deduction has to be allowed though the liability may have to be quantified and discharged at a future date. Rather, what would be relevant is the certainty in respect of the incurring of the liability while considering its allowability as a deduction during the year under consideration. In fact, as observed by the CIT(A) the Hon’ble High Court of Kerala in the case of CIT, Thiruvananthapuram Vs. Hindustan Latex Ltd. (ITA No. 64 of 2012) has held that insurance premium paid for Group Leave Encashment Scheme Policy is allowable as an expenditure under Sec. 37(1) of the IT Act. We thus finding ourselves to be in agreement with the view taken by the CIT(A) who had deleted the addition of Rs. 45,53,677/- made by the A.O on account of provisions for leave encashment, uphold his order to the said extent. Insofar the addition of Rs. 1,53,65,565/- on account of interest accrued on Group Leave Encashment Scheme Policy is concerned, we are in agreement with the view taken by the CIT(A) that no addition as regards the said amount could have been made, as the same represents the accretion to the policy amount which had been reinvested in the policy itself and thus to that extent reduced the amount of policy premium payable by the assessee bank. In fact, as the aforesaid interest accrued on Group Leave Encashment Scheme Policy had not been debited in the profit and loss account and stands reinvested in the policy, therefore, the same cannot be added as the income of the assessee. In case if the aforesaid interest would have been credited as income of the assessee, then the same would had P a g e | 15 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
also been eligible for a corresponding deduction as having been reinvested in the said policy, therein resulting to no addition on the said count in the hands of the assessee. We thus finding no infirmity in the order of the CIT(A) who had rightly deleted the addition of Rs. 1,53,65,565/- on account of interest accrued on the Group Leave Encashment Scheme Policy, uphold his order to the said extent. The Grounds of Appeal No. 1 to 3 raised by the revenue are dismissed.
We shall now advert to the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It has been the claim of the assessee that the provision for bad and doubtful debts had been made in accordance with the instructions and circulars of the RBI on the said issue. We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard assets had been decided by the Tribunal in the assesses own case for A.Y. 2008-09 i.e. Dy. CIT, Circle-IV, Jalandhar Vs. M/s Punjab Gramin Bank, Kapurthala in ITA No. 134(Asr)/2015; dated 22.06.2016, which thereafter had been followed in its cases for A.Y. 2011-12 and A.Y. 2012-13. The Tribunal while disposing off the appeal 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 P a g e | 16 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
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 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 scheduled 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 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 further that for the relevant assessment years commencing on or after the 1st day of April,2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words “five percent”, the words “ten percent” had been substituted:
Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government:
Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head “Profits and gains business or profession.”
From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section(1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending 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 P a g e | 17 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
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 with the view therein taken, respectfully follow the same. We thus are of the considered view that as the provision for bad and doubtful debts against standard assets is covered in the main provisions of Sec. 36(1)(viia) of the IT Act, therefore, uphold the order of the CIT(A) who we find had rightly deleted the addition of Rs. 3,53,47,000/- made by the A.O on the said count. The Grounds of Appeal No. 4 to 6 raised by the revenue are dismissed.
The Grounds of Appeal No. 7 & 8 raised by the revenue being general in nature are dismissed as not pressed.
The appeal filed by the revenue is dismissed.
The appeal of the assessee i.e. ITA No. 784/Asr/2017 is allowed for statistical purposes, and the appeal of the revenue i.e. ITA No. 731/Asr/2017 is dismissed.
Order pronounced in the open court on 05/04/2019 (N.K. Saini) (Ravish Sood) VICE PRESIDENT JUDICIAL MEMBER Place : Chandigarh; Dated 05.04.2019 Ps. Rohit
P a g e | 18 ITA No. 784 & 731/Asr./2017 A.Y. 2014-15 Punjab Gramin Bank Vs. DCIT & DCIT Vs. Punjab Gramin Bank
आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- 4. आयकर आयु"त / CIT
DR, ITAT, Camp Bench, Jalandhar 6. गाड" फाईल / Guard file. स"या"पत ""त //// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.