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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B R BASKARAN
Per N.V. Vasudevan, Vice President
This appeal by the assessee is against the order dated 19.12.2017 of CIT(Appeals), Gulbarga relating to assessment year 2013-14.
Grounds 1, 6 & 7 are general or consequential grounds and do not need any specific adjudication.
Ground No.2 raised by the assessee reads as follows:-
“2. On the facts and in the circumstances of the case, the learned CIT(A) erred in disallowing provision made for privileged leave encashment to the tune of Rs.2,84,07,024/- which was made on actual valuation, treating the same as contingent liability without appreciating the submission of Appellant.”
The assessee is a regional rural bank established under Rural Banks Act and is a scheduled bank classified under second Schedule of RBI, having several Rural Branches. The assessee had claimed a deduction of a sum of Rs.2,84,07,024 on account of provision for leave encashment. The AO was of the view that the aforesaid expenditure was a contingent expenditure and cannot be allowed as a deduction. According to the AO, the claim for deduction cannot be allowed in view of clause (f) to section 43B of the Income-tax Act, 1961 [the Act] which was inserted by Finance Act, 2003 and insertion of the aforesaid section is the effect of nullifying the decision of the Hon’ble Supreme Court rendered in the case of BEML v. ACIT, 245 ITR 478 (SC). The assessee argued before the AO that the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. & Anr. v. UOI, 292 ITR 470 (Cal) has already declared the aforesaid amendment as arbitrary and unconstitutional. The AO, however, observed that the Department has gone in appeal before the Hon’ble Supreme Court and the order of Hon’ble Calcutta High Court has been stayed. The AO accordingly refused to allow the claim for deduction on account of provision for leave encashment.
On appeal by the assessee, the CIT(Appeals) confirmed the order of AO.
The ld. Counsel for the assessee reiterated the stand of assessee as put forth before the AO.
We have considered the submission of the ld. counsel for the assessee and we find that the Hon’ble Supreme Court has reversed the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. & Anr. (supra) and has upheld the constitutional validity of section 43B(f) of the Act.
In view of the provision of section 43B(f) of the Act, which provides that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall not be allowed as deduction, unless it is actually paid and deduction is allowed only in the previous year in which the sum is actually paid, the claim made by the assessee for deduction cannot be sustained. We therefore uphold the order of CIT(Appeals) and dismiss ground No.2
Grounds No.3 & 4 raised by the assessee reads as follows:-
“3. The learned CIT (A) in further erred in disallowance provision made for bad and doubtful debts of Rs. 2,17,01,324/- u/s 36(1)(viia) of the Income Tax Act. 4. The learned CIT (A) erred in not following ratio of various case laws relied by the Assessee in support of the claim.” 10. The aforesaid claim of the assessee is in respect of deduction on account of provision for bad and doubtful debts. The provisions of section 36(1)(viia) of the Act reads as follows:-
“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— ……………….
[(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 VIA) 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 : 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 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:] 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 per cent”, the words “ten per cent” 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 of business or profession.” Explanation.—For the purposes of this sub-clause, “relevant assessment years” means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;]
(b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A);] (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) :] Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, 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, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.]”
A perusal of the aforesaid provision would show that the assessee gets two deductions under the aforesaid provision; (1) a deduction to the extent of 7.5% of the total income computed before making any deduction under clause (viia) of section 36(1) Chapter VIA; and (2) an amount not exceeding 10% of the aggregate average advances made by the Rural Branches computed in the prescribed manner.
The assessee claimed deduction u/s. 36(1)(viia) of a sum of Rs.3,66,67,797. Out of the aforesaid sum, deduction on account of 7.5% of total income was a sum of Rs.1,49,66,473 and this sum was allowed as a deduction by the AO. The dispute is only with regard to the remaining sum of Rs.2,17,01,324 [3,66,67,797 – 1,49,66,472). This was claimed by the assessee as deduction being 10% of the aggregate average advances made by Rural Branches in the manner prescribed by the Rules. Rule 6ABA of the Income-tax Rules, 1962 provides the manner of computing aggregate average advances made by the Rural Branches. The AO by applying the aforesaid rule computed eligible deduction of the assessee at a sum of Rs.3,47,000. The assessee was confronted with the computation of AO, but the assessee did not give evidence to substantiate the claim made for deduction on account of 10% of the aggregate average advances made by the Rural branches. The AO therefore disallowed the claim of assessee for deduction of Rs.2,17,01,324.
On appeal by the assessee, the CIT(Appeals) confirmed the order of AO as the assessee could not produce the required evidence before the CIT(A) also. Even before the Tribunal, no such evidence was filed by the assessee. The ld. counsel for the assessee, however, pointed out that in AYs 2011-12 to 2012-13 in and ITA No.1102/Bang/2018 by order dated 16.10.2020, the ITAT remanded the issue with a direction to the assessee to file the required details in the prescribed form and directed the AO to examine the issue afresh. In such circumstances, we set aside the order of CIT(Appeals) and restore the issue to the AO with a direction to the assessee to file the necessary details to establish its claim for deduction as required under Rule 6ABA of the Rules.
Ground No.5 raised by the assessee reads as follows:-
“5. The learned CIT (A) further erred in disallowing 10,83,977/- u/s 40(a)(ia) in spite of Assessee obtaining form no.15G/15H from depositors.”
For the FY 2012-13 relating to the AY 2013-14, the assessee had incurred the following expenses which have been reported in Form No.3CD under item (f) of para 17:-
i. Payment to contractors Rs.10,83,977 ii. Payment of professional fee Rs. 50,000
The AO was of the view that the aforesaid payments fall under the provisions of section 194C and 194J of the Act respectively. The assessee was asked to explain the details of TDS made on such payment. The assessee did not file the required particulars.
According to the AO, the aforesaid payments fell within the mischief of section 194C and 194J of the Act. Since the assessee did not deduct tax at source on the aforesaid payments, the AO invoking the provisions of section 40(a)(ia) of the Act disallowed the claim of assessee for deduction of a sum of Rs.11,33,977. The assessee argued before the AO that the sum in question was already paid was not payable and therefore no disallowance can be made u/s. 40(a)(ia) of the Act which could be invoked only when sum in question remains outstanding i.e., payable and not when it is paid. The AO, however, rejected the contention of the assessee following the decision of the Gujarat High Court in Sikander Khan, 358 ITR 312 (Guj) wherein it was held that the provisions of section 40(a)(ia) is applicable even when the sum is paid and not only when the sum remains payable.
On appeal by the assessee before the CIT(Appeals), it was contended that the sum in question was never claimed as deduction in the P&L account as it was classified as capital expenditure and therefore no disallowance can be made u/s. 40(a)(ia). The CIT(Appeals) directed the AO to verify the claim of assessee and if found correct, to delete the addition.
In ground No.5, the assessee has contended that it had obtained Form 15G & 15H in respect of amount paid to contractors of Rs.10,83,977 which was the addition challenged before the CIT(Appeals) by the assessee. In our view, if the AO accepts the contention of assessee that expenditure was capitalized, then there is no necessity to examine the filing of Form 15G & 15H. The AO is therefore directed to verify whether the expenditure claimed is capital expenditure and if so, delete the addition. If the same has been claimed as revenue expenditure, then the assessee should be permitted to file Form 15G & 15H so that TDS obligation can be said to be non-existent. Accordingly, ground No.5 is treated as allowed for statistical purposes.
In the result, the appeal by the assessee is partly allowed for statistical purposes.