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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
Per A.K. Garodia, Accountant Member
This is Revenue’s appeal directed against the order of ld. CIT (Appeals), Hubli dated 26.2.2014 for the assessment year 2010-11.
The Revenue has filed the revised grounds of appeal and as per the same, ground Nos. 1 & 7 are general. Ground No.2 is as under:-
“2. The CIT(A) erred in directing the AO to allow the actuarial valuation of privilege leave encashment without considering the fact that the Hon'ble Apex Court stayed the operation of the judgment of Calcutta High Court in the case of Exide Industries Ltd vs UOI, 292 ITR 470.”
It was submitted by the ld. DR of Revenue that ground Nos. 1 & 7 are general. Regarding ground No.2, he submitted that the ld. CIT(Appeals) has followed the judgment of Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI, 292 ITR 470 but this judgment has been stayed by the Hon’ble Apex Court as per judgment dated 8.9.2008. He submitted a copy of the same and urged that under these facts, the ld. CIT (Appeals) was not justified in following this judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra). He also placed reliance on the decision of the Tribunal rendered in the case of DLF Home Developers Ltd. v. ACIT in dated 31.10.2013 (copy furnished) and submitted that as
per this Tribunal’s order also, the judgment of Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) cannot be followed, as per which it was held that amendment to section 43B by way of insertion of clause (f) is unconstitutional. It was submitted that under these facts, clause (f) of section 43B has to be applied in the present case and as a consequence, deduction is not available on account of leave encashment provision because the same was not paid in the present year.
As against this, the ld. AR of assessee supported the order of ld. CIT (Appeals). He also placed reliance on the following orders of the Tribunal and submitted a copy of all these orders:-
(i) ACIT v. Krishna Grameena Bank (assessee) in dated 3.12.2014 for AY 2009-10. (ii) M/s. Krishna Grameena Bank (assessee) v. Addl. CIT in ITA No.146/Bang/2011 dated 15.6.2012 for AY 2007-08. (iii) Narayana Hrudayalaya P. Ltd. v. Addl. CIT in IA No.1281/Bang/2014 dated 7.8.15 for AY 2010-11.
We have considered the rival submissions. We find that the disallowance was made by the AO by invoking the provisions of clause (f) of section 43B and the same was deleted by the ld. CIT (Appeals) by following the judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) wherein it was held that insertion of clause (f) in section 43B is unconstitutional. Subsequently, the Hon’ble Apex Court has stayed the operation of this judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) and therefore, the order of the ld. CIT (Appeals) by following this judgment of the Hon’ble Calcutta High Court cannot be approved. The legal position that now stands is that clause (f) of section 43B is very much on the statute book and therefore, if the assessee has not made payment of leave encashment provision in the present year, deduction on account of that provision cannot be allowed as per provisions of clause (f) of section 43B. It is not the case of assessee that payment was made for provision of leave encashment. Regarding various Tribunals’ orders cited by the ld. AR of assessee, these were rendered in assessee’s own case for AYs 2007-08 and 2009-10 and in the case of Narayana Hrudayalaya P. Ltd. (supra). These decisions are not on the basis that in spite of provisions of clause (f) of section 43B being on the statute book, deduction on account of provision for leave encashment has to be allowed. Therefore, these Tribunal’s orders cannot be followed in view of the judgment of the Hon’ble Apex Court as per which, the judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) was stayed. Therefore, considering the provisions of clause (f) of section 43B, on this issue, we reverse the order of ld. CIT (Appeals) and restore that of the AO. Ground No.2 of the Revenue’s appeal is allowed.
Ground No.3 is as under:-
3. The learned CIT (A) erred in allowing the assessee's claim towards provision for bad and doubtful debts without appreciating the fact that the assessee had not furnished complete details towards its claim and the learned CIT (A) erred in relying on the decision of the Apex Court in the case of M/s. Catholic Syrian Bank Ltd vs CIT, 343 ITR 270 without appreciating the fact that the said decision was rendered in context to section 36(1) (vii).
It was submitted by the ld. DR of Revenue that the details available on pages 1 to 7 of the Paperbook were not available before the AO and they were submitted for the first time before the CIT (Appeals) and no remand report has been obtained by the CIT (Appeals) from the AO. He also submitted that as per pages 5 & 6 of the assessment order, it was stated by the AO that the details required as per Rule 6ABA were not furnished before him. The ld. DR of Revenue submitted that even if details submitted before the CIT(Appeals) which are available on pages 1 to 7 of PB are to be considered as details in compliance of Rule 6ABA, the matter should go back to the ld. CIT(Appeals) for fresh decision after obtaining remand report of the AO.
The ld. AR of assessee supported the order of CIT (Appeals).
We have considered the rival submissions. We find that as per assessment order, it is the objection of the AO that the details as per requirement of Rule 6ABA are not furnished before him. In the PB pages 1 to 7, some details are made available before us, but as per the certificate given in the PB, all these details were filed before the CIT (Appeals) and the same were not filed before the AO. We also find that no remand report has been obtained by the ld. CIT (Appeals) from the AO. Under these facts, we find force in the contention of the ld. DR of Revenue that this matter should go back to the file of ld. CIT(Appeals) for fresh decision after obtaining remand report from the AO on this issue. Accordingly, we set aside the order of the ld. CIT (Appeals) on this issue and restore the matter back to his file for a fresh decision in light of our above observations, after affording reasonable opportunity of being heard to both the sides. This ground is allowed for statistical purposes.
Ground No.4 is as under:-
“4. The learned CIT(A) erred in allowing the disallowance made with regard to excess claim of salary without appreciating the fact that the claim made by the assessee bank includes salary arrears of accounting year 2007-08 and 2008-09 which would have been related back to the respective financial year profits.”
It is submitted by the ld. DR of Revenue that Board Resolution and Letter of Govt. of India, Ministry of Finance, Department of Financial Services available at pages 8 & 9 of PB are dated 24.7.2010 and 31.8.2010 i.e. in the next year and therefore, it cannot be said that expenses had crystallised during the present year. He submitted that under these facts, these expenses of earlier year cannot be allowed in the present year and therefore, on this issue, the order of ld. CIT (A) should be reversed and that of the AO should be restored.
As against this, the ld. AR of assessee supported the order of ld. CIT (Appeals). He also submitted that return of income was filed on 30.9.2010, as can be seen from page 2 of assessment order and therefore, the Board Resolution date is prior to the date of filing of return of income and hence, this development can be considered in the present year also. He strongly supported the order of ld. CIT (Appeals) on this issue.
We have considered the rival submissions. We find that as per page 9 of PB, there is a letter dated 24.7.2010 issued by Govt. of India, Ministry of Finance, Department of Financial Services in respect of revision of pay & allowances of all Regional Rural Banks employees w.e.f. 1.11.2007. So, on the basis of communication received from Govt. of India, Ministry of Finance, the Board of assessee bank as per its Resolution dated 31.8.2010 has decided to make payment of arrears for the period from 1.11.2007 to 31.7.2010. No doubt, this date of Board Resolution and the letter from Govt. of India, Ministry of Finance is subsequent to the present accounting year i.e., accounting year 2009-10 relevant to A.Y. 2010-11 but it is also true that these dates are prior to the date of filing of return of income by the assessee and therefore, the liability has crystallised prior to the date of filing of return of income. In our considered opinion, under these facts, provision should be made in the accounts for the year which were not finalised at that point of time i.e., crystallisation of liability. So under these facts, we find no reason to interfere in the order of ld. CIT (Appeals). Accordingly, ground No.4 of Revenue is rejected.
Ground Nos. 5 & 6 are as under:-
“5. The learned CIT(A) erred in allowing amortization of premium paid on Government securities over remaining life of the securities even though such expenditure was disallowed by the AO relying on the CBDT Instruction 17/2008. 6. The learned CIT (A) erred in not relying on the decision in the case of Vijaya Bank vs Addl.CIT, 187 ITR 541 on the issue of amortization of premium paid on purchase of Government securities. 7. Each of the above grounds is without prejudice to one another and the appellant craves to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.”
The ld. DR of Revenue supported the assessment order whereas the ld. AR of assessee supported the order of CIT (Appeals). It was also submitted by the ld. AR of assessee that this issue is covered in favour of assessee by the Tribunal’s order in assessee’s own case for AY 2007-08 in & 224/Bang/2011 dated 15.6.2012 and also by another Tribunal’s order in assessee’s own case for the AY 2009-10 in ITA No.1046/Bang/2013 dated 3.12.2014. He submitted copy of both the Tribunal’s orders.
We have considered the rival submissions. We find that in AY 2007- 08 in the Revenue’s appeal in (supra), this very issue was raised by the Revenue before the Tribunal and the same was decided by the Tribunal’s order as per para 7. For the sake of ready reference, para 7 of this Tribunal’s order is reproduced hereinbelow:-
“7.1 The grounds of appeal raised by Revenue are as under: “1. The learned CIT(A) erred in holding that amortization of premium paid on Government securities is an allowable expenditure ignoring the para 2(vi) of the CBDT Instruction No.17 of 2008 dated 26/11/2008.
2. The learned CIT(A) erred in holding that amortization of premium paid on Government securities over remaining life of the securities as an allowable expenditure ignoring the decision of the Hon'ble Supreme court in the case of Vijay Bank Vs. Addl. CIT 187 ITR 541 (SC)” 7.2 The learned Departmental Representative submitted that the learned CIT(A) erred in holding that the amortization of premium paid on Govt. securities is an allowable expenditure ignoring the decision of the Hon'ble Apex Court in the case of Vijaya Bank reported in 187 ITR 541 in para 2(vii) of CBDT’s Instruction NO.17 of 2008. 7.3 The learned counsel for the assessee supported the finding of the learned CIT(A) in deleting the disallowance of Rs.4,84,11,629 made by the Assessing Officer in respect of amortization of premium on purchase of Govt. securities in accordance with the CBDT’s Instruction No.17 vide para 2(vii) dt.26.11.2008. The learned counsel for the assessee also placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Sir M. Vishveshwaraya Co-operative Bank Ltd. Vs. JCIT in dt.11.5.2012 ( a copy of which is placed on record.) The learned counsel for the assessee drew our attention to para 4 to para 8 of this order in which an identical issue on amortization of premium on investments was exhaustively considered by this Tribunal after which it held that the assessee was entitled to such deduction. In these circumstances, the learned counsel for the assessee prayed that since the decision of the Tribunal is squarely applicable to its case, and is in its favour, Revenue’s appeal on this point is liable to be dismissed. 7.4 We have heard both parties and have carefully perused and considered the material on record and the judicial decisions cited of various benches of the Tribunal in respect of the assessee’s claim for deduction on account of expenditure incurred on amortization of premium on purchase of Govt. securities amounting to Rs.4,84,11,629. We find from a perusal of the decision of the co-ordinate bench of the Tribunal in the case of Sir M. Vishveswaraya Co-op. Bank Ltd. (supra) that the Tribunal had occasion to consider a similar issue of amortization of premium on investments exhaustively at paras 4 to 8 thereof after which it held that the assessee was entitled to such deduction. The operative part of the said order at para 8 thereof, is as under:
“08. We have carefully considered the rival submissions and perused the relevant facts and materials on record. We have also considered the findings of the various benches of the Tribunal, as under:
(i) Catholic Syrian Bank Ltd v. ACIT – (2010) 38 SOT 553 (Coch) : An identical issue to that of the subject matter under consideration had arisen before the Cochin Bench. After analyzing the issue in depth, the bench has observed that with regard to amortization of premium on purchase of Government securities, it was clarified that this was made as per the prudential norms of the RBI. Following the Tribunal decision in the assessee's own case and considering that the assessee bank is following consistent and regular method of accounting system, there is no justification in interfering with the order of the Commissioner of Income-tax (Appeals) on this issue of amortization of premium on government securities. United Commercial Bank v. CIT (1999) 156 CTR (SC) 380; (1999) 240 ITR 355 (SC) and South Indian Bank Ltd., (ITA No.126/Coch/2004,dated.___ Sept, 2005 followed."
(ii) The Khanapur Co-op Bank Ltd v. ITO – ITA No.141/PNJ/2011,dated.8.9.2011: The Hon'ble Bench of Panaji Tribunal had recorded its findings that "6. Likewise, the premium amortized at Rs.1,78,098/- is claimed to be in respect of securities held under the category 'held to maturity'. The Assessing Officer has taken them as long term investments. In other words, he has accepted the assessee's claim that the securities are 'held to maturity'. That being so and having regard to the CBDT Instruction No.17 of 2008 dated.26.11.2008 as reproduced herein above, the premium paid on such government securities is required to be amortized over the period remaining to maturity .........."
(iii) In the case of Corporation Bank v. ACIT, M'lore in ITA.112/Bang/2008 (Bang), for the assessment year 2004-05, the earlier bench had also held a similar view. In the light of the above discussion and the case laws discussed supra, taking into account the totality of the facts and materials, we are of the considered view that the assessee is entitled to claim this deduction and hence we allow the grounds of the assessee relating to this issue.” Respectfully following the decision of the Tribunal in the case of Sir M. Vishveswaraya Co-operative Bank Ltd. (supra), we hold that the assessee is entitled to deduction on account of amortization of premium on Govt. securities and therefore no interference is called for in the order of the learned CIT(A). Consequently, the grounds raised by Revenue on this issue are dismissed.”
Subsequently for AY 2009-10 in assessee’s own case, similar issue was raised by the Revenue before the Tribunal and the same was decided by the Tribunal in favour of assessee by following the Tribunal’s order in assessee’s own case for the AY 2007-08.
In the present year, no difference in facts could be pointed out by the ld. DR of revenue and therefore, we find no reason to take a contrary view. Accordingly, in the present year, we decline to interfere in the order of ld. CIT(Appeals) on this issue. Ground Nos.5 & 6 of the Revenue’s appeal are rejected.
In the result, the appeal of Revenue is partly allowed.
Pronounced in the open court on this 6th day of May 2016.