BANK OF INDIA,MUMBAI vs. ASST CIT 2(1), MUMBAI

The appeal filed by the assessee is directed against the order dated 12-02-2014 passed by Ld CIT(A)-4, Mumbai against the order passed by the assessing officer u/s 154 of the Act and it relates to the assessment year 2008-09

The assessee is aggrieved by the decision of Ld CIT(A) in upholding the validity of rectification proceeding initiated by the AO.

The first issue relates to the disallowance of provision for leave encashment made u/s 43B of the Act. The ld. AR submitted that the Hon’ble Calcutta High Court in the case of Exide Industries Limited vs. UOI 292 ITR 470 has held that the provision of section 43B(f) relating to disallowance of “provision for leave encashment” is arbitrary, un-conscionable. Ld. AR further submitted the same view was expressed by Hon’ble Kerala High Court in another decision. Accordingly Ld. AR submitted that the disallowance required to be made in respect of provision for leave encashment u/s 43B (f) of Act was subject to

On the contrary, the ld. DR submitted that the decision rendered by Hon’ble Calcutta High Court in the case Exide Industries Ltd.(supra) has since been stayed by Hon’ble Supreme Court in the case of CIT vs. Exide Industries Ltd. in SLP No.CC 12060008 dated 08.09.2008. Subsequently Hon’ble Supreme Court in SLP CC No.22889/2008 dated 27.06.2007 in the case of CIT vs. Exide Industries Ltd. has held that, during the pendency of appeal, the assessee has to pay tax as if section 43B (f) is on the statute book. Accordingly, the ld. DR submitted that the disallowance of provision for leave encashment is required to be made u/s 43B(f) of the Act. Since the original order was passed by the AO without complying statutory provisions, he has passed the impugned rectification order disallowing the provision leave encashment and the same is in accordance with the decision rendered by the Hon’ble Supreme Court.

We heard the parties on this issue and perused the record. As submitted by ld. DR, the Hon’ble Supreme Court, in the case of Exide Industries Ltd., (referred supra) has stayed the decision rendered by Hon’ble Calcutta High Court and further held that the disallowance should be made in terms of sec. 43B of the Act, during the pendency of appeal, as if section 43(B)(f) is in the statute book. Hence the provision for leave encashment is required to be disallowed in terms of section 43B(f) of the Act if it has not been paid on or before the due date prescribed for furnished return of income u/s 139(1) of the Act. In the instant case, the AO has passed the original assessment order without making disallowance, as mandated by sec. 43B(f) of the Act and the same, in our view,

The next issue relates to restricting the deduction of “provision for bad and doubtful debts” claimed by the assessee u/s 36(1)(viia) of the Act to the amount actually provided for. The said provision allows deduction of amount created towards “provision for bad and doubtful debt” to the maximum extent prescribed in that section. The AO noticed that the assessee has claimed deduction to the maximum extent prescribed in 36(1)(viia), even though the provision was made for a lesser amount. Since the claim was initially allowed without verifying the actual amount of provision created by the assessee, the AO rectified the same u/s 154 of the Act. The Ld CIT(A) also confirmed the same.

The ld. AR submitted that the matter relating to deduction u/s 36(1)(viia) was always in dispute and hence the same was debatable one. Accordingly he submitted that the rectification made by the AO is beyond the scope of provision of section 154 of the Act. The Ld. AR further submitted that the Hon’ble Cochin Bench of Tribunal in the case of Kannur Distt. Co-op Bank Ltd vs ACIT (2012) 20 taxmann.com 667 (Coch.) has held that the deduction u/s 36(1)(viia) should be allowed on the gross amount of provision made in the books of account.

On the contrary, ld. DR submitted that the AO has allowed the deduction claimed by the assessee u/s 36(1)(viia) in the original assessment proceeding, without verifying the amount actually provided for. Since the amount provided by the assessee was less than the maximum limit prescribed u/s 36(1)(viia) of the Act, the deduction should be restricted to the amount actually provided for.

We heard the parties on the issue. There is no dispute with regard to the fact that deduction under section 36(1)(viia) shall be allowed to the amount actually provided for subject to the limits prescribed in that section. In the instant case, the amount actually provided for was less than the maximum limit prescribed in that section. The assessee has claimed the maximum amount prescribed in that section, even though the amount actually provided for was lesser amount. In the original order, the AO has also allowed the claim without verifying the actual amount provided for in the books of account. Since the deduction was allowed by the AO without complying with the mandate of provisions of sec. 36(1)(viia) of the Act, we are of the view that the same has resulted in a mistake apparent from record and hence he was justified in rectifying the mistake in the order passed by him u/s 154 of the Act. Accordingly, we are of the view that the ld. CIT(A) was justified in confirming the order of the AO on this issue.

In the result, the appeal of the assessee is dismissed.