M/s Krishna Grameena Bank , Gulbarga V. Assistant Commissioner of Income Tax Circle-1 , Gulbarga

ITA 495/BANG/2018

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9514 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-12-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Assessee Lawyers: SOWMYA
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 43B; 40(a)(ia); 194C; 194J; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BAS KARAN , ACCOUNTANT MEMBER ITA NO . 495/BANG/2018 ASSESSMENT YEAR : 2013 - 14 M/S. KRISHNA GRAMEEN BANK, HEAD OFFICE, KUSANOOR ROAD, P.B. NO.4, GULBARGA 585 105. PAN: AAGFK 6964K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, GULBARGA. APPELLANT RESPONDENT APPELLANT BY : SMT. SOWMYA, A D VOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU. DAT E OF HEARING : 03 . 1 2 .2020 DATE OF PRONOUNCEMENT : 31 . 1 2 .2020 O R D E R 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 YE AR 2013-14. 2. GROUNDS 1, 6 & 7 ARE GENERAL OR CONSEQUENTIAL G ROUNDS AND DO NOT NEED ANY SPECIFIC ADJUDICATION. 3. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOLL OWS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, 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 SA ME AS ITA NO.495/BANG/2018 PAGE 2 OF 8 CONTINGENT LIABILITY WITHOUT APPRECIATING THE SUBMI SSION OF APPELLANT. 4. THE ASSESSEE IS A REGIONAL RURAL BANK ESTABLISHE D UNDER RURAL BANKS ACT AND IS A SCHEDULED BANK CLASSIFIED UNDER SECOND SCHEDULE OF RBI, HAVING SEVERAL RURAL BRANCHES. THE ASSESSEE H AD 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 AFORES AID EXPENDITURE WAS A CONTINGENT EXPENDITURE AND CANNOT BE ALLOWED AS A D EDUCTION. ACCORDING TO THE AO, THE CLAIM FOR DEDUCTION CANNOT BE ALLOWE D IN VIEW OF CLAUSE (F) TO SECTION 43B OF THE INCOME-TAX ACT, 1961 [THE ACT] W HICH WAS INSERTED BY FINANCE ACT, 2003 AND INSERTION OF THE AFORESAID SE CTION IS THE EFFECT OF NULLIFYING THE DECISION OF THE HONBLE SUPREME COUR T RENDERED IN THE CASE OF BEML V. ACIT, 245 ITR 478 (SC) . THE ASSESSEE ARGUED BEFORE THE AO THAT THE HONBLE 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 H ONBLE SUPREME COURT AND THE ORDER OF HONBLE CALCUTTA HIGH COURT HAS BE EN STAYED. THE AO ACCORDINGLY REFUSED TO ALLOW THE CLAIM FOR DEDUCTIO N ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT. 5. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF AO. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE STAND OF ASSESSEE AS PUT FORTH BEFORE THE AO. 7. WE HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE AND WE FIND THAT THE HONBLE SUPREME COURT HAS REVERSED THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES ITA NO.495/BANG/2018 PAGE 3 OF 8 LTD. & ANR. (SUPRA) AND HAS UPHELD THE CONSTITUTIONAL VALIDITY OF SECT ION 43B(F) OF THE ACT. 8. IN VIEW OF THE PROVISION OF SECTION 43B(F) OF TH E 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 AS SESSEE FOR DEDUCTION CANNOT BE SUSTAINED. WE THEREFORE UPHOLD THE ORDE R OF CIT(APPEALS) AND DISMISS GROUND NO.2 9. GROUNDS NO.3 & 4 RAISED BY THE ASSESSEE READS AS FOLLOWS:- 3. THE LEARNED CIT (A) IN FURTHER ERRED IN DISALLO WANCE 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 RESPE CT OF DEDUCTION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS. T HE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT READS AS FOLLOWS:- 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CL AUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 . [( VIIA ) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ITA NO.495/BANG/2018 PAGE 4 OF 8 ( A ) A SCHEDULED BANK [NOT BEING A BANK INCORPORATED B Y OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON-SCHED ULED BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DE VELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PE R CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCT ION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCE EDING TEN PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MA NNER : PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED BANK REFE RRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED 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 WIT H THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCE EDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOK S 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 A ND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, THE PROVISIONS O F 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 SCHEM E FRAMED BY THE CENTRAL GOVERNMENT: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UNDER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN TH E RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, RELEVANT ASSESSMENT YEARS MEANS THE FIVE CONSECUTIVE ASSESS MENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 A ND ENDING BEFORE THE 1ST DAY OF APRIL, 2005;] ITA NO.495/BANG/2018 PAGE 5 OF 8 ( 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 DEDUCT ION UNDER THIS CLAUSE AND CHAPTER VI-A);] ( C ) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCI AL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, AN AMOUN T NOT EXCEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUT ED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) :] PROVIDED THAT A PUBLIC FINANCIAL INSTITUTION OR A STATE FIN ANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED IN ANY OF THE TWO CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR A FTER THE 1ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FO R 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 I NSTITUTION OR CORPORATION, AS THE CASE MAY BE, ON THE LAST DAY OF THE PREVIOUS YEAR.] 11. 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; A ND (2) AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MAD E BY THE RURAL BRANCHES COMPUTED IN THE PRESCRIBED MANNER. 12. THE ASSESSEE CLAIMED DEDUCTION U/S. 36(1)(VIIA) OF A SUM OF RS.3,66,67,797. OUT OF THE AFORESAID SUM, DEDUCTIO N ON ACCOUNT OF 7.5% OF TOTAL INCOME WAS A SUM OF RS.1,49,66,473 AND THIS S UM WAS ALLOWED AS A DEDUCTION BY THE AO. THE DISPUTE IS ONLY WITH REGA RD TO THE REMAINING SUM OF RS.2,17,01,324 [3,66,67,797 1,49,66,472). THI S WAS CLAIMED BY THE ITA NO.495/BANG/2018 PAGE 6 OF 8 ASSESSEE AS DEDUCTION BEING 10% OF THE AGGREGATE AV ERAGE ADVANCES MADE BY RURAL BRANCHES IN THE MANNER PRESCRIBED BY THE RULES. RULE 6ABA OF THE INCOME-TAX RULES, 1962 PROVIDES THE MAN NER OF COMPUTING AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES. THE AO BY APPLYING THE AFORESAID RULE COMPUTED ELIGIBLE DEDUC TION 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 SU BSTANTIATE THE CLAIM MADE FOR DEDUCTION ON ACCOUNT OF 10% OF THE AGGREGA TE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES. THE AO THEREFORE DISAL LOWED THE CLAIM OF ASSESSEE FOR DEDUCTION OF RS.2,17,01,324. 13. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CON FIRMED THE ORDER OF AO AS THE ASSESSEE COULD NOT PRODUCE THE REQUIRED E VIDENCE BEFORE THE CIT(A) ALSO. EVEN BEFORE THE TRIBUNAL, NO SUCH EV IDENCE WAS FILED BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER , POINTED OUT THAT IN AYS 2011-12 TO 2012-13 IN ITA NO.496/BANG/2018 AND ITA NO.1102/BANG/2018 BY ORDER DATED 16.10.2020, THE IT AT 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(APPEAL S) 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 UN DER RULE 6ABA OF THE RULES. 14. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 5. THE LEARNED CIT (A) FURTHER ERRED IN DISALLOWIN G 10,83,977/- U/S 40(A)(IA) IN SPITE OF ASSESSEE OBTA INING FORM NO.15G/15H FROM DEPOSITORS. ITA NO.495/BANG/2018 PAGE 7 OF 8 15. FOR THE FY 2012-13 RELATING TO THE AY 2013-14, THE ASSESSEE HAD INCURRED THE FOLLOWING EXPENSES WHICH HAVE BEEN REP ORTED 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 16. THE AO WAS OF THE VIEW THAT THE AFORESAID PAYME NTS FALL UNDER THE PROVISIONS OF SECTION 194C AND 194J OF THE ACT RESP ECTIVELY. THE ASSESSEE WAS ASKED TO EXPLAIN THE DETAILS OF TDS MADE ON SUC H PAYMENT. THE ASSESSEE DID NOT FILE THE REQUIRED PARTICULARS. 17. ACCORDING TO THE AO, THE AFORESAID PAYMENTS FEL L WITHIN THE MISCHIEF OF SECTION 194C AND 194J OF THE ACT. SINCE THE ASS ESSEE DID NOT DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENTS, THE AO INV OKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DISALLOWED THE CLAIM O F ASSESSEE FOR DEDUCTION OF A SUM OF RS.11,33,977. THE ASSESSEE ARGUED BEFO RE THE AO THAT THE SUM IN QUESTION WAS ALREADY PAID WAS NOT PAYABLE AN D 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 CONTENTI ON 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 W HEN THE SUM REMAINS PAYABLE. 18. ON APPEAL BY THE ASSESSEE BEFORE THE CIT(APPEAL S), IT WAS CONTENDED THAT THE SUM IN QUESTION WAS NEVER CLAIME D AS DEDUCTION IN THE P&L ACCOUNT AS IT WAS CLASSIFIED AS CAPITAL EXPENDI TURE AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S. 40(A)(IA). THE CIT(A PPEALS) DIRECTED THE ITA NO.495/BANG/2018 PAGE 8 OF 8 AO TO VERIFY THE CLAIM OF ASSESSEE AND IF FOUND COR RECT, TO DELETE THE ADDITION. 19. IN GROUND NO.5, THE ASSESSEE HAS CONTENDED THAT IT HAD OBTAINED FORM 15G & 15H IN RESPECT OF AMOUNT PAID TO CONTRAC TORS OF RS.10,83,977 WHICH WAS THE ADDITION CHALLENGED BEFORE THE CIT(AP PEALS) BY THE ASSESSEE. IN OUR VIEW, IF THE AO ACCEPTS THE CONTE NTION OF ASSESSEE THAT EXPENDITURE WAS CAPITALIZED, THEN THERE IS NO NECES SITY TO EXAMINE THE FILING OF FORM 15G & 15H. THE AO IS THEREFORE DIRECTED TO VERIFY WHETHER THE EXPENDITURE CLAIMED IS CAPITAL EXPENDITURE AND IF S O, DELETE THE ADDITION. IF THE SAME HAS BEEN CLAIMED AS REVENUE EXPENDITURE, T HEN 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. 20. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF DECEMBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 31 ST DECEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.