2008 (12) TMI 740 - AT - Income Tax

Summary

Issues Involved:
1. Addition of excess cash found at branches.
2. Disallowance u/s 43B/36(1)(va) of the IT Act.
3. Non-giving credit for tax deducted at source.
4. Accrued interest on securities.
5. Deduction u/s 36(1)(viia) for bad and doubtful debts.
6. Addition on account of exchange, commission, and discount.

Summary:

1. Addition of Excess Cash Found at Branches:
The first ground of appeal by the assessee concerns the addition of Rs. 1,97,444 made by the AO as excess cash found at branches. The Tribunal noted that in previous assessment years, it was held that such excess cash is a liability of the bank and must be returned to customers upon demand. Therefore, it cannot be considered as income. Consequently, the addition confirmed by the CIT(A) was directed to be deleted, and the first ground of the appeal was allowed.

2. Disallowance u/s 43B/36(1)(va) of the IT Act:
The second ground of appeal, concerning the disallowance of Rs. 2,85,695 under s. 43B/36(1)(va) of the IT Act, was remanded to the AO for verification. The Tribunal directed that if the payment was made within the grace period of 5 days allowed under the PF Act, the deduction should be allowed in line with the decision of the Madras High Court in CIT vs. Shri Ganapathy Mills Company Ltd.

3. Non-Giving Credit for Tax Deducted at Source:
The third ground of appeal was regarding the non-giving of credit for tax deducted at source. The CIT(A) had already directed the AO to verify the claim and allow proper credit if found correct. The Tribunal upheld this direction.

4. Accrued Interest on Securities:
In the Revenue's appeal, the first ground was about the deletion of an addition of Rs. 10,36,29,015 representing accrued interest on securities. The Tribunal upheld the CIT(A)'s decision, noting that interest on Government securities accrues only when it becomes due, as per the Tribunal's earlier decisions and the Kerala High Court's ruling in CIT vs. Federal Bank Ltd.

5. Deduction u/s 36(1)(viia) for Bad and Doubtful Debts:
The second ground of the Revenue's appeal concerned the allowance of the assessee's claim of deduction u/s 36(1)(viia) amounting to Rs. 21,79,85,800. The Tribunal confirmed the CIT(A)'s order, stating that the deduction should be computed on the average advances made by rural branches, not restricted to rural advances made to persons involved in rural activities.

6. Addition on Account of Exchange, Commission, and Discount:
The third ground of the Revenue's appeal was about the deletion of an addition of Rs. 3.46 crores on account of exchange, commission, and discount. The Tribunal upheld the CIT(A)'s decision, noting that the change in the method of revenue recognition was bona fide and in compliance with SEBI guidelines and AS-9 issued by ICAI. The Tribunal found no loss to the Revenue as the income not recognized in the previous year would be taxed in subsequent years.

Conclusion:
The appeals by the assessee were partly allowed, and the appeals by the Revenue were dismissed.