2014 (7) TMI 259 - AT - Income Tax

Amount debited to P&L A/c as overdue interest reserve Held that - The assesee had rightly contended that the assessee followed the regular system of accounting - the assessee has made the provision following the RBI guidelines - the assessee referred to the Master Circular of RBI for Income Recognition, Asset classification, provisioning and other related matter of the RBI - similar provision for overdue interest reserve has been made by the assessee in the prior period on the basis of RBI guidelines issued in this regard and the same was allowed - provisions made as per RBI guidelines are allowable - similar provision made in the previous period has been allowed to the assessee - the assessee has a reasonable case and the orders of the authorities is to be set aside Decided in favour of Assessee. Payment of internal tax auditor Liability to pay TDS on salary or u/s 194J as professional fee Held that - CIT(A) rightly held that the payments to those persons did not attract liability of TDS u/s 194J of the Act - the payment is related to the salary payment there is no question of deduction of TDS u/s 194J of the Act thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. Non-deduction of TDS Form 15G not obtained - Held that - CIT(A) noted that several Form-15G were received by the assessee and they were sent to the CIT s office under Certificate of posting - CIT(A) noted that as per the sub-rule(3) of Rule 29C of IT Rules the form 15G is forwarded to the Chief Commissioner or the Commissioner of Income Tax - CIT(A) held that the assessee complied its obligation and therefore the AO was not correct to disallow and add back to the income u/s 40(a)(ia) of the IT Act - CIT(A) has deleted the addition in this regard by finding that Form15G were obtained and sent to the Chief Commissioner of Income Tax in this regard thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Disallowance of overdue interest reserve.
2. Disallowance of payment to Internal Tax Auditor.

Analysis:

Issue 1: Disallowance of overdue interest reserve
The Assessing Officer (AO) disallowed the overdue interest reserve, stating it was not based on actual facts and lacked justification. The AO mentioned the provision was not supported by evidence of bad loans or interest receivable, leading to disallowance. The Commissioner of Income Tax (CIT) upheld the disallowance, stating that provisions and contingencies are not allowable expenditures under the Income Tax Act. The CIT noted the absence of material supporting the claim, leading to the disallowance. However, the Appellate Tribunal held in favor of the assessee, stating that provisions made following RBI guidelines are allowable. The Tribunal noted the consistency of similar provisions in the past, allowing the claim based on RBI guidelines. Consequently, the Tribunal set aside the lower authorities' orders, ruling in favor of the assessee.

Issue 2: Disallowance of payment to Internal Tax Auditor
Regarding the disallowance of payment to the Internal Tax Auditor, the AO added back the amount under section 40(a)(ia) for failure to deduct tax. The assessee argued that the payments were salary payments to officers engaged in internal audit work, supported by Form-16 certificates. The CIT accepted the assessee's position, ruling that the payments did not attract TDS liability under section 194J. The Tribunal upheld the CIT's decision, emphasizing that as the payments were related to salary, there was no requirement for TDS deduction under section 194J. Subsequently, the Tribunal dismissed the revenue's appeal, finding no fault in the CIT's order.

In conclusion, the Appellate Tribunal ruled in favor of the assessee in both issues, allowing the overdue interest reserve claim based on RBI guidelines and upholding the non-disallowance of payment to the Internal Tax Auditor as it pertained to salary payments not subject to TDS.