2016 (1) TMI 575 - AT - Income Tax

Bad debts - Disallowance of deduction being excess receipt of interest shown by the appellant and assessed in earlier years - Held that - Claim of the assessee for deduction on the ground that the claim for deduction has to be allowed as bad debt or as loss incidental to the business. We are of the view that since the claim is not being allowed on the ground that the debt in question is a non-performing assets, the decision cited by the learned DR is not relevant. Thus we hold that the claim of the assessee for deduction should be allowed. - Decided in favour of assessee Disallowance of the contribution to the recognized provident fund - Held that - We are of the view that addition sustained deserves to be deleted. The Hon ble Supreme Court in the case of Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT held that deletion of the second proviso below Sec.43-B of the Act w.e.f. 0-1-4-2004 was clarificatory in nature and therefore will have to be applied retrospectively. Admittedly the payment of employer s contribution had been made by the Assessee on or before the due date for filing return of income. Therefore the payment made on or before the due date for filing return of income has to be allowed as deduction as per the first proviso to Sec.43B of the Act. In view of the aforesaid decision, we direct that the addition sustained by the CIT(A) should be deleted. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of deduction for excess interest claimed by the assessee.
2. Disallowance of contribution to recognized provident fund made after the due date.

Analysis:

Issue 1:
The assessee, a public sector bank, claimed a deduction of excess interest amounting to Rs. 1,39,39,304, which was due on non-performing assets (NPAs) for the assessment year 2000-01. The Assessing Officer (AO) disallowed the claim without providing reasons. The CIT(A) upheld the disallowance citing RBI guidelines that interest on NPAs cannot be charged. The CIT(A) reasoned that the reversal of interest income by an accounting entry cannot be considered as an expenditure wholly and exclusively for business purposes. The Tribunal considered judicial precedents and directed the AO to allow the deduction, emphasizing that the claim should be allowed as a bad debt or a loss incidental to the business.

Issue 2:
The second ground of appeal pertained to the disallowance of Rs. 1,88,27,903 towards the employer's contribution to the recognized provident fund made after the due date. The AO and CIT(A) disallowed the claim based on Sec. 43B of the Income Tax Act, as the contribution was made after the prescribed due date. The assessee argued that the contribution was made before filing the return of income under Sec. 139(1) and relied on a retrospective amendment upheld by the Supreme Court. The Tribunal allowed the deduction, following the Supreme Court's decision that the deletion of the second proviso below Sec. 43B was clarificatory and should be applied retrospectively. Consequently, the addition sustained by the CIT(A) was directed to be deleted, and the appeal of the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, allowing both deductions for excess interest claimed and the contribution to the recognized provident fund made after the due date.