2016 (9) TMI 1465 - AT - Income Tax

Provision for staff gratuity - Held that - This amount is debited to profit 60 lakhs as a provision for staff gratuity debited the same in the profit 60 lakhs was disallowed. On appeal the CIT(A) by following the assessee s own case for 2008-09 the order of the A.O. is confirmed and directed the A.O. to allow the deduction of the actual amount of gratuity paid during the year. TDS u/s 194A - Disallowance u/s 40(a)(ia) - TDS on the interest payment exceeding 10, 000/- in view of the specific provision contained in section 194A(3)(i)(b) - Held that - When the assessee filed a rectification petition u/s 154 of the Act dated 4.12.2013 CIT(A) has corrected the order by considering the assessment year 2007-08 and relief was granted. Therefore we find that this ground of appeal raised by the assessee has no merit and the same is dismissed.

Summary

Issues Involved:

1. Disallowance of provision for staff gratuity.
2. Disallowance of provision for standard assets.
3. Disallowance of amortization of loss on account of merger.
4. Disallowance of amortization of premium on Government securities.
5. Interest payment by the society to its members on the share capital.
6. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Provision for Staff Gratuity:

The assessee claimed ?20,00,000/- as a provision for staff gratuity, which was debited to the profit & loss account but not actually paid. The Assessing Officer (A.O.) disallowed the claim, and the CIT(A) confirmed this, stating that mere provision without actual payment does not constitute allowable expenditure. The Tribunal upheld this disallowance, agreeing that the provision without payment is not an allowable expenditure.

2. Disallowance of Provision for Standard Assets:

The assessee claimed ?30,87,213/- as a provision for standard assets, shown under "provision on performing assets" in the balance sheet. The A.O. disallowed this, considering it a contingent liability, not an actual expenditure. The CIT(A) upheld the disallowance, noting that the provision was for standard assets, not non-performing ones. The Tribunal confirmed this, agreeing that the provision does not constitute an allowable deduction.

3. Disallowance of Amortization of Loss on Account of Merger:

The assessee claimed ?1,56,70,500/- as amortization of loss due to the merger of Bobbili Cooperative Urban Bank. The A.O. disallowed this, stating it was not in accordance with Sections 72AB or 44DB of the Act. The CIT(A) upheld this, noting that Bobbili Bank had not filed a return of income, making its losses ineligible for carry forward under Section 72. The Tribunal agreed, stating that RBI guidelines cannot override the Income Tax Act and that the loss cannot be allowed as the amalgamating bank did not comply with Section 72AB requirements.

4. Disallowance of Amortization of Premium on Government Securities:

The A.O. disallowed the amortization of premium on Government securities, considering it a contingent liability. The CIT(A) upheld this. However, the Tribunal remitted the matter back to the A.O. for verification, allowing the appeal for statistical purposes.

5. Interest Payment by the Society to its Members on the Share Capital:

The A.O. disallowed ?1,57,53,620/- paid as interest on share capital, treating it as appropriation of profits, not an expenditure. The CIT(A) directed the A.O. to delete the addition, following the Tribunal's decision in the assessee’s own case for A.Y. 2007-08. The Tribunal upheld this, adhering to the doctrine of precedent.

6. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:

The A.O. disallowed ?5,64,79,087/- under Section 40(a)(ia) for non-deduction of TDS on interest payments. The CIT(A) initially confirmed this but later rectified the order, granting relief based on earlier years' decisions. The Tribunal upheld the CIT(A)'s rectification, noting the CBDT Circular No.9/2002 clarifies that cooperative banks are not required to deduct TDS on interest paid to members.

Conclusion:

The appeals filed by the assessee were partly allowed for statistical purposes, and the cross objections were dismissed. The appeals filed by the revenue were dismissed. The Tribunal's decisions were pronounced on 30th September 2016.