2017 (3) TMI 1781 - AT - Income Tax

Provision for bad and doubtful debts on standards assets - HELD THAT - This issue is squarely covered in favour of the assessee by the order of the Tribunal in the case of the assessee itself for Asst. Year 2008-09. AR submitted that the case of the assessee was also covered by the decision of Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT Disallowance of premium paid to LIC for covering leave encashment of its employees - AR submitted that the premium paid by assessee was deductible u/s 37 (1) of the Act as the assessee had paid the premium to insure its liability for payment of leave encashment to its employees at the time of their retirement or death - HELD THAT - CIT(A) while confirming the disallowance has not considered the claim of the assessee u/s 37(1) of the Act and has confirmed the addition by holding that the provisions of section 43B(f) were applicable to the assessee. However the claim of the assessee in its written submissions is that assessee had not created the provisions and in fact had made the payment and therefore the provisions of section 43B(f) of the Act were not applicable it was also required that Ld. CIT(A) had confirmed the disallowance u/s 43B (f) without affording opportunity to the Assessee. Therefore we deem it appropriate to remit this issue to the office of Ld. CIT(A) who should examine the claim of the assessee u/s 37(1) of the Act as the Assessing Officer had made the disallowance u/s 37(1) of the Act. CIT(A) should also hear the assessee on the applicability of provisions of section 43B(f) of the Act. In view of the above the appeals filed by assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition by CIT(A) related to provision for standard assets.
2. Confirmation of addition by CIT(A) related to premium paid to LIC under group leave encashment scheme policy.

Issue-wise Detailed Analysis:

1. Deletion of Addition by CIT(A) Related to Provision for Standard Assets:

The primary issue raised by the Revenue in its appeals (ITA No. 580(Asr)/2015 and ITA No. 569(Asr)/2016) was the deletion of additions made by the Assessing Officer (AO) concerning the provision for standard assets. The AO had disallowed these provisions on the grounds that they were contingent liabilities and not allowable as business expenditures under section 36(1)(viia) of the Income Tax Act. The AO argued that only provisions for bad and doubtful debts were allowable as deductions, not provisions for standard assets.

The assessee contended that section 36(1)(viia) does not differentiate between provisions for bad debts and standard assets, thus allowing deductions for the entire provision. The CIT(A) allowed the relief to the assessee, which led to the Revenue's appeal.

The Tribunal found that the issue was already covered in favor of the assessee by the Tribunal's order dated 22.06.2016 for the Assessment Year 2008-09, and by the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT reported in 272 ITR 54. The Tribunal reiterated that section 36(1)(viia) allows deductions for provisions for bad and doubtful debts without distinguishing between bad debts and standard assets. Therefore, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeals.

2. Confirmation of Addition by CIT(A) Related to Premium Paid to LIC Under Group Leave Encashment Scheme Policy:

The issue raised by the assessee in its appeals (ITA No. 583(Asr)/2015, ITA No. 584(Asr)/2015, and ITA No. 597(Asr)/2016) was the confirmation of additions related to the premium paid to LIC under the group leave encashment scheme policy. The AO had disallowed these payments under section 37(1) of the Income Tax Act, arguing that the payments were not incurred "wholly and exclusively" for business purposes, as a significant portion of the premium was invested in growth funds rather than being used solely for leave encashment.

The CIT(A) confirmed the AO's disallowance but did so under section 43B(f) of the Income Tax Act, which pertains to disallowances related to unpaid liabilities. The assessee argued that the CIT(A) had not provided an opportunity to contest this new basis for disallowance and that the payments were actual expenditures, not provisions, thus not attracting section 43B(f).

The Tribunal found merit in the assessee's argument that the CIT(A) had not considered the claim under section 37(1) and had confirmed the addition under section 43B(f) without affording an opportunity to the assessee. The Tribunal remitted the issue back to the CIT(A) to re-examine the claim under section 37(1) and to hear the assessee on the applicability of section 43B(f). Thus, the appeals filed by the assessee were allowed for statistical purposes.

Conclusion:

The Tribunal dismissed the Revenue's appeals concerning the provision for standard assets, upholding the CIT(A)'s decision. The Tribunal allowed the assessee's appeals for statistical purposes, remitting the issue of premium paid to LIC back to the CIT(A) for re-examination under section 37(1) and consideration of section 43B(f) after hearing the assessee.