2018 (5) TMI 1934 - AT - Income Tax

Conversion of the case from Limited Scrutiny to Complete Scrutiny - no additions have been made regarding the Limited Scrutiny through CASS - HELD THAT - As taken into consideration the written submission of the assessee but we did not find it controverting the decision of ld. CIT(A) on the issue of converting the case of the assessee from limited scrutiny to complete scrutiny . It is noted that the ld. CIT(A) has explicitly dealt with the issue in his order which does not require any interference. Hence the Ground No. 1 of the assessee is dismissed. Disallowance of provision for Bad and Doubtful debts - HELD THAT - Provision for bad doubtful debts made are as per RBI guidelines which includes standard assets. The deduction claimed is in conformity with the CBDT Instruction No. 17/2008 dated 26-11-2008 (supra). Issue of disallowance for standard asset is restored to the file of the AO to verify as to whether the provision for standard assets has been made as per guidelines of the RBI. If the assessee has complied with the provision as per RBI Guidelines the relief may be given to the assessee by providing adequate opportunity of being heard to the assessee. Thus Ground No. 2 (I) of the assessee is allowed for Statistical purposes. Disallowance of insurance premium paid to LIC and others towards leave encashment liability - HELD THAT - Assessee drew our attention to the decision of ITAT Jaipur Bench in the case Jhalawar Kendriya Sahakari Bank Ltd vs ACIT 2014 (8) TMI 1127 - ITAT JAIPUR wherein the Bench has allowed the benefit of Group leave encashment Scheme to the Bank - AR of the assessee further submitted that the assessee has discharged its liability towards leave encashment scheme the same is therefore allowable as expenditure u/s 37(1) of the Act. Taking into consideration the above facts and circumstances of the case and the decisions relied upon by the ld.AR of the assessee it will be in the interest of equity and justice to restore the issue to the file of the AO for afresh adjudication. The assessee is directed to submit the written submission alongwith relevant details before the AO. Thus Ground No. 2(ii) of the assessee is allowed for Statistical purposes.

Summary

Issues Involved:
1. Conversion of the case from Limited Scrutiny to Complete Scrutiny.
2. Disallowance of provision for Bad and Doubtful debts.
3. Disallowance of Insurance Premium paid towards leave encashment liability.
4. Enhancement of income by treating an amount as interest income.

Issue-wise Detailed Analysis:

1. Conversion of the case from Limited Scrutiny to Complete Scrutiny:
The appellant challenged the conversion of the case from Limited Scrutiny to Complete Scrutiny, claiming it was "bad in law" as no additions were made regarding the Limited Scrutiny through CASS. The CIT(A) found that the approval for conversion was granted by the Pr. CIT, Ajmer, and thus dismissed the appellant's ground. The Tribunal upheld this decision, noting that the CIT(A) had explicitly dealt with the issue and found no merit in the appellant's argument. Therefore, this ground was dismissed.

2. Disallowance of provision for Bad and Doubtful debts:
The appellant argued that the disallowance of ?2,71,72,000/- for Bad and Doubtful debts was unlawful as the appellant, being a Scheduled Bank governed by RBI Guidelines, should be allowed this provision under Section 36(1)(viia) of the Income Tax Act, 1961. The CIT(A) had previously decided against the appellant, referencing a similar decision by the ITAT Jodhpur Bench. During the hearing, the appellant cited the ITAT Jodhpur Bench's decision in Nagaur Urban Cooperative Bank Ltd vs ACIT, which allowed such provisions. The Tribunal restored this issue to the AO to verify compliance with RBI Guidelines. If compliant, relief should be granted to the appellant. Thus, this ground was allowed for statistical purposes.

3. Disallowance of Insurance Premium paid towards leave encashment liability:
The AO disallowed the insurance premium of ?34,19,23,944/- paid to LIC and others for leave encashment liability, stating it was not allowable under any provisions of the Income Tax Act and was not an actual payment to employees. The CIT(A) confirmed this disallowance, noting that the appellant had control over the funds and that the investment was shown as such in previous years. The Tribunal, however, referenced the ITAT Jaipur Bench's decision in Jhalawar Kendriya Sahakari Bank Ltd vs ACIT, which allowed similar deductions. Consequently, the Tribunal restored this issue to the AO for fresh adjudication, directing the appellant to submit relevant details. This ground was also allowed for statistical purposes.

4. Enhancement of income by treating an amount as interest income:
The CIT(A) enhanced the appellant's income by ?3,80,89,353/-, treating it as interest income accrued on funds parked with various companies, which was not disclosed in the Profit & Loss Account. The Tribunal noted that this issue was related to the leave encashment liability, which had been remanded to the AO for fresh adjudication. Therefore, this issue also required fresh adjudication by the AO. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing fresh adjudication by the AO on the disallowance of provisions for Bad and Doubtful debts, the disallowance of insurance premium for leave encashment liability, and the enhancement of income by treating an amount as interest income. The conversion of the case from Limited Scrutiny to Complete Scrutiny was upheld. The order was pronounced in the open court on 17-05-2018.