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2019 (11) TMI 1603 - AT - Income TaxAddition on account of provision for post retirement medical expenses - assessee has debited the provisions for post retirement medical benefits based on scientific and actuarial valuation in accordance with accounting standard 15 - According to the assessee the right of an employee to claim medical benefits on his retirement is a known and actual liability arising at the time of services by the assessee therefore same is allowable - AO disallowed the above expenditure holding that same is the contingent liability - HELD THAT - The above issue is squarely covered by the decision of the coordinate bench in assessee s own case for AY 2009-10 2018 (3) TMI 1572 - ITAT DELHI wherein claim was allowed and appeal of the revenue on that issue was dismissed. The coordinate bench held that the post retirement medical scheme provision created on the basis of accounting standard 15 is a definite liability. Therefore ground No. 1of the appeal of the ld AO is dismissed. Addition on account of interest accrued to various cooperative societies but taxable in the hands of the assessee - HELD THAT - As the ld CIT(A) has clearly give a direction to the ld AO to verify the interest income offered by the cooperative society and taxed in the hands of that society same cannot be taxed in the hands of the assessee. We find that there is no grievance caused to the revenue. In the present case the ld AO has already made enquiry with the cooperative societies and it was found that those cooperative societies have offered the above amount to tax in their own hands. Further it was merely a direction to the ld AO for verification. We do not find any infirmity in the order of the ld CIT(A) and therefore we dismiss the ground No.2 of the appeal of the ld AO. Addition on account of notional interest - assessee has not shown any interest income from the various loans given to cooperative societies - AO also noted that the assessee also did not clarify that how the same has not been offered to taxation - HELD THAT - On the non performing assets when the principle itself is doubtful of its recovery the amount of interest as such loans cannot be said to have accrued to the assessee. For accrual of any income there has to be a corresponding liability on account of payer of such income. Further for the accrual of income there has to be reasonable certainty of realization of such income. In case of nonperforming assets loans and advances itself are doubtful of recovery therefore it is not correct to presume that interest on such advances have certainty of recovery. In view of this we do not find that in the present case where the business of the assessee is to finance cooperative societies for rural electrification and such advances have become irrecoverable NPA interest thereon can be recovered and offered to tax on its accrual. Undoubtedly as and when such interest are received would be chargeable to tax on the date on which the interest is actually earned by the assessee. Taxability of notional interest relating to Sircilla Cooperative Society - AO has made the above addition on account of treating the income earned by the Cooperative Electrical Supply Society Ltd Sircilla on special fund created out of interest forgone by the appellant company as income of the assessee - HELD THAT - We hold that without giving any opportunity to the appellant even otherwise on estimated basis the addition cannot be made in the hands of the assessee - the interest on bonds purchased out of special fund was considered as income of the concerned society and not of the assessee - coordinate bench has decided in 2006 (3) TMI 280 - ITAT MADRAS-C on identical facts that such income is not chargeable to tax in hands of the assessee. ITAT Delhi in assessee s own case for Assessment Year 2006-07 has followed the Hyderabad Bench decision in case of cooperative societies to confirm the addition in the hands of the appellant. On careful perusal of the above two decisions it is apparent that there are contrary decisions of the Chennai Bench and Hyderabad Bench on the same set of facts. Therefore in such a situation an approach which is favourable to the assessee is required to be adopted as laid down by the Hon ble Supreme Court in CIT Vs. Vegetables 1973 (1) TMI 1 - SUPREME COURT . In view of this we direct the ld AO to delete the addition of 85 lakhs in the hands of the assessee pertaining to the special reserve fund held by cooperative electric supply company ltd Sricila. Accordingly ground Nos. 1 to 3 of the appeal are allowed. Taxability of interest accrued on advances to various cooperative societies - HELD THAT - As already held that there is no grievance caused to the revenue as well as to the assessee because if the income is offered in the hands of the cooperative societies they could not have been taxed in the hands of the assessee. In view of this ground No. 4 of the appeal of the assessee is dismissed. Interest in the hands of the assessee as a notional interest on advances given to the cooperative societies - HELD THAT - CIT(A) has given a direction to the ld AO that if such advances have been shown as non performing asset then no income can be taxed in the hands of the assessee. This issue has already been decided by us while deciding ground No. 4 of the appeal of the ld Assessing Officer. In view of reasons given by us therein equally applies to this ground of appeal of assessee. Accordingly we dismiss ground No. 5 of the appeal.
Issues Involved:
1. Deletion of addition on account of provision for post-retirement medical expenses. 2. Deletion of addition on account of interest accrued to various cooperative societies. 3. Deletion of addition on account of notional interest. 4. Taxability of interest income on special funds created by cooperative societies. 5. Verification of actual interest income earned by cooperative societies. 6. Taxability of notional interest on advances to cooperative societies. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Provision for Post-Retirement Medical Expenses: The assessee debited provisions for post-retirement medical benefits based on scientific and actuarial valuation in accordance with accounting standard 15. The AO disallowed this expenditure, treating it as a contingent liability. However, the CIT(A) deleted the disallowance, relying on the decision of the Bokaro Power Supply Company Vs. DCIT, which held that such provisions based on actuarial valuation are definite liabilities. The Tribunal upheld the CIT(A)'s decision, referencing the assessee’s own case for AY 2009-10, where a similar claim was allowed. 2. Deletion of Addition on Account of Interest Accrued to Various Cooperative Societies: The AO added interest income earned by several cooperative societies on special funds to the assessee's income, asserting that the ownership of these funds belonged to the assessee. The CIT(A) directed the AO to verify if the interest income was offered to tax by the cooperative societies. The Tribunal found no grievance to the revenue as the AO had verified that the societies had offered the interest income to tax. Consequently, this ground of appeal by the AO was dismissed. 3. Deletion of Addition on Account of Notional Interest: The AO computed notional interest on loans given to cooperative societies, adding ?3,04,64,715/- to the assessee's income. The CIT(A) directed the AO to verify if these advances were shown as non-performing assets (NPA) in compliance with RBI guidelines. The Tribunal agreed that no notional interest could be taxed on NPAs, as there was no certainty of recovery. Hence, this ground of appeal by the AO was dismissed. 4. Taxability of Interest Income on Special Funds Created by Cooperative Societies: The AO added ?85,00,000/- as income earned by the Cooperative Electrical Supply Society Ltd, Sircilla, based on information that interest income was not offered to tax by the society. The CIT(A) confirmed the addition, relying on an ITAT Hyderabad decision. However, the Tribunal noted that the Hyderabad ITAT had deleted the addition for AY 2008-09, and the Delhi High Court had ruled that the assessee was not given an opportunity to be heard. The Tribunal directed the deletion of the ?85,00,000/- addition, favoring the assessee based on the principle of natural justice. 5. Verification of Actual Interest Income Earned by Cooperative Societies: The CIT(A) had directed the AO to verify the actual interest income earned by the cooperative societies and taxed in their hands. The Tribunal found no issue with this direction, as it ensured that the same income was not taxed twice. Consequently, this ground of appeal by the assessee was dismissed. 6. Taxability of Notional Interest on Advances to Cooperative Societies: The CIT(A) directed the AO to verify if the advances were shown as non-performing assets, as no income could be taxed on NPAs. The Tribunal upheld this direction, reiterating that no notional interest could be taxed if the advances were NPAs. This ground of appeal by the assessee was also dismissed. Conclusion: The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, ensuring that the taxability of interest income and provisions for post-retirement medical expenses were correctly adjudicated based on established legal principles and factual verification. The Tribunal emphasized the importance of not taxing the same income twice and respecting the principle of natural justice.
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