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2019 (4) TMI 2055 - AT - Income TaxDisallowance u/s 40(a)(ia) of the interest expenditure paid by the assessee bank on the fixed deposits of PTU - claim of the assessee that as PTU had submitted letters claiming that as its income was exempt under Sec. 10(23C)(iiiab) of the IT Act therefore no TDS was liable to be deducted on the interest that was to be paid on its fixed deposits lying with the assessee bank - HELD THAT - No concrete finding on the basis of any irrefutable documentary evidence has been placed on record either by the assessee or by the revenue in support or contradiction of the claim of PTU that its income was exempt under Sec. 10(23C)(iiiab) of the IT Act. In case the income of the aforementioned university i.e. PTU is exempt under Sec. 10(23C)(iiiab) then in the backdrop of the CBDT Circular No. 4/2002; dated 16.07.2002 no obligation would be cast upon the assessee for deducting tax at source on the interest paid on the fixed deposits under consideration. We thus in terms of our aforesaid observations restore the matter to the file of the A.O who is directed to conclusively verify the aforesaid claim of the assessee that as to whether the income of PTU was exempt under Sec. 10(23C)(iiiab) of the IT Act or not. Needless to say the assessee shall in the course of the set aside proceeding be afforded a reasonable opportunity of being heard and therein substantiate its aforesaid claim. Apart there from in case if the verification made by the A.O reveals that the income of PTU was not exempt under Sec. 10(23C)(iiiab) but the latter had furnished its return of income under Sec. 139 and had taken into account the amount of interest income in such return of income and paid tax on the same then as per the 2nd proviso of Sec. 40(a)(ia) read with the 1st proviso to Sec. 201(1) of the IT Act the aforesaid amount would not be liable to be disallowed under Sec. 40(a)(ia) Addition on account of provision for leave encashment and interest accrued on previous investments - HELD THAT - We are in agreement with the view taken by the CIT(A) that as the actual premium has been paid by the assessee therefore the said statutory provision which comes into play only where the actual premium has not been paid but a deduction has been claimed would however not be applicable in the present case as the aforesaid premium has been paid by the assessee. Admittedly the assessee had paid a premium of Rs. 45, 53, 677/- for taking the Group Insurance Leave Encashment Scheme Policy during the year. In our considered view as observed by the Hon ble Supreme Court in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT if a business liability arises in the accounting year then the deduction has to be allowed though the liability may have to be quantified and discharged at a future date. Rather what would be relevant is the certainty in respect of the incurring of the liability while considering its allowability as a deduction during the year under consideration - We thus finding ourselves to be in agreement with the view taken by the CIT(A) who had deleted the addition made by the A.O on account of provisions for leave encashment uphold his order to the said extent Addition on account of interest accrued on Group Leave Encashment Scheme Policy - We are in agreement with the view taken by the CIT(A) that no addition as regards the said amount could have been made as the same represents the accretion to the policy amount which had been reinvested in the policy itself and thus to that extent reduced the amount of policy premium payable by the assessee bank. In fact as the aforesaid interest accrued on Group Leave Encashment Scheme Policy had not been debited in the profit and loss account and stands reinvested in the policy therefore the same cannot be added as the income of the assessee. In case if the aforesaid interest would have been credited as income of the assessee then the same would had also been eligible for a corresponding deduction as having been reinvested in the said policy therein resulting to no addition on the said count in the hands of the assessee. We thus finding no infirmity in the order of the CIT(A) who had rightly deleted the addition on account of interest accrued on the Group Leave Encashment Scheme Policy uphold his order to the said extent. The Grounds of Appeal No. 1 to 3 raised by the revenue are dismissed. Provision for bad and doubtful debts under Sec. 36(1)(viia) - A.O had disallowed amount on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability - HELD THAT - We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard assets had been decided by the Tribunal in the assesses own case for A.Y. 2008-09 2016 (6) TMI 1443 - ITAT AMRITSAR . We thus are of the considered view that as the provision for bad and doubtful debts against standard assets is covered in the main provisions of Sec. 36(1)(viia) of the IT Act therefore uphold the order of the CIT(A) who we find had rightly deleted the addition made by the A.O on the said count. The Grounds of Appeal No. 4 to 6 raised by the revenue are dismissed.
Issues Involved:
1. Disallowance of interest paid to I.K.G Punjab Technical University under Sec. 40(a)(ia) of the Income Tax Act. 2. Addition on account of provision for leave encashment and interest accrued on Group Insurance Leave Encashment Policy. 3. Disallowance of provision for bad and doubtful debts made against standard assets under Sec. 36(1)(viia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Interest Paid to I.K.G Punjab Technical University: The assessee bank paid interest of Rs. 2,45,58,987/- to PTU without deducting TDS, based on PTU's claim of exemption under Sec. 10(23C)(iiiab) of the Income Tax Act. The AO disallowed this amount under Sec. 40(a)(ia), arguing PTU was not wholly or substantially financed by the government, and thus not exempt. The CIT(A) upheld this disallowance, stating the Income Tax Act requires a certificate for non-deduction of TDS. However, the Tribunal found that the CBDT Circular No. 4/2002 exempts certain institutions from TDS if their income is exempt and they are not required to file returns. The Tribunal remanded the matter to the AO to verify PTU's exemption status under Sec. 10(23C)(iiiab) and consider the second proviso to Sec. 40(a)(ia) if PTU had filed a return and paid tax on the interest income. 2. Addition on Account of Provision for Leave Encashment and Interest Accrued on Group Insurance Leave Encashment Policy: The AO added Rs. 1,99,19,242/- for leave encashment provision and interest accrued on investments, allowing only actual payments to employees. The CIT(A) deleted this addition, allowing the premium paid for the Group Insurance Leave Encashment Policy under Sec. 37(1) and rejecting the addition of accrued interest as it was reinvested in the policy. The Tribunal agreed with the CIT(A), citing the Supreme Court's ruling in Bharat Earth Movers and the Kerala High Court's decision in Hindustan Latex Ltd., confirming that the premium paid was an allowable expense and the accrued interest should not be added to income as it was reinvested. 3. Disallowance of Provision for Bad and Doubtful Debts Made Against Standard Assets: The AO disallowed Rs. 3,53,47,000/- for provision against standard assets, treating it as a contingent liability. The CIT(A) deleted this disallowance, following the Tribunal's decision in the assessee’s case for A.Y. 2008-09, which allowed such provisions under Sec. 36(1)(viia). The Tribunal upheld the CIT(A)'s decision, reiterating that Sec. 36(1)(viia) does not differentiate between provisions for bad debts and standard assets, and allows deductions for anticipated defaults on loans, including standard assets. Conclusion: The assessee's appeal was allowed for statistical purposes, directing the AO to verify PTU's exemption status. The revenue's appeal was dismissed, upholding the CIT(A)'s deletion of additions for leave encashment provisions and interest accrued, as well as the provision for bad and doubtful debts against standard assets.
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