2016 (6) TMI 638 - AT - Income Tax

Disallowance of the deduction towards provision for gratuity - assessee has not made the said contribution to the gratuity fund through an approved gratuity fund - Held that - In the case before us, SBI Life is the other insurer as defined in clause (28BB) of section 2 of the I.T. Act and the assessee admittedly has made the payment directly to SBI Life which is registered with IRDA. Admittedly, the assessee obtained the approval of the concerned authority for the gratuity fund w.e.f. 21.03.2011 vide orders dated 23.06.2014. Thus, for the relevant assessment year, the gratuity fund of the assessee was not an approved gratuity fund. The assessee had made payment to SBI Life directly and SBI Life has also accepted the same. Hon ble Apex Court in the case of CIT vs. M/s. Textool Co. Ltd 2009 (9) TMI 66 - SUPREME COURT true that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. (See Shri Sajjan Mills Ltd. vs. Commissioner of Income Tax, M.P. & Anr. 2008 -TMI - 5911 - SUPREME Court . From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees deduction allowed since the conditions stipulated in Section 36(1)(v) of the Act were satisfied.- Decided in favour of assessee. Disallowance of deduction claimed @ 7.5% of the gross total income under section 36(1)(viia) - Held that - We find that this issue is now covered in favour of the Revenue and against the assessee by the decision of the Hon ble High Court of Punjab & Haryana in the case of State Bank of Patiala reported in 2004 (5) TMI 12 - PUNJAB AND HARYANA High Court wherein it has been held that it is necessary to make a provision for bad and doubtful debts in the account books in the same previous year in which such provision is claimed as deduction under section 36(1)(viia).- Decided against the assessee

Summary

Issues Involved:
1. Disallowance of deduction claimed towards provision for gratuity.
2. Disallowance of deduction claimed under section 36(1)(viia) for bad and doubtful debts.

Issue 1: Disallowance of Deduction Claimed Towards Provision for Gratuity

The assessee, a Regional Rural Bank, was aggrieved by the CIT(A)'s order confirming the disallowance of ?2,74,49,761 towards provision for gratuity. The primary contention was that the payment was not made through an approved gratuity fund but directly to SBI Life Insurance before the due date of filing the return.

The Tribunal reviewed the facts and noted that the payment to SBI Life Insurance was made before the due date of filing the return. The Tribunal referenced its previous decision in the assessee's own case for A.Y. 2010-2011, where it allowed the deduction after considering relevant judgments, including the Calcutta High Court's decision in Sree Kamakhya Tea Co. P. Ltd. and the jurisdictional High Court's decision in Hitech (India) P. Ltd. vs. Union of India.

The Tribunal concluded that the payment made directly to SBI Life Insurance, which is registered with IRDA, should be allowed as a deduction. It cited the Supreme Court's decision in CIT vs. M/s. Textool Co. Ltd., which supported the view that payments made directly to an insurer for the benefit of employees could be allowed as deductions.

Issue 2: Disallowance of Deduction Claimed Under Section 36(1)(viia) for Bad and Doubtful Debts

For the A.Y. 2008-09, the assessee claimed a deduction of ?10,46,19,487 under section 36(1)(viia). The A.O. disallowed this claim, stating that the assessee had not filed a revised computation within the stipulated time and had not made a provision for the 7.5% of the total income in its books of account.

The Tribunal reviewed the facts and noted that the law did not require a provision for the 7.5% of the total income to be made in the books for the A.Y. 2008-09. The Tribunal referenced its decision in the case of Deccan Grameena Bank for A.Y. 2010-2011, where it held that the 7.5% deduction of the total income could be claimed independently of any provisions made for bad and doubtful debts.

However, the Tribunal also considered the decision of the Punjab & Haryana High Court in the case of State Bank of Patiala, which required that a provision for bad and doubtful debts be made in the account books in the same previous year in which such provision is claimed as a deduction under section 36(1)(viia). The Tribunal, therefore, remitted the matter back to the A.O. to verify whether the assessee had created any provision for bad and doubtful debts in its books of account.

Conclusion:

- ITA.No.713/Hyd/2015 (A.Y. 2007-08): The appeal was allowed, and the deduction for the provision for gratuity was permitted.
- ITA.No.714/Hyd/2015 (A.Y. 2008-09): The appeal was dismissed, and the disallowance of the deduction under section 36(1)(viia) was upheld, subject to verification by the A.O.