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2018 (9) TMI 530 - AT - Income TaxInterest on Non Performing Assets - Accrual of income - Held that - Interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank, but has been kept in a suspense account and has not been brought to the P&L a/c of the assessee, could not be included in the income of the assessee. CIT(A) rightly deleted the additions towards interest on NPAs. There is no error or infirmity in the order of CIT(A). In case of Sri Mahila Sewa Sahakari Bank Limited (2016 (8) TMI 377 - GUJARAT HIGH COURT) we hold that the interest on NPA is to be recognized on actual receipt basis but not on accrual basis. Accordingly, we set aside the orders of the lower authorities and delete the addition. Gratuity premium paid to LIC Gratuity Fund - Held that - We hold that actual payment made to group gratuity fund of LIC required to be allowed as deduction. We uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue for both the assessment years 2012-13 and 2013-14.
Issues Involved:
1. Interest on Non-Performing Assets (NPAs) 2. Gratuity Premium Paid to LIC Gratuity Fund Detailed Analysis: 1. Interest on Non-Performing Assets (NPAs): The first issue pertains to the interest on Non-Performing Assets (NPAs) for the assessment years 2012-13 and 2013-14. The assessee, a cooperative bank, claimed deductions for accrued interest on NPAs, which the Assessing Officer (AO) added back to the income on the grounds that interest should be recognized on an accrual basis as per the mercantile system of accounting. The amounts in question were ?46,79,284/- for 2012-13 and ?72,29,895/- for 2013-14. The CIT(A) deleted these additions, relying on the Tribunal's earlier decision in the assessee’s own case for the assessment year 2009-10, where it was held that interest on loans whose recovery is doubtful and not brought to the Profit & Loss account should not be included in the income. The Tribunal upheld this view, citing the case of District Cooperative Central Bank, Eluru vs. ITO, where it was established that interest on NPAs should be recognized on a receipt basis, not on an accrual basis, following the RBI guidelines and the judicial precedents set by the Hon’ble Gujarat High Court in Mahila Sewa Sahakari Bank Ltd. The Tribunal reiterated that the RBI guidelines, which mandate recognizing income from NPAs only upon actual receipt, override the provisions of the Income Tax Act regarding income recognition. This principle was supported by various judicial precedents, including the Supreme Court's decision in Southern Technologies Ltd. and the Bombay High Court's decision in CIT vs. Deogiri Nagari Sahakari Bank Ltd. Consequently, the Tribunal directed the AO to delete the additions made towards interest on NPAs for both assessment years. 2. Gratuity Premium Paid to LIC Gratuity Fund: The second issue concerns the gratuity premium paid to the LIC Gratuity Fund. For the assessment year 2012-13, the assessee debited ?11,00,000/- towards this premium. The AO disallowed the deduction on the grounds that the fund was not an approved gratuity fund as required under Section 36(1)(v) of the Income Tax Act. The CIT(A) allowed the appeal of the assessee, citing the ITAT Hyderabad 'B' Bench decision in ACIT vs. Sri Krishna Durga Limited, which held that payments made to the LIC under a group gratuity scheme are allowable deductions even if the fund is not approved. The Tribunal upheld this view, referencing its own decision in ACIT vs. The Guntur District Cooperative Central Bank Ltd., where it was held that payments to the LIC under a group gratuity scheme qualify for deduction under Section 37 of the Act, as these payments are actual expenses and not mere provisions. This principle was supported by judicial precedents from the ITAT Ahmedabad Bench in Baroda Gujarat Grameen Bank and the ITAT Madras Bench in Verizon Data Services India Pvt. Ltd., which allowed deductions for payments made to LIC under group gratuity schemes. The Tribunal concluded that the actual payment made to the Group Gratuity Fund of LIC should be allowed as a deduction, thereby upholding the CIT(A)’s order and dismissing the revenue’s appeals for both assessment years. Cross Objections: The assessee filed cross objections supporting the CIT(A)’s order, but these were dismissed as they were filed beyond the due date without a condonation petition. Conclusion: The appeals of the revenue for the assessment years 2012-13 and 2013-14 were dismissed, and the cross objections of the assessee for the same years were dismissed in limine. The judgment was pronounced in the open court on 5th September 2018.
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