2021 (7) TMI 275 - AT - Income Tax

Addition on account of amortization of investment - CIT(A) deleted the addition - HELD THAT - As decided in own case for AYs 2012-13 and 2013-14 and 2006-07 to 2011-12 wherein it has been held that the provisions of sections 28 to 43 of the Act are not Applicable to the case of the appellant where the accounts are to be prepared in accordance with provisions of section 44 read with First Schedule of Income Tax Act, 1961 and I.R.D.A. guidelines (Preparation of financial statements and auditor's report of insurance companies Regulations 2002). Following these decisions all the above additions made are deleted. Interest on TDS u/s. 40(a) - Addition of sum debited under the head 'Miscellaneous expenses' being interest on TDS - CIT(A) deleted the same by following the orders of his predecessors for preceding assessment years - HELD THAT - In our opinion, interest on TDS is not an allowable expenditure in the light of the decisions of Hon'ble Supreme Court in the case of Bharat Commerce Industries 1998 (3) TMI 2 - SUPREME COURT and case of Martin Harries (P) Ltd. vs. CIT 1989 (7) TMI 342 - CALCUTTA HIGH COURT - The ground raised by the Revenue on this issue is accordingly allowed. Addition on account of bonus unpaid by invoking the provisions of section 43B - CIT(A) deleted the addition on the ground that identical issue was decided by his predecessors in the preceding so many assessment years - HELD THAT - As per provisions of section 43B(c) any sum referred to in clause (ii) of sub-section (1) of section 36, payment of bonus shall be allowed as an expenditure on actual payment. Since the assessee admittedly had not paid such bonus before the specified date for which the auditors even have qualified the same, the ld. CIT(A) in our opinion was not justified in deleting the addition. The ground raised by the Revenue is accordingly allowed. Addition on account of leave encashment unpaid u/s. 43B - CIT(A), following the orders of his predecessor for preceding so many assessment years, deleted the addition - HELD THAT - The order of CIT(A) in our opinion, is not in accordance with law. With effect from 01.04.2002, clause (f) has been inserted in provisions of section 43B according to which any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall not be allowed as a deduction in computing the income of the assessee unless such sum is paid. Since the assessee in the instant case has admittedly not paid this sum towards leave encashment, therefore, the Ld. CIT(A) is not justified in allowing the same. Merely because some wrong practice has been followed by the Ld. CIT(A) in the past such wrong cannot be perpetuated. Since the order of the Ld. CIT(A) is not in accordance with law, therefore, the order of Ld. CIT(A) on this issue is set aside.

Summary

Issues:
Assessment of total income including additions/disallowances - Amortization of investment, Interest on TDS, Bonus Unpaid, Leave Encashment Unpaid.

Amortization of Investment:
The AO made an addition of &8377; 1,43,46,219.44 on account of amortization of investment in securities, considering the investment activity as separate from the life insurance business. The assessee argued that the amortization is in accordance with the Insurance Act and IRDA guidelines. The CIT(A) deleted the addition, citing that the provisions of sections 28 to 43 of the IT Act do not apply to life insurance businesses. The Tribunal upheld the CIT(A)'s decision, noting consistency with past orders and no contrary evidence presented.

Interest on TDS:
The AO disallowed &8377; 960 debited as interest on TDS under 'Miscellaneous expenses'. The CIT(A) deleted this addition, but the Tribunal reversed it, citing Supreme Court and High Court decisions that interest on TDS is not an allowable expenditure. The ground raised by the Revenue was allowed.

Bonus Unpaid:
The AO added &8377; 6,62,612 as bonus unpaid under section 43B, disallowed as it was not paid before the specified date. The CIT(A deleted the addition, following past decisions. The Tribunal disagreed, stating that since the bonus was not paid, it should not have been allowed as an expenditure. The ground raised by the Revenue was allowed.

Leave Encashment Unpaid:
The AO disallowed &8377; 31,63,861 for leave encashment unpaid under section 43B. The CIT(A, following past decisions, deleted the addition. The Tribunal disagreed, pointing out that as per section 43B(f), such sums are not deductible unless paid. The Tribunal set aside the CIT(A)'s decision, stating that the order was not in accordance with the law.

In conclusion, the appeal by the Revenue was partly allowed, with the Tribunal upholding the addition of interest on TDS, bonus unpaid, and leave encashment unpaid, while supporting the deletion of the amortization of investment addition. The decision was pronounced on 30.06.2021.