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2014 (3) TMI 724 - AT - Income TaxDisallowance of expenditure - Claim on broken period interest Held that - As decided in assessee s case for the earlier assessment year, it has been held that, the assessing officer has disallowed the broken period interest by holding the HTM category of securities as investment and not stock in trade of the assessee by relying upon Board s Circular No.665 dated 5-10-1993 Relying upon American Express International Banking Corporation V/s. CIT 2002 (9) TMI 96 - BOMBAY High Court - the broken period interest is an allowable deduction the order of the CIT(A) upheld Decided against Revenue. Scope of Section 35D of the Act - Disallowance of expenditure on account of amortization provided on Govt. securities Held that - As decided in assessee s case for the earlier assessment year, it has been held that, CIT(A) was of the view that HTM category constitutes stock in trade of the assessee bank - the method adopted by the assessee for amortizing the premium is as per the established accounting standards - the securities under HTM category is held by the assessee as stock in trade, the claim for amortization made by the assessee is valid - The CIT (A) however accepted the view of the assessing officer so far as the correctness of the computation of the claim made by the assessee is concerned by restricting the claim thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. Disallowance of provision for staff frauds Held that - As decided in assessee s case for the earlier assessment year, it has been held that, the CIT (A) was of the view that staff frauds are similar to embezzlement by an employee and therefore qualifies as an allowable expenditure u/s 37 of the Act - The decision in ITO vs. J & K Bank Ltd 2005 (3) TMI 384 - ITAT AMRITSAR and the CBDT s Circular No.35 dated 24-11-1965 followed - the loss by embezzlement by employees should be treated as incidental to business and the same should be allowed as deduction in the year in which it is discovered - the loss to embezzlement by an employee is an allowable expenditure u/s 37 of the Act thus, there is no infirmity in the order of the CIT (A) in allowing the expenditure claimed by the assessee on account of staff fraud Decided against Revenue. Addition made towards accrued interest on NPAs The Tribunal in the asseessee s case for the earlier assessment year has not considered the decision of M/s Southern Technologies Ltd. Versus Joint Commnr. of Income Tax, Coimbatore 2010 (1) TMI 5 - SUPREME COURT OF INDIA wherein it has been held that the RBI directives were only in the context of presentation of NPAs in the balance sheet and the balance sheet of NBFC has nothing to do with the taxable income, which has to be computed as per the provisions of the IT Act thus, the order of the CIT(A) set aside Decided in favour of Revenue. Disallowance of provision of gratuity Held that - The CIT (A) rejected the claim of the assessee at the threshold without looking into the evidence produced before him but, the fact remains that the assessee has submitted certain documents in support of his claim that the group gratuity scheme of the SBI Life Insurance Company is an approved gratuity fund and it is also a fact on record that the payment to the said fund was made before the due date of submission of return of income for the relevant assessment year. the assessee s claim is required to be examined. The Tribunal has remitted the matter back to the file of the AO to consider the evidence filed by the assessee, such as, certificate issued by the IRDA and thereafter decide the issue - But, in the relevant AY the assessee has filed copy of certificate before the CIT(A) and the CIT(A) has allowed the claim of the assessee after considering the evidence filed by the assessee thus, there is no reason to remit the issue back to the file of the AO for the relevant AY and the order of the CIT(A) is confirmed Decided against Revenue. Disallowance of provision for SME Advances Held that - The provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields - The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia) - The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act - Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year - This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2) - the issue needs reconsideration by the authorities below thus, the matter is remitted back to the AO for reconsideration Decided in favour of Assessee.
Issues Involved:
1. Disallowance of broken period interest. 2. Disallowance of amortization on Government securities. 3. Disallowance of provision for staff frauds. 4. Addition of accrued interest on non-performing assets. 5. Disallowance of provision for gratuity. 6. Disallowance of provision for SME advances. Issue-wise Detailed Analysis: 1. Disallowance of Broken Period Interest: The Revenue's appeal on this issue was dismissed. The Tribunal upheld the CIT(A)'s decision, referencing previous judicial precedents which treated HTM (Held to Maturity) securities as stock in trade, making the broken period interest an admissible deduction. The Tribunal cited decisions from the Mumbai High Court and Kerala High Court supporting this view. 2. Disallowance of Amortization on Government Securities: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that HTM securities are stock in trade and thus eligible for amortization. This decision was based on established accounting standards and previous Tribunal rulings in similar cases. 3. Disallowance of Provision for Staff Frauds: The Tribunal upheld the CIT(A)'s decision to allow the provision for staff frauds as a deductible business expenditure under Section 37 of the Income-tax Act. The Tribunal referenced the Amritsar Bench's decision and CBDT Circular No. 35, which recognize embezzlement losses as incidental to business and thus deductible. 4. Addition of Accrued Interest on Non-Performing Assets: The Tribunal allowed the Revenue's appeal, noting that the previous Tribunal decision did not consider the Supreme Court's ruling in Southern Technologies (320 ITR 577), which clarified that RBI directives on NPAs pertain to balance sheet presentation and not taxable income computation under the Income-tax Act. 5. Disallowance of Provision for Gratuity: The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision to allow the provision for gratuity. The CIT(A) had considered the IRDA certificate and evidence of payment before the return filing date, complying with Section 43B of the Income-tax Act. The Tribunal saw no need to remit the issue back to the AO, as the necessary evidence was already evaluated. 6. Disallowance of Provision for SME Advances: The Tribunal remanded this issue back to the AO for reconsideration in light of the Supreme Court's decision in Catholic Syrian Bank (343 ITR 270) and Vijaya Bank (323 ITR 166). The Tribunal directed the AO to reassess the provision for SME advances, ensuring compliance with the legal principles established by the Apex Court. Conclusion: The Revenue's appeal was partly allowed, specifically concerning the accrued interest on NPAs. The assessee's cross appeal regarding the provision for SME advances was allowed for statistical purposes, with the issue remanded for further consideration. The Tribunal upheld the CIT(A)'s decisions on broken period interest, amortization on government securities, provision for staff frauds, and provision for gratuity.
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