9911796707
TMI Blog2014 (7) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... nted – Decided against Revenue. Amount spent on Andhra Rural Development Trust – Expenses for the purpose of business or not – Held that:- The expenditure claimed by the assessee treated as expenditure having been incurred by the assessee in discharge of its corporate social responsibilities, which also facilitated the business of the assessee, and hence allowable as deduction under S.37(1) of the Act – Following the decision in THE COMMISSIONER OF INCOME TAX, BANGALOR & OTH. Versus M/s INFOSYS TECHNOLOGIES LTD [2013 (7) TMI 451 - KARNATAKA HIGH COURT] - thus, the amount spent by the assessee-bank, was not only in discharge of corporate social responsibility to train the rural youth, but also to indirectly to promote its own business, since the rural youth trained were its prospective clients, as the bank also intended to extended credit facilities to such unemployed youth for starting their own enterprise – there was no infirmity in the order of the CIT(A) – Decided against Revenue. Expenses on public issue u/s 35D – Held that:- CIT rejected the claim of the assessee, observing that the assessee is not an industrial undertaking and as such it is not entitled to claim deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely on the basis of credit made to the Profit & Loss Account, cannot be brought to tax in the year under appeal – Relying upon CIT V/s Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME Court ] - mere entries in the Profit and Loss Account and the books of account cannot clinch the issue with regard to taxability of an income - It is only such entries, which reflect the real income which can be brought to tax, in the relevant assessment year – Decided in favour of Assessee. - ITA No.167/Hyd/14, ITA No.168/Hyd/14, ITA No.169/Hyd/14, ITA No.244/Hyd/14, ITA No.245/Hyd/14, ITA No.246/Hyd/14 - - - Dated:- 18-7-2014 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Shri D. Sudhakar Rao DR For the Respondent : Shri S. Ananthan Smt. Lalitha ORDER Per Smt. Asha Vijayaraghavan, Judicial Member: These are cross appeals -one by the assessee and the other by the Department- for three years; hence, there are six in all in this bunch. These appeals are directed against three separate orders of the Commissioner of Income-tax(Appeals) II, Hyderabad, all dated 6.11.2013, for the assessment years 2008-09 to 2010-11. Since common issues are involved, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal for the assessment year 2005-06. In this view of the matter, we find no merit in the above ground of the Revenue on this issue. We accordingly uphold the order of the CIT(A) on this issue and reject the above ground of the Revenue 6. The next effective ground of the Revenue in its appeal reads as follows- The ld. CIT(A) erred in deleting the disallowance of ₹ 287.62 Crores on payment U/s. 43B towards pension and gratuity funds without considering the fact that the expenditure was not debited to P L A/c. and therefore is not eligible for deduction U/s. 37. 7. Brief facts relating to this issue are that the assessee during the year made total payment of ₹ 331,60,79,000 towards pension and gratuity funds. Out of this, ₹ 287,62,00,000 was met out of reserves and the balance was debited to the Profit Loss Account, but all the payments were made before the due date for the filing of return of income. Assessee claimed deduction in respect of ₹ 287,62,00,000 as well, in the computation of income, as the said amount was not debited to Profit Loss Account because the payments were made from reserves. The Assessing Officer rejected the assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned orders of the Revenue authorities and other material available on record. It is on the ground that part of the payments to pension and gratuity have not been routed through the Profit Loss Account that the Assessing Officer has made the impugned disallowance in terms of S.43B of the Act. It is an undisputed fact that the payment relating to impugned disallowance has also been made before the due date for the filing of the return under S.139(1) of the Act. The CIT(A) was of the view that the purpose of S.43B is to ensure that the employer does not retain the amount with himself, after making certain statutory deductions in connection with the welfare of the employees. It is to plug such delayed/non-payment of such deducted amount, S.43B was introduced. In the instant case, since the assessee has made the payment before the due date for the filing of the return, assessee is entitled for deduction, and disallowance in terms of S.43B was not warranted. Even otherwise, the CIT(A) noted that the amount in question is allowable as a business expenditure under S.37 of the Act. Apart from the reasoning given by the CIT(A), applying the ratio of the decision of the coordinate ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed credit to help them to be self- employed. For these reasons and also for the reasons discussed in para 13.4 of the impugned order, extracted hereunder, the CIT(A) deleted the addition made by the Assessing Officer in this behalf. 13.4 The appellant also submitted the statistics as the number of candidates trained in each district and the number of candidates to whom credit was provided by the bank. During the financial year, the total number of candidates trained were 7,671 and number of candidates to whom credit facilities were given 2,744. In the process of providing credit facilities to unemployed to youth in rural areas, the bank is extending its activities. The project taken up by the bank is working on the principle of symbiosis that it is helping itself in the process of helping the rural youth. In this background, it cannot be said that the expenses are not incurred 'wholly and exclusively for the purpose of business. Therefore, this ground of appeal is allowed. 14. Aggrieved by the relief granted by the CIT(A), Revenue is in appeal before us on this issue. 15. Learned Departmental Representative strongly supporting the order of the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, held donation of ₹ 5 crores made by the assessee therein to a Medical College, though not related to the business of the assessee, as having been incurred in furtherance of a corporate social responsibility and hence allowable as deduction under S.37 of the Act. In the facts of the present case, the amount spent by the assessee-bank, was not only in discharge of corporate social responsibility to train the rural youth, but also to indirectly to promote its own business, since the rural youth trained were its prospective clients, as the bank also intended to extended credit facilities to such unemployed youth for starting their own enterprises. In this view of the matter, following the decision of the Karnataka High Court noted above, consistent view taken by coordinate benches of this Tribunal, in similar circumstances, we find no infirmity in the order of the CIT(A). We accordingly uphold the same rejecting the ground of the Revenue on this issue. 18. The next effective ground of the Revenue in its appeal reads as follows- The ld. CIT(A) erred in entertaining additional ground of appeal raised by the assessee in respect of bad debts written off to the tune of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an industrial undertaking and as such it is not entitled to claim deduction in respect of such expenditure. On appeal, the CIT(A) upheld the disallowance made by the Assessing Officer. 23. Aggrieved by the above disallowance, assessee is in second appeal before us on this issue. 24. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. We find that on this issue, the decision of the Tribunal in assessee's own case for the assessment year 2007-08, viz. in ITA No.715/Hyd/2012 dated 4.10.2013, is against the assessee and in favour of the Revenue, and the impugned order of the CIT(A) on this issue, which followed the orders of the Tribunal in asssessee's own cases for assessment years 2006-07 and 2005-06, is in consonance with the said order of the Tribunal for the assessment years 2007-08. In this view of the matter and in the absence of anything to the contrary brought to our notice, following the consistent view taken by the Tribunal in assessee's own cases for earlier years, we find no merit in the grounds of the assessee on this issue. We accordingly uphold the order of the CIT(A) on this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance of premium of ₹ 148,36,49,516 paid to Life Insurance Corporation of India towards leave encashment policy taken by the assessee for its employees. 30. Facts of the case in brief relating to this issue are that the assessee claimed deduction in the computation of income of ₹ 124.82 crores towards payment made to LIC group leave encashment scheme. During the course of assessment, the claim was revised to ₹ 148.36 crores, as the claim for deduction of ₹ 10.576 crores for Assessment year 2006-07 and ₹ 12.97 crores for assessment year 2007-08 were not allowed by the Assessing Officer in those respective assessment years . The entire amount of ₹ 148.36 crores was said to have been paid during the relevant previous year. The Assessing Officer did not allow the deduction claimed by the assessee for the following reasons- a) The payment was not made directly by the assessee, rather the payment was made to LIC Group Leave Encashment Scheme and therefore, such payment is not allowable under S.43B(f) of the Act. b) The payment made is not debited to Profit Loss Account, but was made out of General Reserves c) The LIC Group Leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that what is intended by clause (f) of S.43B was to deny deduction for liabilities not actually incurred and to exclude provisions made against future liabilities from being granted as deduction. In the case of insurance premia paid, it was observed, the same was not a provision for future liability which was claimed as a deduction. The assessee had insured itself against the liabilities that may arise on account of the claims made by the employees towards leave encashment. The assessee being covered by a valid insurance policy and premium being regularly paid, incurs no liability towards leave encashment. The liability being covered by a valid insurance policy, is solely that of the insurer. Therefore, it was held that even if 43B (f) stands, in the case of the assessee, where the liability is borne by the insurer, there can be no situation wherein assessee could make a valid claim for deduction u/s 43B(f) since the actual liability is not incurred in any of the years. The premium paid towards the renewal and continued validity of the insurance policy necessarily becomes business expenditure wholly and exclusively incurred for the business purpose and allowable as a deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f average value of exempt income of ₹ 4266331082, viz. ₹ 2,13,31,655, the Assessing Officer made a total disallowance in terms of S.14A of ₹ 2,27,55,994. 37. The CIT(A), on appeal, after detailed consideration of the submissions of the assessee in the light of the provisions of S.14A and Rule 8D, upheld the disallowance of ₹ 2,27,55,994 made by the Assessing Officer in terms of S.14A, and rejected the grounds of the assessee on that aspect. 38. Aggrieved, assessee is in second appeal before us on this issue. 39. The learned counsel for the assessee submitted before us that the assessee has offered the income from investments, etc. as business income only, and hence, the disallowance under S.14A computed by the Assessing Officer in relation to stock in trade is to be deleted. In the circumstances, Rule 8D is not applicable. The ld counsel, duly furnishing copies thereof in the paper-book, relied upon the decision of the Karnataka High Court in the case of CCI Ltd. V/s. JCIT (250 CTR 291)-Kar., and the decisions of the Mumbai Bench of the Tribunal in DCIT V/s. India Advantage Securities Ltd. in ITA No.6711/Mum/2011 dated 5.9.2012 for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 17,15,33,910 earned by the assessee, we find that the disallowance of ₹ 33,41,474 offered by the assessee itself in terms of S.14A, working out to almost 2%, is quite reasonable and in consonance with the view taken by the Tribunal for the preceding year. In this view of the matter, we accept the grounds of the assessee on this issue, and delete the disallowance made by the Assessing Officer in terms of S.14A read with Rule 8D of the Act. 42. In the result, assessee's appeal for the assessment year 2008-09, being ITA No.244/Hyd/2014, is partly allowed. Cross Appeals for Assessment year 2009-10 Revenue's Appeal : ITA No.168/Hyd/2014 Assessee's Appeal : ITA No.245/Hyd/2014 REVENUE'S APPEAL: 43. First effective ground of the Revenue in this appeal relates to disallowance of broken period interest of ₹ 46,88,07,389. Facts and circumstances in relation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the Revenue in its appeal ITA No.167/Hyd/2014, for the reasons discussed para 3 hereinabove, we find no infirmity in the impugned order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the assessee in its appeal ITA No.244/Hyd/2014, for the reasons discussed para 24 hereinabove, we find no infirmity in the impugned order of the CIT(A). The same is accordingly upheld and this grounds of the assessee on this issue are rejected. 49. The next effective grievance of the assessee in this appeal relates to disallowance of ₹ 317,42,36,575 claimed by the assessee under S.36(1)(viia) of the Act towards provision for bad and doubtful debts. Facts and circumstances in relation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the assessee in its appeal ITA No.244/Hyd/2014, for the reasons discussed para 28 hereinabove, we find no infirmity in the impugned order of the CIT(A). The same is accordingly upheld and this grounds of the assessee on this issue are rejected. 50. The next effective grievance of the assessee in this appeal relates to disallowance of premium of ₹ 16,50,23,446 paid to LIC of India towards leave encashment policy taken by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year under consideration are not similar to those considered by the Tribunal in its order for the assessment year 2006-07, in the absence of any valid point of distinction brought to our notice by the learned counsel for the assessee, we find no infirmity in the impugned order of the CIT(A). We accordingly uphold the order of the CIT(A), and reject the grounds of the assessee on this issue. 54. The next effective grievance of the assessee in this appeal is with regard to the addition made by the Assessing Officer, by way of disallowance of expenditure, in terms of S.14A read with Rule 8D, relatable to earning of tax-free income earned by the assessee. Grounds of the assessee in this behalf correspond to the grounds of the assessee on this very issue in its appeal for the assessment year 2008-09. Facts and circumstances in relation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the assessee in its appeal ITA No.244/Hyd/2014, for the reasons discussed para 41 hereinabove, we find no justification for the addition made by the Assessing Officer, to the disallowance in terms of S.14A already offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in equating the amount of ₹ 93.11 crores receivable from Government of India through Agriculture Debt Waiver and Relief Scheme, 2008 and credited to Profit Loss Account with the provision for bad and doubtful debts, which is governed by the provisions of S.36(2)(v). However, what is credited to the Profit Loss Account in this case is only what is receivable, as on the date of the Profit Loss Account, from the Government, and it is thus, only a notional income and not real income, which was actually realised by the assessee. That being so, the said amount merely on the basis of credit made to the Profit Loss Account, cannot be brought to tax in the year under appeal. We are supported in this behalf by the decision of the Apex Court in the case of CIT V/s Bokaro Steel Ltd. (102 Taxman 94)(SC), wherein the Apex Court in similar circumstances, held, per head note, as follows- The entire nature of the transaction was changed between the parties. There was a resolution of the assessee-company in this regard and, the income from interest did not result at all as the original agreement ceased to be operative ab initio. The entry in the books which was made was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that there is no justification for the CIT(A) to direct the Assessing Officer to allow relief subject to furnishing of certificate of approval by the assessee. We accordingly modify the directions of the CIT(A) and direct the Assessing Officer to give appropriate relief to the assessee, allowing the grounds of the assessee on this issue. 61. In the result, assessee's appeal for assessment year 2009-10, being ITA No.245/Hyd/2014, is partly allowed. Cross Appeals for Assessment year 2010-11 Revenue's Appeal : ITA No.169/Hyd/2014 Assessee's Appeal : ITA No.246/Hyd/2014 REVENUE'S APPEAL: 62. First effective ground of the Revenue in this appeal relates to disallowance of broken period interest of ₹ 133,23,93,835. Facts and circumstances in relation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the Revenue in its appeal ITA No.167/Hyd/2014, for the reasons discussed para 3 hereinabove, we find no infirmity in the impugned order of the CIT(A). The same is accordingly upheld and this ground of the Revenue on this issue is rejected. 63. The next effective groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2008-09, for the reasons discussed para 28 hereinabove, we find no infirmity in the impugned order of the CIT(A). The same is accordingly upheld and this grounds of the assessee on this issue are rejected. 68. The next effective grievance of the assessee in this appeal relates to disallowance of premium of ₹ 13,01,00,494 paid to LIC of India towards leave encashment policy taken by the assessee for the employees. Facts and circumstances in relation to this issue, for the year under appeal being identical to those considered by us in the context of the corresponding ground of the assessee in its appeal ITA No.244/Hyd/2014, for the reasons discussed paras 32 to 34 hereinabove, we find no infirmity in the impugned order of the CIT(A). The same is accordingly upheld and this grounds of the assessee on this issue are allowed. 69. The next effective grievance of the assessee in this appeal is against the action of the Assessing Officer in considering an amount of ₹ 17,00,03,371, being interest credited by the LIC in leave encashment scheme, as the income of the assessee. Facts and circumstances in relation to this issue, for the year under appeal being identical to th ..... 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