9911796707
TMI Blog2017 (1) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... o the rival contentions and material on record, we find that this issue is already decided by the coordinate bench of this tribunal in the earlier A.Ys against the assessee and respectfully following the same, we confirm the order of the CIT(A) on this issue. Loss on valuation of mutual funds - Held that:- CIT(A) has followed his own order for the A.Y 2009-10 for upholding the disallowance. We find that this issue had come up for consideration before the coordinate bench of this tribunal for the A.Y 2009-10 and the Tribunal had remanded the issue to the file of the A.O with a direction to reconsider the issue in accordance with the decision of the Hon'ble Apex Court in the cases of the Catholic Syrian Bank (2012 (2) TMI 262 - SUPREME COURT OF INDIA) and Vijaya Bank reported in [2010 (4) TMI 46 - SUPREME COURT ]. Respectfully following the same, we remand this issue also to the file of the A.O for reconsideration in accordance with the directions as above. Disallowance of claim u/s 36(1)(viia)- Held that:- This issue is covered against the assessee by the decision of the coordinate bench of this tribunal in the assessee’s own case for the A.Y. 2008-09 Disallowance of salary arrears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. The order of the learned Commissioner of Income Tax (appeals)-3, Hyd. dt. 20-03-2015 in ITA No. 0622/DC1, Wrgl./CIT(A)-3/14-15 to the extent in confirms the various additions/disallowances made in the assessment is contrary to law and facts. Disallowance of gratuity payment of ₹ 3,68,54,000 2. The appellant contends that the Ld. CIT(A) erred in confirming the disallowance of the sum of ₹ 3,68,54,000/- which represents the gratuity paid to the gratuity fund during the financial year ending 31-03-2011 relevant to the assessment year 2011-12. In the facts and circumstances of the case, the amount being the payment made before the end of the financial year is allowable as deduction under the I.T Act. Disallowance of provision for standard assets of ₹ 3,02,37,921 3. The appellant contends that the disallowance of provision for standard assets aggregating to ₹ 3,02,37,921 is erroneous and the Ld. CIT(A) erred in upholding the disallowance of the said amount. In the facts and circumstances of the case, this amount is allowable as deduction while computing the appellant's income. Loss on valuation of mutual funds of ₹ 8,00,000/- 4. It is conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d "operating expenses". During the assessment proceedings u/s 143(3) of the Act, the assessee submitted that "the gratuity provision is made on the basis of actuarial valuation and same is paid to State Bank of India Life Insurance, vide receipt No. PR/2010-2011/111033, dated 30-03-2011". Ongoing through the assessee's submissions, the A.O found that the assessee made payments to a gratuity contribution fund, which was not the approved gratuity fund. Observing that, u/s 40A(7) of the Act, the payment to an unapproved gratuity fund was not allowable, he disallowed the same. Aggrieved, the assessee preferred an appeal before the CIT(A), who confirmed the order of the A.O following her own order in the assessee's own case for the assessment year 2007-08. Aggrieved, the assessee is in further appeal before us. 7. The Ld. counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below, submitted that this issue had arisen in the assessee's own case for the A.Y 2010-11in ITA No.1771/Hyd/2014 and the Tribunal vide orders dated 17.04.2015, by following the decision of the Hon'ble Calcutta High Court in the case of Sree Kamakhya Tea Co. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 to 199 ITR): Under section 36(1)(va), deduction is allowed in respect of any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund, as defined in section 2(5) of the Act, created by the employer for the exclusive benefit of his employees under an irrevocable trust. After the insertion of section 40A(7), for claiming deduction for gratuity payment, the assessee was required to fulfill the conditions laid down in section 40A(7) and without fulfilling the conditions laid down therein, no assessee was entitled to deduction under 36(l)(v). This has undergone a change after the insertion of section 438 for and from the assessment year 1984-85. The provision of section 438(b) are relevant and apposite in the context of the provisions of section 36(1)(v). Section 438 has overriding effect over the provisions of section 40A(7). Under the provisions of section 438, a deduction in respect of any sum payable by the assessee as an employer by way of contribution inter alia to a gratuity fund is to be allowed in computing the business income of that previous year in which such sum has been actually paid by him. 15. Section 43B permits a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as an employer which includes the employer's contribution as well as employees' contribution,. If such contributions which are payable to any provident fund or superannuation fund or any fund are paid within the due date, the employer will be able to avail of the benefit of deduction under section 438". 18. Hence we dismiss the ground of the Revenue." 5.1. Hence, we find that in the earlier year, disallowance was deleted by following the decision in the case of Sree Kamakhya Tea Co. (P) Ltd. (supra). Now, coming to the facts of the case for the relevant assessment year, the ground on which A.O. has disallowed the claim of the assessee is that the payment is not routed through the approved gratuity fund as is evident from the recitals in the show cause notice dated 03.01.2014 reproduced by the A. a. in para 3.1 of his order. According to the A. a, the requirement of clause (b) of section 40A(7) to allow the deduction of payment of gratuity fund is that the contribution should be to an approved gratuity fund, which in turn is empowered to utilize it to contribute to the group gratuity scheme entered into with the LIC of India or any other insurer as defined in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees of the assessee and the remaining amount of ₹ 36,22,224/- was shown as provision for initial contribution. It is common ground that assessee company's gratuity fund, viz., the Textool Company Ltd. Employees Group Gratuity Fund was approved by the Commissioner of Income Tax, Coimbatore, w. e.f 25th February, 1983. While completing assessment, the Assessing Officer allowed a deduction of Rs. '36,22,224/under Section 40A(7) of the Act. However, deduction for the balance amount was disallowed on the ground that payment towards the gratuity fund was made by the assessee directly to the LIC and not to an approved gratuity fund and, therefore, it was not allowable under Section 36(1)(v) of the Act. Being aggrieved, the assessee preferred appeal to the Commissioner of Income Tax (Appeals). The Commissioner observed that the initial payment of ₹ 50, 00, 000/- and the annual premium of ₹ 5, 57, 943/- was made by the assessee directly to the LIC instead of as a contribution towards the approved gratuity fund; the LIC had accepted the said payment on behalf of the Group Life Assurance Scheme for the exclusive benefit of the employees of the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have correctly read the law and have correctly relied upon the aforementioned Supreme Court judgment. In our opinion, since the finding of fact is that all the payments made were only towards the Group Gratuity Fund, there would be no question of finding otherwise. " Learned counsel appearing on behalf of the Revenue has submitted before us that the provisions of Section 36(l)(v) of the Act have to be construed strictly and for claiming deduction, conditions laid down in Section 36(l)(v) of the Act must be fulfilled. It is urged that since during the relevant previous year the contribution by the assessee towards the gratuity fund was not in an approved gratuity fund the High Court was not justified in affirming the view taken by the Commissioner as also by the Tribunal while answering the reference in favour of the assessee. However, on a query by us as to whether the contribution made by the assessee in the approved gratuity fund credited by the LIC for the employees of the assessee and ultimately the entire amount deposited with the LIC came back to the fund created by the assessee for the benefit of its employees and approved by the Commissioner w.ef 25th February, 1983, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RBI that the 'provision for standard assets' need not be netted out from gross advances but should be shown separately as contingent provisions against standard assets and therefore the heading itself indicated that this provision is contingent in nature as against the provision for 'non performing assets' which is to guard against the loss which is looming large on the bank or for the loss which has already taken place. In view of the same, the A.O disallowed the provision and added it to the returned income of the assessee. AO further observed that in the assessee's own case for the A.Y. 2007-08, the Tribunal has upheld the disallowance. Aggrieved, the assessee preferred an appeal before the CIT(A), who confirmed the order of the A.O. following the decision of the Income Tax Appellate Tribunal. Further aggrieved, the assessee is in appeal before us. 11. While the Ld. Counsel for the assessee fairly admitted that this issue is covered against the assessee by the decision of the ITAT in the assessee's own case in the A.Y.2007-08, it is submitted that the assessee has made the provision towards standard assets in accordance with the directions of the RBI to cover various risks i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the Accounting Standard 13 and even if the same is not notified, it is to be followed for computing the income u/s 145 of the Act. In support of his contentions, he placed reliance upon the following decisions. a) Challapalli Sugars Vs CIT (SC) 98 ITR @ 167 to 174 b) Prakash Leasing Ltd.Vs.Dy.CIT (kar.) 208 Taxman 464 c) CIT Vs. UP State Industrial. Dev. Corpn. (SC) 225 ITR 703 d) CIT Vs Elgi Finance Ltd. (Mad) 293 ITR 357 @ 360-361 e) CIT Vs Virutal Soft Systems Ltd (Del) 341 ITR 593 @ P 602 f) CIT Vs Canfin Homes Ltd (Kar) 347 ITR 382 g) CIT Vs. Pact Securities & Services Ltd. (T & AP) 374 ITR 681 @ 688, 692-693 14. The Ld. DR, on the other hand, supported the orders of the authorities below and submitted that whether the decline in the value of the mutual funds was temporary or otherwise was not verified by any of the authorities below. It is submitted that each investment has to be valued separately which was not done by the assessee. 15. Having regard to the rival contentions and the material on record, we find that the CIT(A) has followed his own order for the A.Y 2009-10 for upholding the disallowance. We find that this issue had come up for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the cases of Catholic Syrian Bank reported in 343 ITR 270(SC) and Southern Technologies reported in 320 ITR 571(SC) and submitted that a plain reading of section 36(1)(viia) showed that the assessee was entitled to two deductions, firstly basing on provision made by the appellant, not exceeding 10% of the average rural advances, and secondly, a sum not exceeding 7.5% of the total income computed before making any deduction under section 36(1)(viia) and sections 80C to 80U. Assessee further submitted that he has debited 5% of the average rural advances amounting to ₹ 85.57 crores in the books and that with regard to claim of 7.5% of the total income, the law did not provide for provision of such amount to be made in the books for the A.Y. 2008-09. The A. O. however, noted that the assessee had made a provision of ₹ 4,33,70,451 apart from the provision of 7.5% of the total income towards bad and doubtful debts and that out of the provision of ₹ 4.33 crores, a sum of only ₹ 3.10 crores pertains to rural debts. Observing that a deduction for provision under clause (viia) of Section 36(1) is meant for rural debts only as per the decision of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.36(I)(viia) is a special provision that permits such a deduction for bad and doubtful debts for specified categories of assessees. However, the sub-section states that deduction shall be allowed 'in respect of any provision for bad and doubtful debts made by' the assessee. This phrase applies to both segments of the deduction allowed under the sub-section: of ten percent of the average aggregate rural advances as well as seven and on behalf percent of the total income. In other words, the deduction of seven and one-half percent of the total income is not an absolute allowance independent of the entries, if any, in the books of account but is permitted only in respect of a provision actually made by an assessee and is consequently, circumscribed by the extent of such provision. 5. 5. This view has also been upheld in the case of State Bank of Patiala where it was held: The deduction allowable under section 36(1)(viia) of the Income-tax Act, 1961, is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. The proviso to clause (vii) of section 36( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not entitled to a claim u/s 36(1)(vii) for this sum. Secondly, the deduction u/s 36(1)(viia) has been claimed and allowed on the basis of the very same provision and the appellant cannot claim deduction for the same amount u/s 36(1) (viia) without first adding it back. Indeed, the appellant had itself added back the provision of ₹ 85, 57, 00, 000 and there is no reason why the same treatment should not be accorded to the sum of ₹ 433.73 lakhs. 5.12. In view of the above, the Assessing Officer is directed to add the provision of ₹ 89, 90, 073 lakhs before proceeding to allow the deduction u/s.36(l)(viia). 5.13. The appellant has also submitted that the provision of ₹ 86, 67, 00, 000 represented 5% of the average aggregate rural advances. The closing balance of the rural advances was ₹ 1711.35 crores. The provision of ₹ 85,57,00,000 represents 5% of this closing balance and not of the aggregate average advances made by the rural branches as computed under rule 6ABA. The Assessing Officer is, therefore, directed to re-compute the aggregate average rural advance in accordance with rue 6ABA for the purpose of allowing the deduction. 6.0. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Sec. 36(1)(viia) permits banking company to claim a deduction not exceeding 7 .5% of total income computed, towards bad and doubtful debts. The assessee relied on the decision of ITAT, Hyderabad, in the case of SBH Vs. DCIT (ITA No.1232/Hyd./2006) to support the claim of deduction @ 7.5%of the total income. The assessee also relied on the decision of Karnataka High Court, in the case of DCIT, SR Vs.Karnataka Bank Ltd., to support the argument that deductions u/s. 36(1)(vii) are allowable independently and irrespective of provisions for bad and doubtful debts, without claiming the deduction u/s 36(1)(vii) and 36(1)(viia) simultaneously.. The ld CIT (A) perused the submissions of the assessee and the observations of the AO. The CIT (A) held as follows: "As could be seen from the facts of the case brought on record, the assessee claimed a deduction of ₹ 4,44,52,560/- being the deduction @7.5% of the total income, as per the provisions of Sec. 36(I)(viia) before claiming deductions u/s. Chapter VI A and the deduction under said clause, while computing the total income. The AO disallowed the same on the ground that there was no necessity of such provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R (S.C). Respectfully following the order of the Coordinate Benches, we dismiss Ground No.4 of Revenue's appeal. 23. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the Open Court on 25th March, 2015. 14.2. However, in assessee's own case for the A.Y. 2009-2010 in ITA.No.610/Hyd/2013 dated 12.08.2015 the Tribunal at para-6 of its order has held as under : "6. On a reference to the provisions of section 36(1)(viia) of the Act, it is very much clear that for claiming deduction under the said provision, assessee has to create a provision for bad and doubtful debts in its books of account. Therefore, contention of ld. AR that there is no need for making any provision for bad and doubtful debts for claiming deduction u/s 36(1)(viia) is not acceptable. The Hon'ble P & H High Court in case of State Bank of Patiala Vs. CIT (supra) while examining the provisions of section 36(1)(viia) held that for claiming deduction under the said provision, assessee bank has to make a provision for bad and doubtful debts in its books of account and deduction u/s 36(1)(viia) in respect of rural advances can only be allowed to the extent of the provision m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter back to the file of AO for deciding afresh after verifying the fact whether assessee has created any provision for bad and doubtful debts in its books of account in terms with section 36(1)(viia). In case it is found that assessee has made a provision for bad and doubtful debts in its books of account, then, deduction u/s 36(1)(viia) can be allowed to assessee. In case it is found that assessee has not made any provision for bad and doubtful debts in its books of account, then, assessee would not be eligible for any deduction u/s 36(1)(viia) in view of the ratio laid down by the Hon'ble P&H High Court in case of State Bank of Patiala Vs. CIT(supra). With the aforesaid observations, we remit the issue back to the file of AO for deciding afresh after due opportunity of being heard to assessee. Ground raised by the department is allowed for statistical purposes. 14.3. Thus, 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 272 ITR 54 wherein it has been held that it is necessary to make a provision for bad and doubtfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disallowing the claim of ₹ 334,43,19,444/-. 6.10 However, if the returned income is taken at ₹ 288,27,68,633/- as directed in para 5.5 thenthe AO will have to add back the amount of ₹ 236,94,34,496 (Rs. 334,43,19,444 - ₹ 97,48,84,948) in the computation." 35. Since the CIT(A) followed the decision of the Hon'ble High Court of P&H in case of State Bank of Patiala (supra), we do not find any reason to differ from the order of the CIT(A). Moreover, the coordinate bench of ITAT, Bangalore in case of Syndicate Bank (supra) has analysed the issue and concluded as under: "48. As far as Gr.No.3 raised by the Revenue in the original grounds of appeal is concerned, the AO disallowed the entire claim for deduction of ₹ 503,49,00,000/- on the following ground. a) The provision for bad and doubtful debts in respect of rural advances was created by debit to profit and loss account of only a sum of ₹ 295,55,54,682 whereas the claim for deduction actually made u/s.36(1)(viia) of the Act was a sum of ₹ 503,49,00,000/-. The AO was of the view that as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observations of the Tribunal in the aforesaid decision was as follows: "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the aggregate average advances made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts." 50. In the appeal before the Tribunal, in Ground No.3 of the original grounds of appeal, the Revenue has challenged the order of CIT(A) in so far as it relates to the deletion of a sum of ₹ 207,83,45,338 which is the difference between ₹ 503,49,00,000 and ₹ 295,55,54,682. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous and prejudicial to the interest of the revenue with a direction to redo the same de novo by examining all details in accordance with law. It is submitted that the AO, while passing the consequential order, has disallowed the claim towards provision for salary arrears aggregating to ₹ 12,73,60,121/- which is for the period 1.10.2007 to 31.03.2009 on the ground that it is only a provision made and that the assessee has not adduced any evidence of actual disbursement made to towards employees before filing of the return of income. Before the CIT(A), the assessee submitted that during the F.Y 2009-10 relevant to the A.Y 2010-11, the orders for wage revision were issued to the assessee bank vide proceedings dated 24-07-2010 by the Min. of Finance, New Delhi and wage revision arrears were paid by the bank to its employees from 01-10-2007 to 31-03-2010 on 04-09-2010. The assessee also filed the copies of proceedings relating to sanction of pay arrears, balance sheet schedules, debit and credit vouchers and copy of the voucher evidencing the payment of wage revision to the employees of the bank on 04-09-2010 according to which the total wage revision arrears payable to employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(Appeals) ought not to have allowed the assessee's claims of broken period interest as expenditure while overlooking the decision of the Hon'ble Supreme Court of India in the case of Vijaya Bank Ltd. (187 ITR 541). 3. The learned CIT (Appeals) erred in deleting the disallowance of provision for staff frauds of ₹ 6,68, 153/- since such provision is not allowable as business expenditure. 4. The learned CIT (Appeals) erred on deleting the disallowance of amortization provided on Govt. Securities at ₹ 3,74,28,085/- on the facts and circumstances of the case. 5. The learned CIT (Appeals) erred on deleting the disallowance of interest on non-performance assets relying on the decision of Hon'ble ITAT in No. 502, 967 & 1387/H/14 dated 29.04.2013, in the view of the fact, the Hon'ble Tribunal vide its order in ITA No. 610/Hyd/2013 dt. 13.03.2014 in the case of the assessee itself for the Asst. Year 2009-10 had upheld the stand taken by the revenue which was also upheld by the Hon'ble High Court vide Order in ITTA No. 532/2014 dt. 13.11.2014 6. Any other ground that may be urged at the time of hearing". 22. Ground No.1 being general in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in appeal before the CIT(A). 4. In course of hearing before the CIT(A) the assessee relying upon various judicial precedents, submitted that HMT category of securities are not investment but stock in trade of the assessee and as such no disallowance of the broken period interest can be made. The CIT(A) after considering the submissions of the assessee and relying upon the decision of Hon'ble Kerala High Court in the case of CIT Vs Nedungadi Bank Ltd. (264 ITR 545) held that government securities acquired by the assessee in purchase of provisions of banking regulation Act have to be treated as stock in trade of business of the bank. Hence, the broken period interest is an admissible deduction in the computation of total income of the bank under the head 'profits and gains of business'. On the aforesaid conclusion, the CIT(A) deleted the additional of ₹ 83 lakhs. 5. We have considered rival submissions of the parties and perused the material on record. It is evident from the assessment order that the assessing officer has disallowed the broken period interest by holding the HMT category of securities as investment and not stock in trade of the assessee by relying upon Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. The A 0 however rejected the contentions of the assessee by observing that the provision for staff frauds could not be equated with the provision of bad and doubtful debts. He was further of the view that frauds by staff are normally not easily let off and the amounts are recovered, but appropriate action is initiated for recovery of such loss from payments due to them. The A 0 was of the opinion that since the assessee was not able to show that the amount so recovered was duly accounted for, the claim cannot be allowed. He assessee challenged the disallowance before the CIT(A). 9. On appeal, the CIT(A) after considering the contentions made on behalf of the assessee was of the view that staff frauds are similar to embezzlement by an employee and therefore qualifies as an allowable expenditure under section 37 of the Act. The CIT(A) following a decision of ITAT, Amritsar Bench in case of ITO vs. J&K Bank Ltd., (95 ITD 141) allowed the claim of the assessee. 10. We have considered rival submissions of the parties and perused the material on record. From the assessment order, it is clear that the assessing officer as not disputed the fact that there is loss to the bank on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andard assets (c) Provision for Mutual Funds (d) Provision for bad and doubtful debts (claim of deduction of 7.5% of total income U/s 36(1)(viia) 2. Unrealised Interest on Non-performing Assets - ₹ 23,89,00,000/- (i) The Appellate Authority ought to have considered that the appellant applies the interest on advances in regular intervals (Monthly/Quarterly/Half yearly) till such advances are classified as Non-performing Assets as per the Prudential Norms prescribed by Reserve Bank of India. Once the advances are classified as Nonperforming Assets, the interest credited to income A/c. till the date of classification will be debited by transferring to "Interest Suspense A/c" "Interest not collected A/c.(INCA). (ii) The appellate Authority ought not to have dismissed the claim for un-realised interest on Non Performing Assets simply relying upon the order of the Hon'ble Income Tax Appellate Tribunal in ITA No.610/Hyd/2013 dated 13.03.2014 deciding the issue in favour of the Revenue following the decision of Hon'ble Supreme Court in the case of Southern Technologies (320 ITR 577) and without considering the decision of the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive from 1-4-2003). iv. The Appellate Authority failed to consider that, even otherwise, there is a lot of distinction between Commercial Bank advances and Rural Bank advances and this is the point of distinction between the present case and the Andhra Bank case. The Appellate Authority ought not to have applied the same principle as rural banks are only exposed to rural segment, which are also subjected to natural calamities like drought and floods and allied problems. A Standard asset may turn into a non performing asset overnight jeopardizing the plans of the rural banks and pushing them into a loss situation. A close reading of Sec.36(1) (viia) of the Act would reveal the intention of the parliament in this regard. v. The Appellate Authority, ought to have seen that 1. T.A. T. No.: 467 of 2010& 1. T.A. T. No.512 of 2010, being the appeals filed by Andhra Bank, against 1.T.A. No.:618/Hyd/2007 for the assessment year 2003-04 & against 1.T.A. No.619/Hyd/2007 for the Asst.Year 2004-05 were admitted by the Hon'ble High Court of Judicature at Hyderabad for Telangana and Andhra Pradesh on 03.09.2010 & 30.08.2010 respectively. (c) Provision for Mutual Funds-70,50,000 i. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materially in not considering the Scheme of deduction allowable U/s.36(1)(viia) which reads as follows: According to Sec. 36(1)(viia), the scheme of deduction allowable under 36(1)(viia) the bank is entitled for :: deductions (i) basing on the provision made not exceeding 10% of the aye rage rural advances. and (ii) An amount not exceeding 7.5% of the total income computed before making any deduction U/s. 36(1)(viia) and Sec.80C to 80U (as substituted vide Finance Act, 2002 effective from 1-4-2003). The Appellate Authority ought to have considered the order of the Hon'b1e LT.A.T, Hyderabad "X' Bench in LT.A.No.610/Hyd/2013 for the Asst Year 2009-10 wherein it was held that the Provision of Sec.36(l)(vii) and 36(1)(viia) of the Act are distant and independent items of deductions and operate in their respective fields. With regard to the claim of 7.5% of the total income the law doesn't provide for provision of such amount in the books. Had it been the intention of the legislation to make provision towards the claim of 7.5% of the total income, the words before making any deduction U/s.36(1)(viia) and sec.80C to 80U would not have been inserted in the said se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal interest of ₹ 13,87,02,000 was added as accrued interest on NPA. It is submitted that the assessee filed first appeal before the CIT (A) contending that in respect of sticky loans, there is no accrual of interest at all, as the receipt of principal amount itself is in jeopardy. The CIT (A), following the order of the Income Tax Appellate Tribunal for the A.Y 2007-08 and 2008-09 in ITA Nos.1121/Hyd/2011 & 1459/Hyd/2011 dated 29.04.2013 allowed the appeal and deleted the addition. 34. It is submitted that the Tribunal in its order for the A.Y 2009-10 in ITA No.610/Hyd/2013 dated 13.03.2014 took a contrary view in relation to the assessment of interest on nonperforming assets by following the judgment of the Hon'ble Supreme Court in the case of Southern Technologies Ltd reported in 320 ITR 577. It is submitted by the learned Counsel for the assessee that, admittedly the assets have become non-performing assets and the loans have become sticky and it is not in dispute that the recovery of loans itself has become doubtful and uncertain. It is submitted that the bank on its part has not shown any notional interest in its P&L a/c but has been accounting for the same as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) New Jehangir Vakil Mills Co. vs. CIT 49 ITR 137 @142(S.C) b) ITO v. Muralidhar Bhagwandas 52 ITR 335 @ 342(S.C) c) Radhasoamy Satsang v. CIT 193 ITR 321 @ 329 (S.C) d) CIT v. Brijlal Lohia and Mahabir Prasad 84 ITR 273 @ 277(S.C) e) CIT vs. Kalpetta Estates Ltd 211 ITR 635 @ 638 (Ker.) 36. On the merits of the issue, the learned Counsel for the assessee placed reliance upon the following decisions: i) CIT vs. Vasisth Chay Vyapar Ltd (Delhi) reported in 330 ITR 440 (Del. High Court) ii) Shoorji Vallabhdas & Co. vs. CIT (S.C) 46 ITR 144 @ 148 iii) CIT vs. Ferozpur Finance Pvt. Ltd (P&H) 124 ITR 619 @ 623, 619 & 625] iv) CIT vs. Motor Credit Co. Pvt Ltd (Mad.) 127 ITR 572 @ 576 v) Kewal Chand Bagri vs. CIT (Cal.)183 ITR 207 @ 209-212 vi) Godhra Electricity Co Ltd vs. CIT (S.C) 225 ITR 746 @ 757-75&760 vii) CIT vs. Bokaro Steels Ltd (S.C) 236 ITR 315 viii) CIT vs. Eicher Ltd (Del.) 320 ITR 410 ix) CBDT notification No.25.01.1996 (218 ITR (St.)1) x) CIT vs. U.P. State Industrial Development Corporation reported in 225 ITR 703 (S.C) xi) CIT vs. Pact Securities and Financial Services Ltd 374 ITR 681 reported in (2015) 273 ITR 681 (T & A.P) xii) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.01.2010, the same has not been considered by the Tribunal and, hence, the finding of the Tribunal in assessee's own case for the A.Ys 2007-08 and 2008-09 cannot be followed. In view of the same, this ground of appeal of the revenue is allowed". 41. On a close reading of the above para, it is evident that the Tribunal has not discussed the merits of the issue, but has only observed that the earlier decisions of the ITAT were passed without considering the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd reported in 320 ITR 567 and therefore, are not to be followed. This Tribunal in the case of A.P. Beverages Corporation (to which both of us are signatories) has considered a similar issue whether the Tribunal can reconsider and take a different stand from the earlier years and at Para 15 to 20 of its order has held as under: "15. Having regard to the rival contentions and the material on record, we find that undisputedly the assessee is conferred with the privilege of manufacture and trading of liquor in the State of A.P. by the Govt. of A.P. for a privilege fee. Admittedly, this issue had arisen in the assessee's own case in the earlier A.Ys a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts germane to the issue have not been considered by the earlier Bench or new facts have emerged this year requiring fresh look at the issue. 17. The learned Counsel for the assessee had relied upon the following decisions to contend that this Tribunal can reconsider/re-examine the issue if there is any new material, or change in circumstances: a) New Jehangir Vakil Mills Co. vs. CIT 49 ITR 137 @142(S.C) b) ITO v. Muralidhar Bhagwandas 52 ITR 335 @ 342(S.C) c) Radhasoamy Satsang v. CIT 193 ITR 321 @ 329 (S.C) d) CIT v. Brijlal Lohia and Mahabir Prasad 84 ITR 273 @ 277(S.C) e) CIT vs. Kalpetta Estates Ltd 211 ITR 635 @ 638 (Ker.) 18. We find that the Hon'ble Supreme Court in the case of New Jehangir Vakil Mills Co. Ltd (Supra), held that the Tribunal can decide the appeal on the basis of the facts admitted and/or found by the Tribunal. In the case of Income Tax Officer vs. Muralidhar Bhagwan Das (Supra), the Hon'ble Supreme Court held that in deciding an appeal relating to one assessment year, the appellate authority cannot give a direction or a finding that a particular income which was not chargeable to tax in that assessment year, was chargeable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration by the Tribunal have material bearing on the points on the issue and that it cannot be said that the Tribunal has ignored any one of the relevant circumstances. The Hon'ble Supreme Court also observed that the fact that in the earlier proceedings, the Tribunal took a different view of those deeds is not a conclusive circumstance and the decision of the Tribunal reached during those proceedings does not operate as res judicata. 20. The Hon'ble Kerala High Court in the case of CIT vs. Kalpetta Estates Ltd (Cited Supra) also has held that the decision in the assessee's case relating to prior years would not operate as res judicata and the Tribunal is entitled to take a different view of the matter, if new materials are placed or on a closer and more intelligent analysis. Thus, in view of the above decisions, it can be concluded that the decision in the case of an assessee in one particular year may not act as res judicata, but it is also not permissible to disturb a settled position in the subsequent years without any basis" 42. Further, we find that the Hon'ble Supreme Court in the case of Karan Singh & Others vs.Bhagwan Singh (Dead) by Lrs and Others repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(1)(vii) of the Act. The Assessing Officer, however, did not bring to tax ₹ 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI Act, their Lordships of the Apex Court observed that insofar as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefor under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to "Income Recognition" and held that income had to be recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 of the Income-tax Act. It can be said, therefore, that the Apex Court approved the 'real income' the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case there is no scope for "add back" of the Provision against NPA to the taxable income of the assessee. We find no merit in this contention. Under the IT Act, the charge is on Profits and Gains, not on gross receipts (which, however, has Profits embedded in it). Therefore, subject to the requirements of the Income-tax Act, profits to be assessed under the Income-tax Act have got to be Real Profits which have to be computed on ordinary principles of commercial accounting. In other words, profits have got to be computed after deducting Losses/Expenses incurred for business, even though such losses/expenses may not be admissible under sections 30 to 43D of the Income-tax Act, unless such Losses/Expenses are expressly or by necessary implication disallowed by the Act. Therefore, even applying the theory of Real Income, a debit which is expressly disallowed by Explanation to section 36(1)(vii), if claimed, has got to be added back to the total income of the assessee because the said Act seeks to tax the "real income" which is income computed according to ordinary commercial principles but subject to the provisions of the Income-tax Act. Under section 36(1)(vii) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd. (supra) with Custodian appointed under the Special Court Act, 1992 (supra). 20. Thus viewed from any angle, the decision of the Tribunal appears to be correct in law. The question of law is thus decided against the revenue and in favour of the assessee. As a result, all these appeals are dismissed". 44. Further, we find that the Hon'ble jurisdictional High Court in the case of Pact Securities & Financial Services Ltd in ITTA Nos.252 and 291 of 2003 and 76 & 77 of 2006 vide order dated 5.2.2015 has held that the Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI) would be binding on the assessee till such time the Central Govt. prescribes the accounting standard. The Hon'ble High Court has considered the provisions of section 211(3C) of the Companies Act, 1956 to hold that till such time the Central Govt. prescribes the accounting standard, the Accounting Standards issued by the ICAI shall be deemed to be the relevant accounting standard. Further, it is also seen that the issue of interest income on NPAs had come up before various other High Courts in a number of cases and the respective High Courts have held that such income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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