9911796707
TMI Blog2018 (8) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... The Revenue : Shri V.Appala Raju, DR For The Assessee : Shri G.V. N. Hari, AR ORDER PER D.S. SUNDER SINGH, Accountant Member: These appeals are filed by the revenue against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Guntur vide I.T.A.No.22/2016-17/CIT(A)-1/GNT and I.T.A.No.10169/2016-17/CIT(A) 1/GNT dated 01.02.2018 and Cross Objections filed by the assessee in support of the orders of the CIT(A) for the assessment year 2013-14 and 2014-15.Since the issues involved in these appeals are common, all the appeals are clubbed, heard together and disposed off in a common order for the sake of convenience as under. 2. During the assessment proceedings, the Assessing Officer (AO) found that the assessee debited the expenditure of ₹ 76,15,159/- towards premium paid to LIC under 'Group Gratuity Scheme'. As per Part 'C' to Schedule-IV of the Income Tax Act (hereinafter called as 'Act'), any such contributions should be under a scheme duly approved by the Chief Commissioner or Commissioner of Income Tax, for allowing as eligible deduction. The contributions made for Group Gratuity Fund approved by an appropriate authority are only allowable expenditure und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting for group gratuity scheme to LIC of India which does not have approval of the concerned authority. Hence, added to the total income. The Hon 'ble ITAT, Hyderabad B-Bench, in the case of international Ore and Fertilizer (India) (P) Lid., Vs ITO (3 ITO Hyd., 593) has held that payment to LIC Group Gratuity Scheme is in the nature of business expenditure deductible under the provisions of Section 37 of the Act and therefore, is to be allowed as it is laid out wholly and exclusively for the purposes of the business. The Hon'ble ITAT has in this case has observed that provisions of section 40A'7) of the Act would apply only in respect of provision made for gratuity in case of unapproved finds and not actual payments made, which are covered by section 37 of the Act. The similar view has been taken by the Ho 'ble ITAT, Delhi "B" Bench in the case of ITO vs MMTC Ltd, 3 ITD (Del) 305. Further, the Hon'ble ITAT in the case of DCI?', Circle-3(2), Hyderabad Vs Sri Krishna Drugs Ltd., in ITA No. 198/Hyd/2011, dated 16.12.2011,has also held that payment to Group Gratuity Fund of LIC of India is allowable as business expenditure u/s 37(l) of the Act, even though n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r relevant to the assessment year 2007-08, the A.O. disallowed the same since the payment made to LIC of India towards group gratuity scheme is not covered by section 36(1)(v), 40A(7)(b) & 40A(9) of the Act because the assessee has not satisfied the conditions. The argument of the assessee is that since the payments were made to LIC of India in Master policy scheme, the premiums contributed to the LIC of India is allowable deduction and relied on the decisions of coordinate bench of Hyderabad in the case of Capital IQ Information Systems (India) Pvt. Limited (supra). The Hon'ble ITAT Hyderabad Bench while deciding the issue on similar facts held as under: 8. We have heard the arguments of the parties, perused the material on record and have gone through the orders of the authorities below. We find that the issue is squarely covered by the decision of the ITAT, Hyderabad in the case of M/s. Sri Krishna Drugs Ltd. Vs. Department of Income-tax in ITA No.2126/Hyd/2011 for AY 2007.08 dated 11.4.2012, where the JM was one of the party. The Tribunal in the said case held as follows: 3. The second ground raised by the Revenue is as under: "The learned CIT(A) erred in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra), it has to be allowed. 5. We have carefully gone through the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra). In the case before the jurisdictional High Court, the Provident Fund was not approved by the CIT. The Andhra Pradesh High Court after referring to the judgement of the Bombay High Court in Tata Iron & Steel Co. Ltd. v. D. V. Bapat, ITO (1975) 101 ITR 292, and the judgement of the Supreme Court in Metal Box Company of India Ltd. vs. The Workmen (1969) 73 ITR 53, held that the amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v). In view of this judgment of the jurisdictional High Court, in our opinion, even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37. By respectfully following the binding judgement of Andhra Pradesh High Court in the case of warner Hindustan Ltd. (supra), we uphold the order of the CIT(A). In view of the above discussion, we dismiss the ground taken by the Revenue." 5. In view of the above decision of this Tribunal, the ground raised by the Revenue is dismissed." 9. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed on account of any provision and amount of gratuity was an allowable deduction - Held, yes". 5. Considering the above aspects, we do not find any infirmity in the order of the learned CIT(A) in deleting the addition. There is no merit in the departmental appeal. Same is accordingly dismissed." 10. In the case of Verizon Data Services India Pvt. Ltd. (supra) the coordinate bench of Madras held that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively for the benefit of employees and deduction shall be allowed. The coordinate bench of Madras while deciding the appeal relied on the decision of Hon'ble Madras High court in the case of Textool India Pvt. Limited (supra) (civil appeal No.447 of 2003). In the instant case the assessee has made the payments to the LIC towards group gratuity scheme directly in approved schemes. The assessee has also obtained the policy in favour of the bank. The assessee has no control over the funds contributed to LIC towards the gratuity. The assessee is receiving the gratuity payment directly from the LIC of India as per the scheme which is paid to the employee on happening of the even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the revenue. For the sake of clarity and convenience, we extract relevant part of the Tribunal which reads as under : 6. We have heard both the parties and perused the material placed on record. The assessee has debited provision for bad and doubtful debts to the extent of ₹ 2,65,10,567/- in the year under consideration. The expenditure debited by the assessee includes the provision for standard assets amounting to ₹ 47,93,922/- which is being added by the AO. According to the AO, the provision for standard assets cannot be treated equally with the provision for bad and doubtful debts and the same should be held recoverable in the sense that the bank has no doubt of recoverability and the same is continued though as per the guidelines of RBI provision for standard asset is to be created as a precautionary measure, the same cannot be allowed as the deduction u/s 36(1)(viia) of the Act. Whereas the assessee's case is that the entire amount of ₹ 2,65,10,567/- including the provision against standard assets is covered u/s 36(1)(viia) of I.T.Act. The Ld.AR argued that the nomenclature is immaterial and as long as the assessee makes a provision within the limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : [Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:]" Careful reading of section 36(1) and (viia) shows that the word used in Sections is Bad debt and Bad and doubtful debt but not the standard asset. Both the sections are interrelated and the allowance is subject to satisfactions of the terms and conditions specified in section 36(2) of the IT Act. Deduction is allowed under section36(1)(vii) if the debt is written off in the books of accounts subject to the condition that the same is offered as income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract, if these remain unpaid for a period of 90 days from the specified due date for payment 4. ASSET CLASSIFICATION 4.1 Categories of NPAs Banks are required to classify nonperforming assets further into the following three categories based on the period for which the asset has remained nonperforming and the realisability of the dues: i. Substandard Assets ii. Doubtful Assets iii. Loss Assets 4.1.1 Substandard Assets With effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. 4.1.2 Doubtful Assets With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... norms which reads as under: "5.5 Standard assets (i) The provisioning requirements for all types of standard assets stands as below. Banks should make general provision for standard assets at the following rates for the funded outstanding on global loan portfolio basis: (a) direct advances to agricultural and Small and Micro Enterprises (SMEs) sectors at 0.25 per cent; (b) advances to Commercial Real Estate (CRE) Sector at 1.00 per cent; (c) advances to Commercial Real Estate - Residential Housing Sector (CRE - RH) at 0.75 per cent1 (d) housing loans extended at teaser rates and restructured advances as as indicated in Para 5.9.13 and 12.4 respectively; (e) all other loans and advances not included in (a) (b) and (c) above at 0.40 per cent. (ii) The provisions on standard assets should not be reckoned for arriving at net NPAs. (iii) The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet." Prudential norms shows that it is a general provision which should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. Now considering the second aspect, whether provision for standard assets could be considered as provision for bad and doubtful debts, admittedly a provision on standard assets is not against any debts which had become doubtful. Standard assets are always considered recoverable, in the sense, bank has no doubt of recoverability. When the bank itself has treated such assets as good and recoverable, any provision made on such assets cannot be considered as a provision for bad and doubtful debts. The debt itself being good, a provision made on good debt cannot be considered as a provision for bad and doubtful debts. May be, the RBI has made a regulation for 10% provision for standard assets also a prudential norm. This can however be considered as a measure prescribed in abundant caution, to deal with a situation where banks are not to suffer shock of sudden delinquency that could happen in future. There is always a possibility that an asset, which is fully recoverable, may not be so at future date. Nevertheless, possibility of happening of such a contingency cannot be a sufficient reason to consider a provision made on standard assets also as a provision for bad and doubtful debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature whereas the provision for non A.P. Grameena Vikas Bank, Warangal. performing assets is to guard against a loss which is looming large on the bank or for the loss which has already taken place. Therefore, the RBI further prescribes that provision on standard assets should not be reckoned for arriving at net NPAs. The Act itself has given an option to the assessee to make provision for its doubtful or loss assets (first proviso to section 36(1)(viia). We do agree that the bank is bound to follow the RBI guidelines. But the deduction available has to be as per the provisions of the Act only. Accordingly, we uphold the order of the CIT(A) disallowing the deduction in respect of provision made for standard assets." 7. Since the facts are identical, respectfully following the view taken by the coordinate benches supra we hold that the provision for standard assets is not an allowable deduction and we set a side the order of the Ld.CIT(A) and restore the order of the Ld.AO. The appeal of the revenue is allowed on this ground. 13. Since the facts are identical, respectfully following the view taken by the Coordinate Bench, we hold that the provision for standard assets is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
