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TMI Blog2018 (9) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... funds. The payments were directly made to the employees of the bank and subjected to deduction of tax at source. The moment the payments are made to those employees, the assessee had lost complete control over those funds and it had not come back to the assessee in any manner whatsoever either by creation of any fund managed by it or otherwise. From the approval letter of the competent authority of the assessee bank, we find that these payments were made only to meet the increased cost of living of the employees and hence it is effectively a payment made as a welfare measure . Hence the provisions of section 40A(9) of the Act as heavily relied upon by the ld DR is not at all applicable to the facts of the instant case. Disallowance of write off of CENVAT credit - Held that:- AR fairly conceded before us that this sum of ₹ 46 crores was allowed as deduction by this Tribunal in assessment year 2011-12 [2018 (9) TMI 415 - ITAT KOLKATA] and hence the same should be disallowed in assessment year 2012-13 in order to avoid double deduction. We are in agreement with this fair representation by the ld. AR and accordingly uphold the disallowance made in the sum of ₹ 46 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is liable to tax only at the rate of 30% along with surcharge and education cess as applicable. We find that this issue is decided against the assesee by the order of this tribunal in assessee s own case for the Asst Years 2005-06 to 2008-09 vide order dated 13.4.2016 . Accordingly, the Ground Nos. 4 (a) to 4(e) raised by the assessee for Asst Year 2012-13 and Ground Nos. 3(a) to 3(c ) for Asst Year 2013-14 are dismissed. 3. ADDITION TOWARDS INTEREST INCOME ON NPA Ground Nos. 1(a) to 1(d) for assessment year 2012-13 Ground Nos. 1(a) to 1 (d) for assessment year 2013-14 The facts of assessment year 2012-13 are taken up for adjudication and the decision rendered thereon would apply with equal force for assessment year 2013-14 also except with variance in figure. The issue to be decided in the appeal of the assessee is as to whether the ld DRP was justified in upholding the addition of ₹ 25,94,566/- on account of interest income in relation to advances classified as Non-Performing Advances (NPA) in the facts and circumstances of the case. 3.1. The brief facts of this issue are that the assessee is a bank incorporated in Netherlands with limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognition by the banks to be in sync with the RBI guidelines and was never intended to be a static norm. Thus, purposive interpretation should be followed keeping in mind the legislative object. The assessee also referred to Para (xii) of CBDT s Instruction No. 17/2008 dated 26.11.2008 which directed the assessing authorities to bear in mind that the bank has to follow system of accounting and prepare accounts as mandated inter alia by RBI guidelines. Withou prejudice to the above, Rule 6EA of the Rules, which deviates from current RBI guidelines, is in conflict with the parent provisions of section 43D of the Act and it is well settled that the Rules, being a subordinate legislation cannot override the express mandate of the parent statutory provision. Reliance in this regard was placed on the decision of the Hon ble Supreme Court in the case of CIT vs Sirpur Paper Mills reported in 237 ITR 41 (SC) . 3.3. Without prejudice to the above, it was submitted that Rule 6EA is practically difficult to be implemented, since the categories of advances prescribed therein do not exist anymore as the classification of advances have changed and RBI now follows the international norm of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 577 (SC) in support of his proposition. The assessee had not proved the factum of uncertainty in collection of the said advances and argued that it is also claiming provision for NPA which includes interest element also as a deduction. Hence on one hand, it is not offering the interest income and on the other hand, it is claiming deduction towards the interest component added to the party s loan account balance. He placed reliance on the decision of Hon ble Delhi High Court in the case of Housing and Urban Development Corporation Limited vs Additional CIT in ITA No.s 440, 442, 444 to 446 / 2016 dated 3.7.2017 wherein the decision of Vasisth Chay Vyapar Ltd ( 330 ITR 440 Del HC) was also considered and decision held in favour of the revenue. He further stated that against the tribunal order passed for the earlier year, the Hon ble Calcutta High Court had admitted the appeal of the revenue and hence the matter had not attained finality. In defence, the ld AR argued that the fact of uncertainty of collection of these dues from the parties were never in dispute and the same is raised for the first time only by the ld DR. Hence there is no question of recognizing any interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds raised by the assessee in this regard for assessment years 2012-13 and 2013-14 are allowed. 4. DISALLOWANCE OF PAYMENT MADE TO EMPLOYEES IN RELATION TO UNFUNDED PENSION (AKIN TO SALARY) Ground Nos. 3(a) to 3(d) for assessment year 2012-13 Ground Nos. 2(a) to 2(d) for assessment year 2013-14 The brief facts of this issue are that the ld AO observed that the assessee during the year had claimed the payment made to its employees against the provision made for unfunded pension amounting to ₹ 5.38 crores. In this regard, the assessee filed the submissions stating as under:- The Bank has established a superannuation fund for the purpose of providing pension to its eligible employees. The fund has been approved by the Commissioner of Incometax under rule 2(1) of the part B of the Fourth Schedule. The bank has been regularly contributing to the fund for the base pension, based on actuarial valuation and have been claiming a deduction of the same on payment basis under Section 36(1)(iv) read with Section 43B(b) of the Act. Apart from the approved superannuation fund, to compensate for the increased cost of living of the employees, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 16 January, 2015). Further, we understand that your goodself wishes to place reliance on the decision of the Calcutta High Court in the case of Brooke Bond India Limited vs. Joint Commissioner of Income-tax [2011] 337 ITR 482, while seeking to disallow the payment of ₹ 4.09 crore to employees towards unfunded pension. In this regard, we submit that the aforesaid decision is not applicable to the Bank's case for the following reasons: In the case of the Bank the deduction for pension has been made in respect of amounts which have been actually paid to the employees of the Bank and which has been gone out irretrievably and on which the Bank has no control. However, in the case of Brooke Bond, the deduction for pension was claimed merely on basis of a provision created based on a Board Resolution which could have reversed at a later date. The Brooke Bond judgment only covers disallowance of provision made in respect of such liability based on actuarial valuation and the Hon ble Court have not looked into the question of deduction of such pension payment made directly to employees. The Bank s relies on jurisdiction High Court ruling in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place in the hierarchy, whether these were terminal benefits or short term benefits, etc. The submission is devoid of the Boards resolution, terms and conditions of payment of benefits and business expediency of such payments inter alia. It is therefore could not be perceived from the additional evidence filed, as to how it negates the proposal of the AO to disallow payment of unfunded pension to the employees. On the basis of the facts and circumstances of the case, the additional evidence filed does not hold merit to overturn the AO s proposal. 4.2. The ld DRP observed that this remand report was sent to assessee for its rebuttal and no submissions were made later on. Accordingly , the ld DRP upheld the action of the ld AO in disallowing the said expenditure in the sum of ₹ 5.38 crores. Accordingly, the same was sought to be disallowed in the final assessment order by the ld AO. Aggrieved, the assessee is in appeal before us. 4.3. We have heard the rival submissions. We find that this issue is covered in favour of the assessee by the order of this Tribunal in assessee s own case for assessment year 2011-12 in I.T.A. Nos. 503 505/Kol/2016 dated 05.09.2018 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sample Form No. 16 were duly submitted by the assessee before the ld AO which are enclosed in page 246 of the paper book. It was specifically submitted before the ld AO that the payment made under this particular scheme covered all eligible employees ranking from clerical staff, assistant manager, manager, vice president etc. We find that the genuinity of the said payments are not disputed by the revenue before us. We find that the case law relied upon by the ld AO in his assessment order and by the ld DR i.e Brooke Bond India Ltd supra, refers to payments made to fund . In the instant case, there was no contribution made by the assessee bank to any of the funds. The payments were directly made to the employees of the bank and subjected to deduction of tax at source. The moment the payments are made to those employees, the assessee had lost complete control over those funds and it had not come back to the assessee in any manner whatsoever either by creation of any fund managed by it or otherwise. From the approval letter of the competent authority of the assessee bank, we find that these payments were made only to meet the increased cost of living of the employees and hence it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Consumer Business Division of the Bank had an unutilized CENVAT credit of ₹ 510.9 million available with its books. Pursuant to an internal review of the Bank s future business prospects in line with RBS Group Global Strategy, the Bank revisited the utilized CENVAT credit relating to Consumer Business Division. It was observed that the reduced business consumer Business Division would adversely impact the taxable fee income generated by the said division. This was reflected in reduced fee income trend for Consumer Business division observed year on year. Consequently, the service tax liability to be discharged by the Consumer Business Division would also be impacted and would result in accumulation of un utilized CENVAT Credit balance. As such, the CENV AT credit amount was in excess of service tax liability for future years. Given that the service tax laws do not prescribe fund mechanism for unclaimed CENV AT Credit, the Bank took a considered decision, to write off an amount of ₹ 460 million during Financial Year ('FY') 2010-11. Accordingly, the Bank had written off the un-availed service tax input credit amounting to ₹ 460 million and inti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial statements prepared and presented on the basis of such accounting policies. As per the principles of prudence, the assessee is required to recognize all known liabilities and losses immediately in its financial statement. Accordingly, in light of the Bank s future business prospects and having regard to the principle of prudence, the bank had written off CENVAT credit amounting to ₹ 460 million during the year under consideration. 5.4. The assessee further submitted that closure of business was not necessary to claim deduction of the CENVAT credit written off as under:- In the course of the earlier hearing, your goodself had contended that the judicial precedents relied upon by the Bank in the earlier submissions namely Mohan Spinning Mills vs. ACIT (2012) 27 taxmann.com 332) (Chd.) and the decision of the Ahmedabad Tribunal in the case of M/s Rangoli Industries Pvt. Ltd. (2013) (ITA No. 1936/Ahd/2010) (now upheld by the Hon ble Gujrat High Court), are applicable only in the case of closure of business and accordingly, the said decisions are not applicable in the present case. In this regard, we submit that though in the facts of the above decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Accounting Treatment for MODVAT/CENVAT, which permits assessee to carry out such a write off. 5.5. The assessee also placed reliance on the following decisions in support of its contentions:- CIT vs Samtel India Limited (ITA No. 130 of 2000) (Date of Order 26th September, 2013) (Delhi High Court) Girdhar Fibers Pvt. Ltd. vs. ACIT (ITA No. 2027/Ahd/2009) (Ahmedabad Tribunal) NCS Distilleries Pvt. Ltd. vs. ITO (ITA No. 699/Hyd/2012) (Hyderabad ITAT) 5.6. This claim was made by the assessee already in assessment year 2011-12 but the same was disallowed by the Ld. AO on the ground that such credit claim was surrendered by the assessee to the Service Tax Department vide written intimation dated 24.02.2012 only and hence it does not relate to assessment year 2011-12. Hence going by the contentions of the ld. AO himself, the assessee claimed the very same sum as deduction in assessment year 2012-13. 5.7. The ld AO however completely disregarded the various contentions of the assessee by observing that the assessee could not show any cogent reason for such immediate write off, except for the fact that it is entitled to do so. This action of the ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is following mercantile system of accounting, the said interest on income tax refund in the sum of ₹ 9,35,01,366/- determined for assessment year 2010-11 u/s 244A of the Act ought to have been offered to tax by the assessee under the head income from other sources. Since the sum was not offered an addition was made to that effect in the assessment. Aggrieved the assessee is in appeal before us. 6.1 Similarly for assessment year 2013-14 , the assessee in the return of income offered interest on income tax refund received u/s 244A of the Act amounting to ₹ 27,34,90,629/-. The assessee in its written submissions dated 25.07.2016 contended that the said interest u/s 244A of the Act is not taxable in India in the light of protocol to India-Netherlands Double Taxation Avoidance Agreement (DTAA) on Article 10,11 and 12 which states that India has entered into DTAA with an OECD member country after India-Netherlands DTAA came into force i.e. after 21.01.1989, which inter alia restricts the scope of taxability of interest, then the scope of such treaty shall also apply under India-Netherlands DTAA. The ld. AO however did not agree to this contention of the assessee and brough ..... X X X X Extracts X X X X X X X X Extracts X X X X
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