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TMI Blog2023 (7) TMI 1448X X X X Extracts X X X X X X X X Extracts X X X X ..... le upto Rs.15,000/-, each on employee, there is no requirement to make TDS on such payment. The records for such medical allowance/reimbursement is voluminous and bulky, therefore all the documents could not be furnished by the assessee during the assessment proceedings. The declarations on sample basis containing therein the payment of reimbursement/allowance for the actual medical expenses incurred by such employees were submitted before the AO. On perusal of paper submitted along with explanation, there is list of 63 branches and amount as per each branch. Likewise, there is list of all branches having figures of other reimbursement - In respect of other allowances we note that it is nothing but the tea allowance given to the employees for their expenditure on tea and coffee in performance of their duties during the banking hours only and thus, it is the part of the office expenses and not in the nature of any allowance forming part of the salary. We note that reimbursement of medical expenses and Tea allowance has been incurred while doing the business and therefore it is allowable expenses. Both expenses are allowed in earlier as well as subsequent assessment years under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses u/s 37 of the Act. Hence conclusion reached by CIT(A), therefore, are correct, hence we dismiss ground no.6 raised by the Revenue and we also dismiss ground No.2 raised by the assessee. TDS u/s 194C - payment towards the purchase of internet bandwidth being the transactions falls within the ambit of sale of Goods Act , as the payments towards the technical services - HELD THAT:- AO has asked the assessee to submit a copy of ledger account for these expenses, however the assessee did not furnish the same before the assessing officer, which was specifically asked from the assessee to submit before AO. Besides, the nature of expenditure was not explained by the assessee before the lower authorities. Therefore, we are of the view that one more opportunity should be given to the assessee to explain the nature of expenditure before the assessing officer. We remit this issue back to the file of the assessing officer to examine the ledger account and nature of expenditure. The assessee is also directed to submit the ledger account and the documents to explain the nature of expenditure. Hence, ground raised by the assessee, is treated to be allowed for statistical purposes. - SHRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been upheld u/s 40(a)(ia) for failure to deduct TDS on the same. (v) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/- without appreciating the fact that the assessee is using this fund to cover up shortfall and pay employees contribution which is in fact to be collected from its employees and hence not an allowable expenses in the hands of the assessee. (vi) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in partially deleting the disallowance to gift expenses to staff, director, customers and others and restricting it to Rs.6,98,375/- on estimating basis without actually on facts quantifying the amount to the extent relief allowed and when in principle the CIT(A) has held these expenses as not allowable. (vii) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-4 Surat may be set-aside and that of the Assessing Officer's order may be restored. (viii) On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pparent misinterpretation, misconstruction and misapplication of the provisions of section 36(1)(viia)(a) of the Act and thus, liable to be stuck down. 5. On the facts and in the circumstances of the case in law, both the lower authorities have rightly found, verified and accepted the total aggregate average advances made by the rural branches of the assessee bank for the total amount of Rs.189.12 Crores (as computed in terms of Rule 6ABA of the I.T. Rules, 1962) and thus, the deduction claimed u/s 36(1)(viia)(a) of the Act for the total amount of Rs.6,78,45,000/- is within the threshold limit of 10% of the aggregate average advances made by the rural branches and 7.5% of the total income (computed before making deduction under this Clause and Chapter VI-A) and therefore, the order passed by the CIT(Appeals) restricting the deduction to the extent of 7.5% of the total income is without jurisdiction, patently in contravention to the provisions of the law, arbitrary, invalid, void ab initio, illegal and hence, liable to be quashed. 6. On the facts and in the circumstances of the case and in law, the CIT(Appeals) erred in confirming the addition of Rs.65,07,102/- made by the AO on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,73,75,000/- u/s 36(1)(viia)(a) of the Act, only to the extent of 7.5%, on account of provision for bad and doubtful debts. The ld CIT(A) ought to have allowed the deduction at the rate of 10%. Therefore, ld Counsel pointed out that the legitimate benefit of deduction available for an amount not exceeding 10% of the aggregate average advances made by the rural branches of the assessee bank, therefore deduction u/s 36(1)(viia)(a) of the Act, must be allowed at the rate of 10%. 8. However, Learned counsel for the assessee invited our attention to the order dated 04.07.2022, passed by the Division Bench of this Tribunal in assessee s own case in for the Assessment Year 2017-18, 146 taxmann.com 495 (Surat-trib) whereby the issue of relating to deduction claimed under section 36(1) (viia) and provision for doubtful debts, created against standard assets have been discussed and adjudicated in favour of assessee. The Learned Counsel for the assessee submitted that ground Nos. 1 to 3 raised by the Revenue and ground Nos. 4 and 5 raised by the assessee, are squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 9. Learned Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for standard assets, the Assessing Officer held that standard assets cannot be treated to have provided against bad and doubtful debts under the standard assets a performing assets. Though it is mandatory in provision for standard assets as per RBI s norm but it cannot be categorized as doubtful debts for allowing deduction under section 36(1)(viia)(a). For the provision of bad and doubtful debts against standard asset of Rs. 50 Lakhs, the assessing officer held that this is a performing asset, which is governed by 2(1)(xv) of Non-banking financial companies prudential norms (Reserve Bank) directions 1998. It was held that though it is mandatory but cannot be categorised as bed debts For security depreciation of Rs.1.50 crores the Assessing Officer held that this reserve for contingency and not a provision for bad and doubtful debts. For fourth provision of Rs.50 lakh, Assessing Officer held that investment depreciation fund is also provision to cover the value of stock-in-trade which is also contingent in nature. We find that Ld. CIT(A) after examining the statutory provision and held that assessee has a rural advance of Rs.159 Crore (rounded) against which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(viia) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unless it is specifically so stipulated or is clear from the scheme of the Act. As far as the question of double benefit is concerned, the Legislature in its wisdom introduced Section 36(2)(v) by the Finance Act, 1985 with effect from 01.04.1985. Section 36(2)(v) concerns itself as a check for claim of any double deduction and has to be read in conjunction with Section 36(1)(viia) of the Act. It requires the assessee to debit the amount of such debt or part thereof in the previous year to the provision made for that purpose. Effect of Circulars 18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, apos; the Board apos;) in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 2001 with effect from 1st April, 2001. 21. A Circular No.421 dated 12th June, 1985 [(1985) 156 ITR (St.) 130] attempted to explain the amendments made to Section 36 and also explained the provisions of clause (viia) of Section 36(1). It reads as under : Deduction in respect of provisions made by banking companies for bad and doubtful debts. 17.1 Section 36(1)(vii) of the Income-tax Act provides for a deduction in the computation of taxable profits of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non- scheduled bank in relation to advances made by its rural branches, of any amount not exceeding 1 per cent of the aggregate average advances made by such branches. 17.3 Having regard to the increasing social commitments of banks, section 36(1)(viia) has been amended to provide that in respect of any provision for bad and doubtful debts made by a scheduled bank [not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision and to that extent, they were being discriminated against. Further, it was felt that the existing ceiling in this regard, i.e., 10% of the total income or 2% of the aggregate average advances made by the rural branches of Indian banks, whichever is higher, should be modified. Accordingly, by the Amending Act, the deduction presently available under clause (viia) of subsection (1) of section 36 of the Income-tax Act has been split into two separate provisions. One of these limits the deduction to an amount not exceeding 2% of the aggregate average advances made by the rural branches of the banks concerned. It may be clarified that foreign banks do not have rural branches and hence this amendment will not be relevant in the case of the foreign banks. The other provisions secure that a further deduction shall be allowed in respect of the provision for bad and doubtful debts made by all banks, not just the banks incorporated in India, limited to 5% of the total income (computed before making any deduction under this clause and Chapter VI-A). This will imply that all scheduled or non- scheduled banks having rural branches would be allowed the deduction up to 2% of the aggregate av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of apos; any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee apos;. Thus, the concept of making a provision for bad and doubtful debts will fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances. 20. We find that co-ordinate Bench of ITAT Amritsar Bench in DCIT vs. Punjab Gramin Bank (ITA No.731/Asr/2017) while considering the provision for bad and doubtful debts under section 36(1)(viia) on standard assets passed the following order; 11. We shall now advert to the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It has been the claim of the assessee that the provision for bad and doubtful debts had been made in accordance with the instructions and circulars of the RBI on the said issue. We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat for the relevant assessment years commencing on or after the 1st day of April,2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words five percent , the words ten percent had been substituted: Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head Profits and gains business or profession. From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completeness, the findings of the Hon'ble Tribunal are reproduced below: 12. We have heard the rival parties and have gone through the material placed on record. We find that the issue of provision for doubtful debts on standard assets is covered in favour of assessee by the order of the Tribunal dated 22.06.2016 for Assessment Year: 2008-09, wherein the appeal of the revenue was dismissed which was filed by Revenue on similar grounds. The relevant findings of the Tribunal as contained in para 8 onwards are reproduced below. 8. We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs. 50,00,000/- which included a sum of Rs. 13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs. 36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The Ld. CIT(A), however, allowed relief to the assessee by holding that the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub- section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we affirm the order of Ld. CIT(A) by adding our aforesaid observation. 25. So far as decision relied by Ld. CIT-DR in Jhabua Dhar Kshetriya Gramin Bank (supra), is concerned, we find that ratio of decision is not applicable on the facts of case in hand. In the said the Tribunal relied on its earlier decision in Narmada Gramin Bank Vs ACIT (supra) wherein the issue of provision under section 36(1) (viia) was restore to the file of assessing officer for recomputation of claim of deduction to the extent of amount written back in the books of account. Thus, the facts of that case are in variance. 26. In the result, ground No.1 3 raised by the Revenue is dismissed. 5. Considering the decision of Tribunal in assessee s own case for A.Y. 2010-11 and the fact the Ld. CIT(A) while granting relief to the assessee followed the order of his predecessor dated 06/10/2014 in Appeal No. CAS-1/119/2013-14 (A.Y.-2010-11). It is retreated the order of Ld. CIT(A) has already been affirmed by this bench in ITA No. 16/Ahd/2016 dated 17.05.2022. Thus, following the principal of consistency, we do not find merit in the grounds of appeal raised by the revenue. 6. In the result, this appeal of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to every employee on production of declaration supported by bills, certificates etc; forming part of the Gross Salary, but Statutory deduction for such medical allowance is allowable upto Rs.15,000/- hence no TDS is made on its payment. On perusal of paper submitted along with explanation, there is list of 63 branches and amount as per each branch totaling Rs.66,02,500/-. Likewise, there is list of all branches having figures of other reimbursement totaling Rs.21,46,930/-. In respect of other allowances of Rs.21,46,930/-, we note that it is nothing but the tea allowance given to the employees for their expenditure on tea and coffee in performance of their duties during the banking hours only and thus, it is the part of the office expenses and not in the nature of any allowance forming part of the salary. We note that reimbursement of medical expenses and Tea allowance has been incurred while doing the business and therefore it is allowable expenses. Both expenses are allowed in earlier as well as subsequent assessment years under section 143(3) of the Act by the assessing officer. Therefore, we do not find any infirmity in the order of ld CIT(A) in deleting the addition of Rs.87,57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount as stated in clause (b) above, distribute and credit the amount to the individual accounts of the members in proportion to the total amount standing to his credit as on the period of account. (d) With effect from 01.04.1003, the account of each employee shall be credited with the interest calculated on monthly running balance basis with effect from the last day in each year at such rate as may be decided by the Board of Trustees, but shall not be lower than the rate declared for the Employees Provident Fund by the Govt. of India under Paragraph 60 of the Employees' Provident Funds Scheme, 1952. Calculations shall be done in the following manner: - (i) On the amount at the credit of a member on the last day of the preceding year, less any sums withdrawn during the current year interest for twelve months; (ii) On sums withdrawn during the current year interest from the beginning of the current year up-to the last day of the month preceding the month of with drawals; (iii) On all the sums credited to the Member's account after the last day of the preceding year interest from the first day of the month succeeding the month of credit to the end of the current year; (iv) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore we adjudicate ground No.6 raised by the Revenue and ground No.2 raised by assessee together. 19. We have heard both the parties. Learned DR for the Revenue argued that the Ld. CIT(A) has erred in partially deleting the disallowance to gift expenses to staff, director, customers and others and restricting it to Rs.6,98,375/-, on estimating basis, without actually on facts quantifying the amount to the extent relief allowed and when in principle the CIT(A) has held these expenses as not allowable. On the other hand, ld Counsel for the assessee defended the order passed by ld CIT(A). We note that gift expenses were claimed by the assessee to the tune of Rs.13,98,375/-. Out of Rs.13,98,375/-, the ld CIT(A) allowed Rs.6,98,375/- and balance Rs.7,00,000/- was confirmed. During the assessment proceedings, the assessing officer noted that there are entries of Rs.2,14,997/-, Rs.13,320/-, Rs.2,61,882/-, Rs.7,64,396/- Rs.61,800/- and from the explanation and details filed by assessee it is apparent that the expenses are incurred for giving gifts to employees of bank, customers, Directors of bank and Employees of regulatory Departments in Government Banking sector. Actual break up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requested to furnish the copy of ledger accounts of the above stated connectivity expenditure to ensure that TDS applicable on this expenditure are made and paid in the Government account before due date. 24. In response to show cause notice the assessee submitted, vide letter dated 16.12.2013 that connectivity charges include lease line charges, reliance branch connectivity (backup line) and other networking delivery charges and much less, it is like the telephone bills and not otherwise, and therefore, such payments are not covered by the IDS provisions. 25. However, the assessing officer rejected the contention of the assessee and observed that in the P L account, expenditure of Rs.27,28,096/- under the head Connectivity charges were too excessive compared with previous year's expenditure of Rs.6,63,495/-. While going through papers attached with reply of assessee, it was noted by AO that as claimed in reply it is not only payment made to BSNL Reliance only but to many persons. Moreover, some of the bills attached are of monthly charges for connectivity like telephone bill but all bills/payments are not as such and are for different purpose vide Item No. 10 of show cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without making TDS u/s 194C of the I.T. Act. Item No. 10 of show cause notice dated 22.11.2013 specifically asked for proof of TDS made and paid in Government account. Assessee bank has failed to deduct TDS u/s 194C of the Act from payment of Rs.13,48,049/- for annual maintenance contract of software company. In view of above, expenditure of Rs.13,48,049/- out of total expenditure under the head of connectivity charges was disallowed by AO u/s 40(a)(ia) of the Act. 26. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. Aggrieved by the order of ld. CIT(A), the assessee is in further appeal before us. 27. The Ld. Counsel for the assessee submitted that assessee has submitted detailed ledger account, bills/vouchers before the assessing officer, vide written submission dated 16.12.2013 (at page nos. 164 to 165 of appeal memo). Moreover, the detailed explanation has also been provided to the CIT(A), vide written submission dated 25.01.2016. The relevant bills as well as copy of voucher (on example basis) are placed with paper book-1 (page nos. 12 to 14), therefore addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/-. During the year, there is increase of Rs.65,07,102/- in this account. On the third page of this copy of ledger, it is mentioned that, these entries are made in respect of receipts of interest at the time of redemption of security . While offering further explanation on this issue vide written submission page marked Q.15, it is demonstrated that, while passing entry of interest, Bank account is debited, TDS made on such interest income is also debited and interest received account is credited. In this way, actual income of Rs.65,07,102/- as credited reflected in the copy of ledger of Security Depreciation Fund should have been included in the total interest income of assessee bank in the Profit Loss Account. In fact said income of interest on security to the extent of Rs.65,07,102/- is not included on credit side of P L account because copy of ledger of Security Depreciation Fund has no effect in P L account but only reflected in the balance sheet of the assessee bank. From this copy of ledger, it is made out that from this account, amount of Rs.46,77,885/- is transferred to reverse account of No.2201. Likewise, there is transfer of profit to fund for Rs.1,00,00,000/- on the la ..... 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