2021 (1) TMI 357 - AT - Income Tax

Disallowing provision made for privileged leave encashment - provision was made on actual valuation treating the same as contingent liability - assessee is a regional rural bank established under Rural Banks Act and is a scheduled bank classified under second Schedule of RBI having several Rural Branches - According to the AO the claim for deduction cannot be allowed in view of clause (f) to section 43B which was inserted by Finance Act 2003 - HELD THAT - We find that the Hon ble Supreme Court has reversed the decision of the Hon ble Calcutta High Court in the case of Exide Industries Ltd. Anr. 2007 (6) TMI 175 - CALCUTTA HIGH COURT and has upheld the constitutional validity of section 43B(f) of the Act. In view of the provision of section 43B(f) of the Act which provides that any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall not be allowed as deduction unless it is actually paid and deduction is allowed only in the previous year in which the sum is actually paid the claim made by the assessee for deduction cannot be sustained. We therefore uphold the order of CIT (Appeals) and dismiss ground No. 2. Disallowance provision made for bad and doubtful debts u/s. 36(1)(viia) - CIT (Appeals) confirmed the order of AO as the assessee could not produce the required evidence before the CIT(A) also - HELD THAT - As assessee however pointed out that in AYs 2011-12 to 2012-13 ITAT remanded the issue with a direction to the assessee to file the required details in the prescribed form and directed the AO to examine the issue afresh. In such circumstances we set aside the order of CIT (Appeals) and restore the issue to the AO with a direction to the assessee to file the necessary details to establish its claim for deduction as required under Rule 6ABA of the Rules. Disallowing u/s. 40(a)(ia) - Payment to contractors AND Payment of professional fee - AO was of the view that the aforesaid payments fall under the provisions of section 194C and 194J of the Act respectively - assessee has contended that it had obtained Form 15G 15H in respect of amount paid to contractors - HELD THAT - If the AO accepts the contention of assessee that expenditure was capitalized then there is no necessity to examine the filing of Form 15G 15H. The AO is therefore directed to verify whether the expenditure claimed is capital expenditure and if so delete the addition. If the same has been claimed as revenue expenditure then the assessee should be permitted to file Form 15G 15H so that TDS obligation can be said to be non-existent. Accordingly ground No. 5 is treated as allowed for statistical purposes.

Summary

Issues:
1. Disallowance of provision made for privileged leave encashment
2. Disallowance of provision made for bad and doubtful debts under section 36(1)(viia)
3. Disallowance under section 40(a)(ia) for not deducting TDS on payments to contractors

Issue 1 - Provision for privileged leave encashment:
The appellant, a regional rural bank, claimed a deduction for provision of leave encashment. The AO disallowed the claim stating it was a contingent expenditure under section 43B(f) of the Income-tax Act. The CIT (Appeals) upheld the AO's decision. The appellant argued citing a decision by the Hon'ble Calcutta High Court. However, the ITAT noted that the Hon'ble Supreme Court reversed the Calcutta High Court's decision, upholding the constitutional validity of section 43B(f). As per the provision, deduction is allowed only when the sum is actually paid. Therefore, the claim for deduction was not sustained.

Issue 2 - Provision for bad and doubtful debts under section 36(1)(viia):
The appellant claimed a deduction for bad and doubtful debts under section 36(1)(viia). The AO allowed a portion of the claim but disallowed the rest as the appellant failed to provide evidence to substantiate the claim. The CIT (Appeals) confirmed the disallowance. The ITAT, considering past remands by ITAT for similar issues, set aside the CIT (Appeals) order and directed the appellant to provide necessary details to establish the claim for deduction as required.

Issue 3 - Disallowance under section 40(a)(ia) for not deducting TDS:
The AO disallowed a deduction under section 40(a)(ia) for not deducting TDS on payments to contractors and professional fees. The appellant argued that the sum was already paid and not outstanding, hence no disallowance should be made. The AO disagreed, citing a Gujarat High Court decision. The CIT (Appeals) directed the AO to verify the claim. The ITAT directed the AO to check if the expenditure was capital, and if so, delete the addition. If claimed as revenue, the appellant should be allowed to file Form 15G & 15H to negate TDS obligation. The appeal was partly allowed for statistical purposes.

In conclusion, the ITAT's judgment addressed the issues of disallowance of provisions for leave encashment, bad and doubtful debts, and TDS deduction, providing detailed analysis and directions for each issue based on legal provisions and precedents.