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2016 (3) TMI 1087 - ITAT KOLKATA

2016 (3) TMI 1087 - ITAT KOLKATA - TMI - Disallowance made under section 14A - Held that:- As rightly submitted by the ld. counsel for the assessee relying on the several decisions of the Tribunal, the similar disallowance made under section 14A has been restricted by the Tribunal to 1% of the exempt income by treating the same to be fair and reasonable. In the present case, the disallowance offered by the assessee under section 14A is more than 1% of the exempt income and this being the undispu .....

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for deduction under section 36(1)(viii) and accordingly direct the Assessing Officer to allow the claim of the assessee for deduction under section 36(1)(viii) after verifying the quantum thereof in accordance with law. - Decided in favour of assessee

Restricting the claim of the assessee for deduction under section 36(1)(viia) of the Act for provision for bad and doubtful debts - Held that:- It is observed that a similar issue has been decided in favour of the revenue and against th .....

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we respectfully follow the decision of the Hon’ble Punjab & Haryana High Court and uphold the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on account of deduction under section 36(1)(viia).- Decided in favour of assessee

MAT applicability - Held that:- The provision of section 115JB is not applicable in the case of the assesese and accordingly delete the additions made by the Assessing Officer and confirmed by the ld. CIT(Appeals) wh .....

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–vs.- CIT reported in [2000 (8) TMI 4 - SUPREME Court ], wherein it was held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed, although the liability may have to be quantified and discharged at a future date. It was held that what should be certain is the incurring of the liability which should be capable of being estimated with reasonable certainty though the actual quantification may not be p9ossible. It was held that if these requirem .....

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ction 36(1)(vii) - CIT(A) deleted the addition - Held that:- In the case of Catholic Syrian Bank Limited reported [2002 (8) TMI 266 - ITAT COCHIN ] also confirmed by SC [2012 (2) TMI 262 - SUPREME COURT OF INDIA ] held that the debts actually written off, which do not actually arise out of the rural advances, are not affected by the proviso to section 36(1)(vii) and deduction on account of only those bad debts written off, which arises out of rural advances is to be limited in accordance with th .....

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d not been claimed by it as deduction in any of the earlier years and the provisions of section 41(1) thus are not applicable. Although the ld. D.R. has strongly opposed to this request of the ld. counsel for the assessee, we consider it fair and reasonable and in the interest of justice to accede to the said request. Accordingly, the impugned order of the ld. CIT(Appeals) on this issue is set aside and the matter is restored to the file of the Assessing Officer for the limited purpose of giving .....

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ER SHRI P.M. JAGTAP :- Out of these three appeals, two appeals being ITA No. 2175/KOL/2009 (assessee s appeal) and ITA 2070/KOL/2009 (Revenue s appeal) are cross appeals for A.Y. 2005-06, which are directed against the order of the ld. Commissioner of Income Tax (Appeals)-VI, Kolkata dated 28.10.2009, while the remaining third appeal being ITA No. 2176/KOL/2009 is the assessee s appeal for A.Y. 2006-07, which is directed against the order of the ld. Commissioner of Income Tax (Appeals)-VI, Kolka .....

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case is a Government of India Undertaking, which is engaged in Banking business. The return of income for the year under consideration was filed by it on 31.10.2005 declaring a loss of ₹ 6,67,27,05,079/- under normal provisions of the Act and the negative book profit of ₹ 3,39,63,29,770/- under section 115JB of the Act. In the said return, dividend income of ₹ 26.10 crores and interest on tax-free Bonds of ₹ 22.74 crores received during the year under consideration was c .....

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ssessee. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer under section 14A. 4. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly submitted by the ld. counsel for the assessee relying on the several decisions of the Tribunal, the similar disallowance made under section 14A has been restricted by the Tribunal to 1% of the exempt income by treating the same to be fair and reason .....

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ed. 5. The issue involved in Grounds No. 3 & 4 of the assessee s appeal for A.Y. 2005-06 relates to the disallowance of ₹ 11,63,09,158/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of deduction claimed by the assessee under section 36(1)(viii) of the Act. 6. The deduction claimed by the assessee under section 36(1)(viii) in respect of reserve created from profits earned out of long-term finance provided for industrial, agriculture and infrastructure d .....

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on under section 36(1)(viii). 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that this issue involved in Grounds No. 3 & 4 of the assessee s appeal is squarely covered in favour of the assessee by the decision of Mumbai Bench of this Tribunal in the case of Union Bank of India -vs.- ACIT rendered vide its order dated 30.06.2011 passed in ITA Nos. 4702 to 4706/MUM./2010, wherein a similar issue has been .....

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ined in an inclusive manner so as to include a Govt. company and a public company. Hence financial corporation should include 'Bank" also. The Memorandum explaining the amendment to Sec. 36(1)(viii) w.e.f. 1.2.2008 has clearly stated as follows: "The provision has also been restructured to provide for different categories of entities (which now also includes co-operative banks) and their respective activities for eligibility of the deduction under the said clause. For claiming dedu .....

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r the restructuring done to define the financial corporation is only clarificatory as we can see from the notes on clauses which read as follows: "The proposed amendment further seeks to define certain terms including specified entities and 'eligible business' for the purposes of deduction . 11. Since the definition is only clarificatory in nature, it can be presumed that the entity such as the assessee were covered in the definition from the inception of the section. 12. Even other .....

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(viii) since it is Govt. company. However the deduction available under this section will be restricted to the amount transferred to Special reserve subject to the limit of prescribed percentage of profits derived from providing long term finance for the approved purposes mentioned in sec 36(1)(viii). For the purpose of determining the deduction available to the assessee u/s. 36(1)(viii) the issue is remitted back to the file of the A.O. subject to the above direction the appeal of the assessee .....

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ingly treated as allowed. 8. The issue involved in Ground No. 5 of the assessee s appeal for A.Y. 2005-06 relates to the disallowance of ₹ 2,31,42,83,800/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by restricting the claim of the assessee for deduction under section 36(1)(viia) of the Act for provision for bad and doubtful debts. 9. In the return of income, deduction under section 36(1)(viia) on account of provision for bad and doubtful debts was claimed by the as .....

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essing Officer on this issue by following his appellate order passed in assessee s own case for A.Y. 2004-05. 10. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that a similar issue has been decided by the Hon ble Punjab & Haryana High Court in favour of the revenue and against the assessee in the case of State Bank of Patiala-vs.- CIT reported in 272 ITR 54, wherein it was held that the deduction allowab .....

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sallowance made by the Assessing Officer on account of deduction under section 36(1)(viia). Ground No. 5 is accordingly dismissed. 11. Grounds No. 6 to 10 of the assessee s appeal for A.Y. 2005-06 and additional grounds no. 1 & 2 raised by the assessee and admitted by us involve the issues relating to the various additions made by the Assessing Officer and confirmed by the ld. CIT(Appeals) while computing the book profit under section 115JB of the Act. 12. We have heard the arguments of both .....

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tate Electricity Board -vs.- ACIT reported in 220 ITR 422 and another decision of the Mumbai Bench of ITAT in the case of Union Bank of India -vs.- ACIT (supra). As held by the Mumbai Bench of ITAT in the case of Union Bank of India (supra), provision of section 115JB is not applicable to the Bank as it is not required to prepare its profit & loss account in accordance with Schedule 6B(i) of the Companies Act, 1956 but it prepares its Profit & Loss Account as per the Banking Regulation A .....

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d. 13. Now we take up the Revenue s appeal for A.Y. 2005-06 being ITA No. 2070/KOL/2009, Grounds No. 1 & 2 of which involve a common issue relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.138.83 crores .made by the Assessing Officer on account of provision for salary arrears. 14. In the return of income filed for the year under consideration, a deduction of ₹ 138.83 crores was claimed by the assessee on account of provision for salary arrears. In this connection, .....

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d Officers Associations on wage revision. It was submitted that even though the final agreement was not executed during the year under consideration, provision of ₹ 138.83 crores was made in the accounts based estimate of such liability made by the Management and duly verified by the statutory auditors. These submissions made by the assessee in support of its claim for deduction on account of provision for salary arrears were not found acceptable by the Assessing Officer. According to him, .....

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d before the ld. CIT(Appeals) and after considering the submission made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said disallowance for the following reasons given in his impugned order:- I have gone through the submissions of the appellant and also the order of the A.O. According to the Accounting standard 29 issued by the ICAI "provision" is a liability which can be measured only by using a substantial degree of estimation. A " .....

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be made out of the obligation. If the above conditions are made, provision should be recognized in the financial statements. It is an accepted principle that the salary/wage accrued daily, weekly, monthly as per the contract of appointment. The liability of the bank to pay salary and wages at the revised rates commenced from the date of expiry of the agreement. The liability to compensate the employees for the services rendered is an existing liability. There is an every probability of outflow o .....

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of obligation is possible. This decision was rendered by the Honorable Supreme Court in connection with the provision made by the assessee for obligation under warranty contraction careful analysis of this decision, it can be seen that the Court has taken into cognizance AS 29 of ICAI in deciding whether a provision for expenditure is allowable or not. Following the above decision of the Supreme court, the ITAT, Nagpur bench in the case of Western Coalfields limited v ACIT, 2009-TIOL-589-ITAT-N .....

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the amount of salary arrears payable to the staff and Officers could reasonably be quantified and in the absence of the same as well as any specific event that occurred during the year under consideration showing that the liability on account of salary arrears had crystallized, the provision made by the assesese for salary arrears represented unascertained liability which was not allowable as deduction, as rightly held by the Assessing Officer. He contended that the ld. CIT(Appeals), however, ov .....

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not pertaining to the year under consideration alone, but the same pertained to A.Y. 2003-04 and 2004-05 also. He has submitted that the decision of Hyderabad Bench of ITAT in the case of Andhra Pradesh Gramin Vikas Bank (ITA Nos. 51 & 88/HYD/2015 dated 10.04.2015), on the other hand, is directly applicable to the facts of the present case and strongly relied on the same in support of the Revenue s case on this issue. 17. The ld. counsel for the assessee, on the other hand, submitted that th .....

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t that as per the agreement finally entered into in May, 2005, a wage revision of 13.25% was agreed is sufficient to show that the provision made by the assessee at 13% represented a liability, which could be reasonably estimated. He submitted that a similar issue involved in the case of ABP Company Limited -vs.- ACIT has been decided by the Coordinate Bench of this Tribunal in favour of the assesese in similar facts and circumstances vide its order reported in 78 TTJ (CAL) 158. 18. We have cons .....

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asonable certainty in the year under consideration. In this regard, it is observed that the negotiations between Indian Banks Association and Employees Union had already taken place and the final understanding was almost reached during the year under consideration, which is evident from the fact that the final agreement for revision was entered into in the month of May, 2005 itself, i.e. immediately after the end of the year under consideration. The fact that the revision was finally settled wit .....

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lary arrears in the said case had arisen as a result of proceedings held on 24.07.2010, i.e. much later than the closure of the relevant year under consideration and this being the undisputed position, the Tribunal held that the said liability having neither arisen nor discharged during the relevant year was not allowable as deduction. 20. In the case of IBP Company Limited (supra), the fact situation involved, on the other hand, was similar to the case of the assessee inasmuch as, the Pay Scale .....

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of Public Enterprise Guidelines in assessment year 1989-90 was not for contingent liability and the reasonable provision for such liability was required to be taken into account for arriving at the commercial profit. In arriving at this conclusion, the Tribunal relied on the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers Limited -vs.- CIT reported in 245 ITR 428, wherein it was held by the Hon ble Apex Court that if a business liability has definitely arisen in the acc .....

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nouncements is clearly applicable to the facts of the present case and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for deduction on account of provision for salary arrears. Grounds No. 1 & 2 of the Revenue s appeal are accordingly dismissed. 21. The issue involved in Ground No. 3 of the Revenue s appeal relating to the assessee s claim for deduction on account of provision for salary arrears while computing the book .....

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disallowance of assessee s claim for bad debts written off under section 36(1)(vii) of the Act. 23. In the Profit & Loss Account, a sum of ₹ 75,00,00,000/- was debited by the assessee on account of bad debts written off relating to Non-Rural Branches and the same was claimed as deduction under section 36(1)(vii). In this regard, the Assessing Officer noted that the opening balance in the provision for bad and doubtful debts made by the assessee under section 36(1)(viia) was to the exte .....

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75,00,00,000/- by following the decision of Tribunal in assessee s own case for A.Y. 2003-04 rendered vide its order dated 30.09.2009, wherein it was held that the proviso to section 36(1)(vii) is not applicable in respect of bad debts written off relating to Non-Rural Branches of the Bank when provision for bad and doubtful debts under section 36(1)(viia) has all along been claimed by the assessee only in respect of doubtful debts relatable to Rural Branches. He also relied on the decision of S .....

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the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Ground No. 4 of the Revenue s appeal for A.Y. 2005-06 now stands squarely covered by the decision of the Hon ble Supreme Court in the case of Catholic Syrian Bank Limited (2012) 3 SCC 784 whereby the view taken by Cochin Special Bench of ITAT has been affirmed by the Hon ble Apex Court. Respectfully following the said decision of the Hon ble Supreme Court in the case of Catho .....

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26. In Ground No. 3, the assessee has disputed the addition of ₹ 45.09 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of the amount transferred from Contingency Account - General to the credit of Profit & Loss Account. 27. During the year under consideration, the assessee-Bank had transferred old outstanding balances aggregating to ₹ 104.63 crores from Contingency Account - General to the credit of the Profit & Loss Account under the he .....

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made addition of ₹ 45.09 crores to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer for the following reasons given in his impugned order:- l have gone through the submissions of the appellant and also the order of the AO. In the assessment order at Para 9, AO after analysing the credits made to the profit and loss account opined that reversal of bills payable/debit note payable etc. for ₹ 43.12 crores, revers .....

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dered as expenditure of that particular year. The appellant at the time of the appeal hearing submitted that these accounts were more than 10 years old and the details of bills payable, debit notes payable and sundry creditors belonging to the corresponding years were not produced. In view of this I agree with the order of the A.O. on this ground of appeal and the ground of appeal is dismissed . 28. We have heard the arguments of both the sides on this issue and also perused the relevant materia .....

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reditors by the assessee himself to the Reserve Account clearly attracted the provisions of section 41(1), the ld. counsel for the assessee has submitted that the facts involved in the present case are altogether different, inasmuch as, no deduction was claimed by the assessee in any year while computing its total income on account of the amounts in question representing flabby accounts and sundry creditors, the balances of which were credited to the Profit & Loss Account. He has contended t .....

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st of the ld. counsel for the assessee, we consider it fair and reasonable and in the interest of justice to accede to the said request. Accordingly, the impugned order of the ld. CIT(Appeals) on this issue is set aside and the matter is restored to the file of the Assessing Officer for the limited purpose of giving the assessee an opportunity to establish its case that no deduction on account of the amounts in question was claimed by it while computing the total income of any of the earlier yea .....

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debts in the books of account is similar to the one involved in Ground No. 5 of the assessee s appeal for A.Y. 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2005-06, we uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss Ground No. 4 of the assessee s appeal. 30. As regards the issue involved in Grounds No. 5 & 6 of the assessee s appeal for A.Y. 2006-07 relating to the disallowance of S .....

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