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Asstt. Commissioner of Income Tax, Circle -1, Warangal Versus Andhra Pradesh Grameena Vikas Bank,

2015 (4) TMI 1123 - ITAT HYDERABAD

Disallowance of broken period interest - Held that:- The interest received on due date, without deducting the broken period interest paid, amounts to double taxation. According to AS 13, read with the I.T. Act, 1961, the preacquisition element of interest cannot be included in the cost of investment, as such the broken period interest is to be treated as revenue expenses. As relying on assessee's own case [2014 (3) TMI 724 - ITAT HYDERABAD] broken period of interest is an allowable expense - Dec .....

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venue

Disallowance of contribution to the gratuity fund - Held that:- Section 43B permits a deduction in respect of any payment by way of' contribution to a provident fund or superannuation fund or any other fund for the welfare of employees in the year in which the liability is actually discharged. In the present case the appellant has not made any provision for gratuity U/s.40A(7) as on 31-03-2010 as the total amount has been paid on 31-03-2010 and accordingly the said payment of gr .....

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an employee and therefore qualifies as an allowable expenditure u/s 37 of the Act. The loss by embezzlement by employees should be treated as incidental to business and the same should be allowed as deduction in the year in which it is discovered - Decided against revenue

Addition on account of treating the unrealized interest on NPAs as income - Held that:- Respectfully following the decision of the ITAT Hyderabad, in assessee’s own case [2014 (3) TMI 724 - ITAT HYDERABAD], the CIT ( .....

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AYARAGHAVAN, JUDICIAL MEMBER For the Appellant: Smt. G. Aparna Rao, DR For Respondent: Shri T. Umakanth O R D E R Per Smt. Asha Vijayaraghavan, J.M. These are cross appeals preferred both by the Revenue and the assessee against the order of the ld CIT (A)-VI, Hyderabad, dated 26.08.2014 passed for A.Y 2010-11. ITA No. 1771/Hyd/2014 2. Briefly stated, the assessee is a Regional Rural Bank deemed to be a Cooperative Soci .....

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490 on account of the following additions: 1. Disallowance of broken period interest ₹ 5,59,70,000 2. Disallowance of amortization provided on Govt. securities ₹ 6,63,76,000 3 Disallowance of provision for gratuity ₹ 5,61,93,000 4 Interest on NPA ₹ 1,36,22,000 5 Disallowance claim towards staff frauds ₹ 28,68,000 6 Disallowance of provision for audit fees ₹ 1,60,659 3. Aggrieved the a .....

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for the A.Ys. 2007-08 & 2008- 09, further appeal, was made by the Department. The Assessing Officer also relied on the master circular by RBI, and circular No.665 issued by CBDT and the decision of Supreme Court in the case of Vijaya Bank Ltd. Vs. CIT (187 ITR 541) to substantiate his opinion that the broken period interest of ₹ 5,59,70,000/- paid by the assessee in purchase of HTM securities, is not an allowable revenue expenses. Hence, the disallowance. 5. Before the CIT ( .....

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CIT(A)-VI, Hyderabad in favour of assessee, which was also upheld by Hon'ble ITAT, Hyderabad 'A' Bench vide its order dated 13.03.2014 in ITA NO.610/Hyd/2013. Thus, on the lines of the decision of the ITAT in ITA No.610/Hyd/2013 it was held by the CIT (A) that the broken period of interest of ₹ 5,59,70,000 is an allowable expense. 6. The assessee preferred appeal before us. We find that issue is covered by Coordinate Bench decision in ITA No.610/Hyd/2013. Respectful .....

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id, for the period of purchase to date of maturity, on acquiring the securities classified as Held to Maturity(HTM) and the claim of assessee does not fall within the ambit of provisions of Section 35D of the I.T. Act. The Assessing Officer also observed that the HTM category securities are held as investments and not as Stock-in-trade, hence, the appreciation or depreciation, in their value does not have any revenue implications. Assessing Officer had observed that, irrespective of accounting p .....

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rtain sum has to be decided in accordance with accounting practices and as per AS 26, read with I.T.Act, 1961, the premium paid on government securities is an intangible asset, whose life can be ascertained and the same should be written off, over the useful life of the asset. It was also submitted that this issue has been covered by the decision of CIT(A), Vijayawada and CIT(A)-VI, Hyderabad for earlier years, which were upheld by ITAT, Hyderabad, vide its order dated 13.03.2014 in ITA No. 610/ .....

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ile making the disallowance, the AO was of the opinion that the assessee bank did not have an approval for maintaining the gratuity contribution fund. It was further observed by the AO that assessee has not obtained permission for approved gratuity fund and if provision is not made towards approved gratuity fund, the gratuity payable is not allowed u/s 40A(7) of the IT Act. 11. Before the CIT (A), the assessee raised objection on such disallowance, vide the grounds of appeal raised in .....

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. Ltd., which is an approved fund by IRDA, was furnished and requested for allowing the claim on payment basis. The assessee also furnished the working of the quantums towards the liability. 12. The CIT (Appeals)-VI, Hyderabad after considering the grounds of appeal and also the documentary evidence as detailed below. 1) Certificate of Registration No.l11, dt.29/03/2001 issued by IRDA 2) Receipt showing the payment of gratuity amount before filing of the Return a .....

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section 36(1)(va), deduction is allowed in respect of any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund, as defined in section 2(5) of the Act, created by the employer for the exclusive benefit of his employees under an irrevocable trust. After the insertion of section 40A(7), for claiming deduction for gratuity payment, the assessee was required to fulfil the conditions laid down in section 40A(7) and without fulfilling the conditions laid dow .....

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o a gratuity fund is to be allowed in computing the business income of that previous year in which such sum has been actually paid by him." 15. Section 43B permits a deduction in respect of any payment by way of' contribution to a provident fund or superannuation fund or any other fund for the welfare of employees in the year in which the liability is actually discharged. We may, however, add that clause (va) has been inserted in sub-section (1) of section 36 by the Finance A .....

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as on 31-03-2010 as the total amount has been paid on 31-03-2010 and accordingly the said payment of gratuity of ₹ 5,61,93,000/- is an allowable deduction U/s.43B of the I.T.Act, 1961. 17. Reliance is placed on the decision of the Hon'ble Andhra Pradesh High Court, in the case of Hitech(India) (P) Ltd. (Supra) have held that: "The second provision imposes a further restriction on the allowability of deduction of any sum referred to in clause (b). .....

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provident fund or superannuation fund or other fund set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of such employees. Thus, it is clear that the employee s contribution received by the employer would be 'income' in his hands and that would be allowed as permissible deduction under clause (va) of sub-section (1) of section 36 in computing the business income under section 28 provided the assessee credits the same to th .....

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ss the ground of the Revenue. STAFF FRAUDS 19. In computing the total income,. the Assessing Officer disallowed the amounts of ₹ 28,68,000j- claimed as provision for staff frauds, on the ground that provision for frauds cannot be equated with provision for bad and doubtful debts, and frauds were not let off or written off normally and the embezzled money usually recovered. It was also observed by the Assessing Officer that only certain provisions as prescribed by I. T .....

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of ITAT 'A' Bench, Hyderabad in ITA No.610/Hyd/2013 dated 13.03.2014./ 21. Respectfully following the decisions of the ITAT on the issue in assessee s own case, CIT (A) was of the opinion that the provisions for staff frauds is an allowable expenditure and accordingly the addition of ₹ 28,68,000 was ordered to be deleted. 22. Respectfully following the decision of the Coordinate Bench in ITA No.610/Hyd/2013, dated 13.03.2014, the ground of the Revenue is dismi .....

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st on NPA was credited in the books of accounts, in accordance with the Mercantile System of accounts, as per which the receipts are required to be accounted in books of accounts, irrespective of dates, when such amounts are received. 25. As could be seen from the information brought on record, the assessee is consistently following the method of recognizing the interest on NPA, as per the prudential norms of income recognition as issued by the RBI and accordingly has not included suc .....

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2014 in ITA No.610/Hyd/2013 in assessee s own case wherein ITAT following the decision of the Hon'ble Supreme Court in the case of Southern Technologies (320 ITR 577) which was not considered by ITAT in its order dated 29.04.2013 has held as under: As regards Ground No.5 relating to addition made by the AO towards accrued interest on non-performing assets, we find that the Tribunal has considered this issue in assessee s case at Paras 13 to 17 of its order and has held it in favou .....

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.01.2010 the same has not been considered by the Tribunal and hence, the finding of the Tribunal in assessee s own case for A.Ys 2007-08 and 2008-09 cannot be followed. In view of the same, this ground of appeal of the Revenue is allowed . 26. Respectfully following the decision of the ITAT Hyderabad, in assessee s own case, the CIT (A) had no hesitation in holding that unrealized interest on NPAs constitute income to the assessee on the principle that the RBI directives were only in .....

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