TMI Blog2018 (9) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... ntant in the prescribed form as mandated in first proviso to section 201(1) of the Act to prove that the payee had included the subject mentioned receipt as its income and had paid taxes thereon. Hence by application of second proviso to section 40(a)(ia) and 201(1) of the Act, which has been held to be retrospective in operation in the case of Principal CIT vs Tirupati Construction [2016 (8) TMI 1310 - CALCUTTA HIGH COURT]], we hold that no disallowance u/s 40(a)(ia) of the Act in the hands of the payer assessee could be made. Disallowance of Payment made to employees in relation to unfunded pension - Held that:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to the assessee bank for the year under appeal. Refund of TDS as deducted from interest paid to its head office and other overseas branches - Held that:- Since the issue is already settled in favour of the assessee, the ld AO has to give refund of the said TDS. We are not inclined to accept the arguments of the revenue that the said refund is to be collected from the TDS officer and not from the assessing officer. Accordingly, we direct the ld AO to grant refund of TDS to the assessee with immediate effect. - I.T.A No. 503/Kol/2016, I.T.A No. 505/Kol/2016 - - - Dated:- 5-9-2018 - Shri Aby. T. Varkey, JM Shri M.Balaganesh, AM For the Department : Shri G. Mallikarjuna, CIT DR For the Assessee : Shri R. N. Bajoria, AR ORDER Per M.Balaganesh, AM 1. These cross appeals arise out of the final assessment order passed by the Learned Deputy Commissioner of Income Tax (International Taxation), Circle -2(1), Kolkata [ in short the ld AO] under section [ u/s in short] 143(3) read with section 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 28.1.2016 pursuant to the Directions issued by the Honourable Dispute Resolution Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognized only on receipt basis. Since there was no receipt of interest on these NPA accounts during the year, no interest income need to be recognized on accrual basis as per RBI prudential norms for income recognition. The ld AO show caused the assessee stating that unless the advances were overdue for more than 6 months as required under Rule 6EA of the IT Rules, it cannot be classified as a sticky advance or doubtful debts as stipulated in section 43D of the Act and accordingly sought to add back the interest income on accrual basis in the assessment. The assessee replied that assessee had classified its advances into NPA as per the RBI prudential norms laid down in this regard which is mandatory in n ature. As per the said prudential norms, if an account is overdue for more than 3 months (reduced from 6 months to 3 months) , then the interest income thereon should not be recognized as income unless it is actually received. It was submitted that as per Accounting Standard - 9 (AS 9) issued by ICAI, where there is an uncertainty about the collection of income / revenue, recognition of such income / revenue is to be postponed to the extent of uncertainty involved, which is also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee also submitted that Rule 6EA was in conformity with the RBI guidelines at the time of its introduction. However, subsequently, the RBI guidelines have been tightened without any corresponding amendment in Rule 6EA thereby presently leading to a disconnect between Rule 6EA and RBI guidelines. 3.4. The ld AO however not convinced with the aforesaid explanations proceeded to add the interest income on NPA accounts on accrual basis, which was also confirmed by the ld DRP. Aggrieved, the assessee is in appeal before us. 3.5. The ld AR reiterated the submissions made before the lower authorities and placed reliance on the decision of the Hon ble Delhi High Court in the case of CIT vs Vasisth Chay Vyapar Ltd reported in 330 ITR 440 (Del) on the impugned issue, among others. He argued that this issue is covered in favour of the assesse by the order of this tribunal in assesssee s own case for the Asst Year 2010-11 in ITA No. 477 496/Kol/2015 dated 14.10.2016. In response to this, the ld DR argued that the provisions of Rule 6EA states non-recognition of interest income only if the loan account if overdue for more than 3 months. He argued that the recognition of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nologies Ltd supra in the context of allowability of deduction towards Provision for NPA . We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition. This fine distinction has been duly considered in the decision of the Hon ble Delhi High Court in the case of CIT vs Vasisth Chay Vyapar ltd supra. When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of Hon ble Delhi High Court in 330 ITR 440 and various other decisions referred to by the ld AR and in view of this issue being already decided in favour of the assessee by this tribunal in its own case supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the ground nos. 2(a) to 2(d) raised by the assessee are allowed. 4. DISALLOWANCE OF LEASE RENTALS U/S 40(a)(ia) OF THE ACT Ground Nos. 3(a) to 3(d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4(a) to 4(c ) of Assessee Appeal 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 ₹ 4.09 crores. In this regard, the assessee filed the submissions on 20.3.2015 and 25.3.2015 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 Income- tax 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 Bank also provides annual increment on the Base pension which is .towards unfunded pension liability and directly paid to the employees. Such provision in relation to the unfunded pension liability is disallowed in the tax computation and is claimed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees 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 CIT vs. Hindustan Motors Ltd 175 ITR 411 (Cal) wherein it was held that payment of pension to employee is a deductible expenditure under Section 37(1) on ground of commercial expediency. The intention of Section 36(1)(iv) read with Section 40A(9) of the Act is to restrict the tax avoidance by the employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. 5.2. 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 ₹ 4.09 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. 5.3. We have heard the rival submissions. The ld AR submitted that the very basis on which the claim of expenditure was disallowed by the ld AO as well as by the ld DRP was stated to be non-furnishing of details of employees by the assessee to whom the payments were made. In this regard, he drew the attention of the Bench to pages 247 to 250 of the paper book containing the list of employees, their designation, employee code details and the amounts paid to 276 employees in total. He also drew our attention to page 416 of the paper book wherein these payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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. In view of these observations, we have no hesitation in directing the ld AO to grant deduction of the sum of ₹ 4.09 crores in the instant case to the assessee. Accordingly, the Ground Nos. 4(a) to 4(c ) raised by the assessee are allowed. 6. DISALLOWANCE OF CENVAT CREDIT WRITTEN OFF Ground Nos. 5(a) to 5(d) of Assessee Appeal The brief facts of this issue are that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT 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') 20 10-11. Accordingly, the Bank had written off the un-availed service tax input credit amounting to ₹ 460 million and intimated about the same to the service tax authorities vide letter dated 24 February 2012. A copy of said intimation was already submitted with your goodself vide our submission dated 09 September 2013. Pursuant to the same, the available CENVAT Credit balance as of 31st March 2011 was reduced to such extent and the Bank surrendered its right to claim/set-off such CENVAT credit balances in future years. 6.2. The assessee submitted that the aforesaid write off met the test of Expenditure incurred or laid out wholly and exclusively for the purpose of business as laid down u/s 37(1) of the Act. It was also submitted that such write off of un-availed input service tax credit pertains to various revenue expenses incurred and claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions 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 decisions, there was closure of one unit/surrender of license, your goodself would appreciate that the principle emanating from these decisions is that the write off of CENVAT credit should be allowed as deduction where it is fairly certain that the said credit would not be available for claiming as credit against the future service tax liability of the assessee. In this regard, the bank submits that as part of its global strategy, it had decided to downsize its retail business which would consequently result in substantial reduction in the expected output service tax liability against which such CENVAT credit is required to be utilized. Accordingly, we submit that the decision of write off of CENVAT credit surrender the right to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved, the assessee is in appeal before us. 6.7. We have heard the rival submissions. We find that the assessee had made out a case thoroughly in all force and the write off of the CENVAT credit deserves to be allowed from all angles. We find that when there is a reasonable certainty that the CENVAT credit is not likely to be utilized in the normal course of business within a reasonable time, which was a conscious business call taken by the assessee, which decision taken on account of commercial expediency cannot be questioned by the revenue, then there is no point in retaining the said unutilized CENVAT credit in its books and hence the write off of the same in the books and claiming the same as a deduction is in order. It is not in dispute that the said CENVAT credit had admittedly emanated out of transactions on revenue account for the assessee in the past. The CENVAT portion (i.e service tax paid) at the time of incurrence of expenditure per se becomes the revenue expenditure, which would , in any case, would be allowable as a deduction for the assesee such as courier charges, telephone charges , maintenance charges, etc. The assessee had only postponed the claim of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter setting off the brought forward business losses amounting to ₹ 158,18,56,000/-. The assessee in this regard replied before the ld AO by drawing the attention of provisions of Section 29 of the act. As per the said section, income referred to in section 28 (i.e business income) shall be computed in accordance with the provisions of section 30 to 43D of the Act, which inter alia also includes the provisions of section 36(1)(viia)(b) of the Act . Accordingly, it was submitted that the term total income referred u/s 36(1)(viia)(b) of the Act is for computing the deduction for the purposes of computation of business income as per the provisions of section 30 to 43D of the Act. Given that the set off of brought forward business losses are the matter of Chapter VI consisting of sections 70 to 80 of the Act and not falling within the manner of computation of business income in accordance with the provisions contained in sections 30 to 43D of the Act. As such the computation of income from profits and gains of business have nothing to do with the amount of business losses brought forward from earlier years which is deductible u/s 70 to 80 of the Act and within the sections 30 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue is in appeal before us . 10.3. We have heard the rival submissions. We find that the impugned issue is covered in favour of the assessee by the co-ordinate bench decision of Chennai Tribunal in the case of Indian Overseas Bank Ltd in ITA No. 248/Mds/2010 dated 5.3.2013 wherein it was held as under:- 35. The first ground of appeal raised by the Revenue is with respect to deduction under section 36(1)(viia) allowed on the total income before setting of the brought forward losses. This issue has already been decided in favour of the assessee in ITA No.1147 /Mds/2008 relevant to the assessment year 2003-04 decided on 11the September, 2009. The Tribunal while dealing with the issue has held as under:- 9. We have considered the rival contentions and the relevant records. The issue involved is what is to be the total income for computation of the deduction u/s.36(1)(viia) of the Income Tax Act, 1961. Though the word used in this provision is total income and the definition of total income u/s.2(45) of the Income Tax Act, 1961 which includes all income of the assessee as referred in Section 5 and computed as per the manner laid down in this Act. Since the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the provision contained in section 30 to 43D and as such the computation of income from profit and gains of business have nothing to do with the amount of business losses brought forward from earlier years which is deductible u/s.70 to 80 of the Act and not within the sections 30 to 43D of the Act. In this connection reference may be made to a decision of the Madras High Court in the case of Commissioner of Income Tax, Madras Vs. L.M. Van Moppes Diamond Tools (India) Limited reported in 107 ITR 386. We accordingly, set aside the order passed u/s.263 by the Commissioner of Income Tax. 10. In view of the above discussion and the decision of the Kolkata Benches of this Tribunal, we are of the view that while computing the statutory deduction under Clause (viia) of Sub- section 1 of Section 36 of the Income Tax Act, 1961, the total income would be the business income of the assessee before deducting the deduction under this Clause and deductions under Chapter 6A of the Income Tax Act, 1961. Therefore, the brought forward losses would not be deducted while computing the total income for the purpose of Section 36(1)(viia). Since the deduction is available only for computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al The brief facts of this issue are that the assessee made a claim for refund of TDS amounting to ₹ 9,50,38,280/- which were deducted from interest paid to its head office and other overseas branches. The reason for the claim was that such interest payment being payment to self was not chargeable to tax under the provisions of the Act and this was affirmed in the assessee s own case upto the stage of Hon ble Supreme Court. Since the alleged tax was deducted from the sums not to be considered as income of recipient in India, the assessee made the said claim of refund which was denied by the ld AO on the ground that there was no corresponding increase in income of the assessee due to such TDS. Accordingly, the TDS credit was denied to the assessee by the ld AO in the draft assessment order. The ld DRP by following its own directions given in the assessee s case for the Asst Years 2009-10 and 2010-11, directed the ld AO to grant relief to the assessee. Aggrieved, the revenue is in appeal before us. 12.1. We have heard the rival submissions. We find that this issue is covered in favour of the assessee in its own case in ITA Nos. 1738/Kol/2009 , 1926/Kol/2010 , 519/Kol/20 ..... 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