TMI Blog2022 (6) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... for later, even as it, following mercantile system of accounting, cannot claim the same for the relevant previous year in view of an omission to provide for it for the relevant year. This, it needs to be borne in mind, is not a case of a provision being made on the basis of the best information available, adjusted subsequently on crystallization or resolution of a dispute or the relevant facts. Another related aspect is the applicability of s. 40(a)(ia). Inasmuch as and to the extent the interest provided is subject to tax deduction at source, non-deduction thereof would attract disallowance u/s. 40(a)(ia). It needs to be appreciated that the AO disallowed the claim in the absence of any details, while implicit in its allowance is it being toward an ascertained liability, even if on estimated basis, in respect of identified payees. We may though clarify that as the actual provision by the bank (Rs. 300 lacs) is far lower than that exigible (Rs. 540 lacs), the assessee-bank is at liberty to appropriate the provision made against the depositor accounts on which no (or minimal) tax is deductible, i.e., with a view to avoid or minimize the incidence of s. 40(a)(ia), subject to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peaking order after hearing the assessee. We direct so, vacating the findings by the CIT(A) - AO shall, to the extent his order is inconsistent with the audit report, also seek clarification therefrom as to the basis of their report/s, making it a part of his order. He shall also ascertain about the disallowance, if any, u/s. 40A(7) or u/s. 43B, in respect of the opening provision. It may here be relevant to state that regard is to be had in the matter of both sec. 40A(7) and sec. 43B inasmuch as s. 43B applies only to sums otherwise allowable . It is thus only the sum allowable u/s. 37(1) r/w s. 40A(7) that shall be allowed subject to the condition of actual payment, as mandated by sec. 43B; the balance getting excluded (disallowed) u/s. 40A(7) itself. The aspect of the provision booked being in accordance with the actuarial valuation (or otherwise scientifically and empirically validated), would also have to be clarified. Disallowance made on the NPA provisions accepting the detailed working of NPA - HELD THAT:- As bank would be provisioning in respect of assets obtaining no longer, i.e., being not on it s books inasmuch as the same stand since recovered. The provision coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, as under: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A)erred in restricting the provision to Rs. 2,40,00,000/- from Rs.3 crore made by the AO on account of disallowance of provision on interest on deposits on the basis of working provided by the assessee. The Ld.CIT (A) has allowed the relief was allowed merely on the ground of production of certificate by bank. 2.2 Ms. Maheshwari, the ld. CIT-DR, would toward this take us through the assessment as well as the impugned order. It was, she would submit, only at the first appellate stage, that the assessee furnished the working of the interest payable as at the year-end, i.e., 31/03/2013, for which the provision was disallowed in assessment, explaining that due to the ongoing implementation of the core banking services (CBS), the interest payable on the deposit accounts for the latter half of the year, i.e., from October 2012 to March 2013, remained to be applied, resulting in an ad hoc manual provision for Rs. 300 lacs when it was later realized that no provision had been made by CBS. Subsequent actual working of the interest payable for the said period, however, revealed it to be at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantum alone, i.e., the arithmetical accuracy thereof, and may have well have other aspects to it. Also, and even as apparent from the grounds before the Tribunal and it s findings, it is wholly incorrect to say, as Sh. Agrawal would before us, of the matter not surviving the disposal of the assessee s appeal by the Tribunal. Under the circumstances, we only consider it proper to remit the matter back to be file of the ld. CIT(A) for causing compliance of rule 46A. And decide after allowing due opportunity of hearing to both the sides before him per a speaking order and in accordance with law. In this regard, we discern certain aspects of the matter that call for consideration/inquiry in the matter, which we therefore bring forth. It is not clear whether the manual provision referred to stands made in the books of account, or outside them, as in the computation of taxable income, an aspect not clear from the material on record. A provision outside books, though not disqualified per se , and valid where otherwise in order, the subsequent accounting treatment assumes relevance as the same would require an adjustment (to that extent), in computing taxable income, of the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue raised by the Revenue is in respect of allowance of appropriation of profit by the assessee for: a) Statutory Reserve (Rs. 120 lacs); b) Agriculture Credit Fund (Rs. 60 lacs); and c) Building Fund (Rs. 9.60 lacs) , i.e., toward certain contingencies and/or applications. The ld. CIT(A) allowed the same on the basis that the same were in view and in terms of the guidelines and the directions by the regulatory bodies, being RBI and NABARD. 5. We have heard the parties, and perused the material on record. The accounting treatment apart, the income chargeable to tax is to be computed as per the provision of the Act (see, inter alia, Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC); Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC)). It is not clarified at any stage, including before us, as to under which provision of law the impugned sums are being claimed as deduction in the computation of income chargeable to tax as income from business, assessable u/s. 28. The ld. CIT(A) has not clarified the specific guideline or direction where-under the reserve has been created, as for example building fund , nor has the same been pointed out to us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance-sheets dated 31/03/2013 31/03/2014, as well as the ledger accounts furnished before the ld. CIT(A) in clarification of the assessee s case, none of them being however brought on record. 7.2 In relation to the sum of Rs. 109.37 lacs, while the AO mentions of the same being an outstanding liability for f.y. 2013-14 on the basis of the audit report, the ld. CIT(A) states it to be nil. How could this be ? Does it mean that the audit report, which is the assessee s evidence and, further, only based on its accounts, is factually wrong? Further, even so, does it further mean that either the provision (as on 31/03/2013) has been reversed on 01/04/2013 (by credit to the profit loss account), or the entire gratuity payable outstanding for payment as on 31/3/2013 paid during fy 2013-14, the relevant financial year? No answer was forthcoming during hearing. Rather, one wonders as to why the assessee has maintained two accounts of gratuity payable. Even Shri Agrawal would state that the two provisions (and the corresponding disallowances) be regarded separately. As it appears to us, the two accounts (which represent liability on the same account) arise only on account of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) r/w s. 40A(7) that shall be allowed subject to the condition of actual payment, as mandated by sec. 43B; the balance getting excluded (disallowed) u/s. 40A(7) itself. The aspect of the provision booked being in accordance with the actuarial valuation (or otherwise scientifically and empirically validated), would also have to be clarified. 7.3 We decide accordingly. 8. Ground 3 by the Revenue is toward denial of any opportunity to the AO to ascertain the veracity of the assessee s claim in respect of NPA provision, i.e., for bad and doubtful debts; the same reading as: 3. The Ld. CIT(A) deleted the disallowance made on the NPA provisions of Rs.6,97,23,579/- accepting the detailed working of NPA without giving any opportunity to the AO to ascertain the veracity of the claim made. The AO, in assessment, allowed it at Rs. 22.76 lacs, disallowing the balance Rs. 697.24 lacs. The ld. CIT(A), in first appeal, justified the claim u/s. 36(1)(viia) at Rs. 720 lacs, i.e., at 7.5% of income (before any provision) plus 10% of the aggregate average advances made by the rural branches of the bank. 9. Before us, while the Revenue s case was of non-verification of its claim by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided the matter without appreciating Revenue s case. The same accordingly survives the assessee s reply dated 10/11/2016, which has been though not referred to by the ld. CIT(A). Proper identification of NPA accounts is a pre-requisite for provisioning. This is as it is only the unrealized interest in such accounts that, though not received, is yet booked as income. Two, it is this interest which, on debit to the borrowers accounts, results in excess provision in respect of such interest, i.e., to the extent it forms part of the borrowers balance, resulting in a provision in excess of hundred percent of such interest. That is, firstly, by way of provision in respect of the unrealized interest, which is at hundred percent there of and, then, on the balance outstanding in the borrower account (i.e., to the extent it includes interest), according to the rate specified for the relevant category of the sub-standard asset under which the NPA a/c falls, resulting thus in an overall provision against the unrealized interest in excess of the amount thereof. The matter has been examined in detail by this Tribunal in ITO vs. Jila Sahkari Kendriya Bank Maryadit, Seoni (ITA Nos. 97, 99 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk during the relevant year. The issue is thus discerned as arising from a conjoint reading of the assessment and the first appellate order, i.e., being the correct/proper (i.e., as per law) quantification of the provision for bad and doubtful debts, particularly in view of the non-identification of NPA accounts and the consequence of booking of unrealized interest on such accounts as income. Further, we remand the matter only in the interest of justice, even as explained by the Apex Court in CIT v. Walchand Co. (P.) Ltd . [1967] 65 ITR 381 (SC), while dealing with the jurisdiction of the Tribunal, that it is to deal with and determine questions which arise out of the subject-matter of the appeal in the light of the evidence, and consistently with the justice of the case. This is as the Auditors report is an expert opinion, based on the assessee s own accounts, of which this Tribunal is therefore to have due regard and, besides, has not been rebutted or countered at any stage, including before us. Reference here may also be made to rules 11 27 of the Income Tax (Appellate Tribunal) Rules, 1963. Our decision in this regard is also guided by the consideration that perhaps the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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