2014 (2) TMI 930 - AT - Income Tax

Tribunal rulings: Depreciation, bad debts, section 14A, banks, leave encashment, business income, UPS depreciation.

Indian Overseas Bank, Accounts Department Versus Additional Commissioner of Income Tax, LTU

The Tribunal dismissed the assessee's appeal regarding depreciation on land, remitted the bad debts written off issue back to the Assessing Officer, ... Bad debts written off u/s 36(1)(vii) of the Act- Held that:- After the amendment of section 36(1)(vii) of the Income Tax Act, 1961 with effect from 1st April, 1989, it is not necessary for the assessee to establish that the debt - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee – the matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Rejection of P&L account – Provisions of section 115JB of the Act not complied – Held that:- The decision in assessee’s own case for the previous year followed – Held that:- In view of amendment to the provisions of section 115JB by the Finance Act, 2012, the provisions of section 115JB are applicable to the banks as well from assessment year 2013-14 – Decided in favour of Assessee. Restriction in claim of deduction u/s 36(1)(viia) of the Act – Held that:- There was no application of mind by the Assessing Officer at the time of assessment - Assessing Officer had not come to any conclusion at all having not considered the claim in the light of the conditions set out in Section 36(1)(viia) of the Act - there was no enquiry made during the course of assessment proceedings - the order which was silent on the claim made by the assessee, and allowing such claim, without any discussion, will definitely render it erroneous and prejudicial to the interests of Revenue - An order without application of mind is definitely prejudicial to the interests of the revenue – the order of the CIT(A) upheld – Decided against Assessee. Disallowance u/s 43B of the Act - Claim of leave encashment – Held that:- The decision in Calcutta Co. Ltd. v. CIT [1959 (5) TMI 3 - SUPREME Court] relied upon – The provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability - The liability is not a contingent liability – Decided in favour of Assessee. Charging of Tax – Surplus arising on account of takeover – Held that:- The facts that the assessee has been treating the shares of Bharat Overseas Bank Ltd. as stock-in-trade has not been rebutted by the AR - The assessee bank has been offering profit on sale of shares as business income - The cancellation of stock-in-trade which has resulted in gain to the assessee is thus a business income – there is no infirmity in the order of the CIT(A) – Decided against Assessee. Claim of depreciation on UPS at 80% - Held that:- The contention of the assessee that the UPS is an energy saving device, therefore, depreciation @ 80% should be granted cannot be accepted – the decision in COMMISSIONER OF INCOME TAX Versus ORIENT CERAMICS & INDS. LTD [2011 (1) TMI 26 - DELHI HIGH COURT ] followed - depreciation @ 60% granted by treating UPS as part of computer hardware – Decided partly in favour of Assessee. Claim of double taxation relief of foreign branches – Held that:- The decision in assessee’s own case for earlier year is followed - The Assessing Officer in accordance with the directions given by the ITAT enquired all the provisions of the DTAA between India and Thailand and as per Article 23(3) by following the tax credit method whatever tax was paid by the assessee in Thailand was given credit to the assessee - The CIT(A) hyper technically held that the only job of the Assessing Officer was to see whether there is a DTAA between India and Thailand - The Tribunal clearly directed the Assessing Officer to enquire into the existence of a DTAA between India and Bangkok – the order of the CIT(A) upheld – Decided in favour of Revenue. Deletion of disallowance of contribution towards staff welfare fund – Held that:- The decision in assessee’s own case for the previous year followed - the assessee has not been able to show that the liability has been crystallized or the contribution has been made towards approved fund as per the provisions of the Act - The claim of the assessee based upon the provision of section 43B has no merit - Before the provisions of section 43B can be applicable, deduction must otherwise be allowable under the Act - the contribution towards staff welfare fund is not allowable expenditure – the order of the CIT(A) set aside - Decided in favour of Revenue. Depreciation on fixed assets taken over – Held that:- the diminution in the value of the securities held by the bank should be allowed as deduction disregarding the method prescribed in the Reserve Bank of India as per which ‘permanent’ investments had to be valued only at cost and only ‘current ’investments were to be valued at market price at the close of the accounting year” – Decided against Revenue. Issues Involved:1. Depreciation on land.2. Bad debts written off.3. Disallowance of expenditure under section 14A read with Rule 8D.4. Applicability of provisions of section 115JB.5. Disallowance of claim of leave encashment.6. Taxation of surplus arising from takeover of a subsidiary.7. Depreciation on UPS.8. Double taxation relief for foreign branches.9. Disallowance of contribution towards staff welfare fund.10. Depreciation on fixed assets from amalgamation.11. Disallowance of loss on revaluation of investments.Issue-wise Detailed Analysis:1. Depreciation on Land:The Tribunal dismissed the assessee's appeal regarding depreciation on land, following its earlier decision in ITA No.1931/Mds/2000 for the assessment year 1997-98. The AR conceded that this issue had been previously decided against the assessee.2. Bad Debts Written Off:The Tribunal referred to the Supreme Court's decision in TRF Ltd., which held that it is sufficient for bad debts to be written off in the accounts without proving they are irrecoverable. The Tribunal remitted this issue back to the Assessing Officer for fresh consideration, taking into account the Supreme Court's judgments in TRF Ltd. and Catholic Syrian Bank Ltd.3. Disallowance of Expenditure Under Section 14A Read with Rule 8D:The AR did not press this ground of appeal, and it was dismissed as not pressed.4. Applicability of Provisions of Section 115JB:The Tribunal held that the provisions of section 115JB do not apply to banks, following decisions in State Bank of Hyderabad and ICICI Lombard General Insurance Co. Ltd. The Tribunal allowed the assessee's appeal on this issue, noting that the amendment to section 115JB by the Finance Act 2012 applies only from AY 2013-14.5. Disallowance of Claim of Leave Encashment:The Tribunal allowed the assessee's appeal, relying on the Calcutta High Court's decision in Exide Industries, which struck down section 43B(f) as arbitrary. The Tribunal also referred to the Supreme Court's decision in Bharat Earth Movers Ltd., which allowed deduction for leave encashment liability.6. Taxation of Surplus Arising from Takeover of a Subsidiary:The Tribunal upheld the CIT(A)'s decision to treat the surplus arising from the takeover of Bharat Overseas Bank as business income, noting that the shares were treated as stock-in-trade by the assessee.7. Depreciation on UPS:The Tribunal allowed depreciation at 60% on UPS, treating it as part of computer hardware, following the Delhi High Court's decision in Orient Ceramics & Industries Ltd.8. Double Taxation Relief for Foreign Branches:The Tribunal set aside the CIT(A)'s order and allowed the Revenue's appeal, following its earlier decision in DCIT Vs. Bharat Overseas Bank, which held that the Assessing Officer correctly applied the DTAA between India and Thailand.9. Disallowance of Contribution Towards Staff Welfare Fund:The Tribunal allowed the Revenue's appeal, following its earlier decision in ITA No.1146/Mds/2008, which held that contributions to unrecognized welfare funds are not allowable as deductions.10. Depreciation on Fixed Assets from Amalgamation:The Tribunal remitted this issue back to the Assessing Officer to examine the factum of amalgamation vis-a-vis section 2(1B), following its earlier decision in ITA No.843/Mds/2001.11. Disallowance of Loss on Revaluation of Investments:The Tribunal dismissed the Revenue's appeal, following the Madras High Court's decision in CIT vs. Karur Vysya Bank Ltd., which allowed deduction for diminution in the value of securities treated as trading assets.Conclusion:The Tribunal provided a detailed analysis and adjudication on each issue, remitting some issues back to the Assessing Officer for fresh consideration and upholding or dismissing others based on precedents and legal principles. The appeals were partly allowed or dismissed in accordance with the findings on each issue.