2014 (5) TMI 929 - AT - Income Tax

Tribunal directs AO to follow SC decision on bad debts, upholds fee disallowance, reduces section 14A, treats liquidated damages, excludes MAT.

Bank of India Versus Additional Commissioner of Income Tax-2, (1),

Bank of India Versus Additional Commissioner of Income Tax-2, (1), - TMI Issues Involved:1. Disallowance of bad debts written off.2. Disallowance of fees paid to Master Card International.3. Disallowance of expenses under section 14A.4. Taxation of liquidated damages received.5. Applicability of Minimum Alternate Tax (MAT) under section 115JB.Detailed Analysis:1. Disallowance of Bad Debts Written Off:The assessee claimed bad debts under section 36(1)(vii) amounting to Rs. 217,43,16,387. The AO disallowed the claim, stating non-compliance with section 36(1)(vii). The CIT(A) allowed the claim but restricted it by reducing Rs. 102,87,21,160 based on section 36(1)(viia). The assessee argued that the restriction should apply only to rural branches, citing the Supreme Court decision in Catholic Syrian Bank Ltd. v. CIT. The Tribunal agreed, noting that the proviso to section 36(1)(vii) aims to prevent double claims and should not negate deductions under section 36(1)(vii). The Tribunal directed the AO to allow the claim following the Supreme Court's decision.2. Disallowance of Fees Paid to Master Card International:The assessee's claim for fees paid to Master Card International was disallowed under section 40(a)(ia) for non-deduction of tax at source. The Tribunal referenced its earlier decision in the assessee's case for A.Y. 2000-01, upholding the disallowance. The CIT(A) had directed the AO to verify the taxes paid and allow the claim as per law. The Tribunal followed the earlier decision, deciding the issue against the assessee.3. Disallowance of Expenses Under Section 14A:The AO disallowed Rs. 7.51 crore under section 14A, estimating 12% of the exempt income. The CIT(A) reduced this to 0.5% of average investments, applying the decision in Godrej & Boyce Manufacturing Co. Ltd. The assessee argued that the investments were stock-in-trade, and section 14A should not apply. The Tribunal noted that Rule 8D was not applicable for the year in question and considered 1% of the exempt income as a reasonable disallowance, following the decision in DCIT Vs. HDFC Bank Ltd.4. Taxation of Liquidated Damages Received:The AO treated Rs. 2,98,746 received as liquidated damages for delayed equipment delivery as revenue receipts. The assessee claimed it was a capital receipt, citing the Supreme Court decision in CIT. vs. Saurashtra Cement Limited. The Tribunal agreed that the damages were not revenue receipts but should be reduced from the asset's cost for depreciation purposes.5. Applicability of Minimum Alternate Tax (MAT) Under Section 115JB:The assessee argued that section 115JB does not apply to banking companies, as their accounts are prepared under the Banking Regulation Act, not Schedule VI of the Companies Act. The Tribunal referenced several decisions, including ICICI Lombard General Insurance Vs. Department of Income Tax, and held that section 115JB was not applicable to the assessee for the assessment year in question, as the amendment bringing all companies under section 115JB was effective from 1.4.2013.Conclusion:The appeal was partly allowed, with the Tribunal directing the AO to follow the Supreme Court's decision on bad debts, upholding the disallowance of fees paid to Master Card International, reducing the disallowance under section 14A to 1% of exempt income, treating liquidated damages as a reduction in asset cost, and ruling that MAT provisions under section 115JB were not applicable to the assessee for the assessment year in question.