2015 (3) TMI 1360 - AT - Income Tax

Tax Tribunal grants assessee relief on multiple grounds, rejects revenue's appeal on investment depreciation.

The Asst. Commissioner of Income-tax, Circle-2 (1), Mangalore Versus M/s Corporation Bank

The Asst. Commissioner of Income-tax, Circle-2 (1), Mangalore Versus M/s Corporation Bank - TMI Issues Involved:1. Disallowance under Section 36(1)(viia) of the Income Tax Act, 1961.2. Disallowance under Section 14A of the Income Tax Act, 1961.3. Disallowance under Section 36(1)(viii) of the Income Tax Act, 1961.4. Disallowance under Section 40a(ia) of the Income Tax Act, 1961.5. Depreciation on investment portfolio treated as stock in trade.Detailed Analysis:1. Disallowance under Section 36(1)(viia) of the Income Tax Act, 1961:The assessee, a public sector bank, claimed a deduction of Rs. 423,79,66,948 under Section 36(1)(viia) of the Act. The Assessing Officer (AO) restricted the claim to Rs. 37,44,67,183, the actual provision for rural debts made in the books, citing the decisions in Catholic Syrian Bank Vs CIT and State Bank of Patiala Vs CIT. The CIT(A) upheld the AO's decision. However, the Tribunal, referencing its decision in DCIT Vs ING Vysya Bank Ltd., held that the actual provision made in the books for bad and doubtful debts alone should be considered for the threshold limits and not the breakup thereof. The Tribunal set aside the orders of the authorities below and directed the AO to re-examine the claim in light of this discussion.2. Disallowance under Section 14A of the Income Tax Act, 1961:The assessee claimed exempt dividend income of Rs. 10,93,02,392.50 and had disallowed Rs. 52,88,281.90 as expenditure for earning the exempt income. The AO, applying Rule 8D, made a disallowance of Rs. 10,57,65,638, resulting in an addition of Rs. 10,04,77,356 after deducting the assessee's suomotu disallowance. The CIT(A) upheld the AO's decision. The Tribunal, referencing its decision in the assessee's own case for AY 2010-11, held that since the assessee had substantial interest-free funds exceeding the investments that could give rise to tax-free income, no further disallowance under Rule 8D was warranted. The Tribunal allowed the assessee's ground.3. Disallowance under Section 36(1)(viii) of the Income Tax Act, 1961:The assessee claimed a deduction of Rs. 141.21 Crores under Section 36(1)(viii) but had created special reserves of only Rs. 91.00 Crores. The AO restricted the claim to Rs. 91.00 Crores, a decision upheld by the CIT(A). The Tribunal, referencing the Delhi Bench's decision in M/s Power Finance Corpn. Ltd. Vs JCIT, held that the reserve could be created in a succeeding year and still qualify for the deduction. The Tribunal remanded the issue to the AO for fresh consideration, directing verification of whether the additional reserves were created before finalization of the grant of deduction.4. Disallowance under Section 40a(ia) of the Income Tax Act, 1961:The AO disallowed Rs. 1,35,01,835 under Section 40a(ia) for non-deduction of tax at source on ATM user charges paid to National Financial Switch (NFS) consortium, treating it as commission under Section 194H. The CIT(A) upheld the AO's decision. The Tribunal, referencing the Delhi High Court's decision in CIT Vs JDS Apparels Pvt. Ltd., held that the payments made by the assessee to NFS could not be considered as commission or brokerage and hence were not subject to TDS under Section 194H. The Tribunal deleted the disallowance.5. Depreciation on investment portfolio treated as stock in trade:The revenue challenged the CIT(A)'s decision allowing the assessee's claim of depreciation on its investment portfolio by treating it as stock in trade. The Tribunal, referencing its decision in the assessee's own case for AY 2010-11, upheld the CIT(A)'s decision, affirming that such a claim was allowable.Summary:The Tribunal allowed the assessee's appeal on multiple grounds, directing re-examination of claims under Sections 36(1)(viia) and 36(1)(viii), and deleted disallowances under Sections 14A and 40a(ia). The revenue's appeal was dismissed, upholding the CIT(A)'s decision on depreciation of the investment portfolio.