2016 (6) TMI 181 - AT - Income Tax

Nationalized bank's tax deductions allowed with adjustments; Tribunal upholds disallowance, directs evidence for TDS, approves premium amortization.

The Assessee, a nationalized bank, claimed deductions for bad debts, disallowance under Section 14A, TDS non-deposit, premium amortization, donations, and ... Disallowance u/s 14A - Held that:- With regard to disallowance under rule 8D(2)(iii) of the Rules is concerned, we find that neither the AO nor the CIT(A) have disputed the correctness of the claim of disallowance as computed by the Assessee but have proceeded to compute the disallowance by applying Rule 8D(2)(iii) of the Rules without objectively examining the claim made by the Assessee. The AO without doing so, disregarded the claim of the assessee and in invoked Rule 8D of the IT Rules without recording the satisfaction as required by Sec.14A(2) of the Act. The law is well settled by now that with regard to expenditure in relation to exempt income, AO has to indicate cogent reasons as to why the claim of the Assessee is being disregarded. We hold that the action of the AO in directly embarking on Rule 8D(2) of the rules was not proper and hence the disallowance under rule 8D(2)(iii) of the Rules is also directed to be disallowed. The net result would be that the disallowance under Sec.14A of the Act as made by the Assessee before the AO is directed to be accepted Disallowance u/s 40 (a)(ia) - non-furnishing of challans for the deposits of TDS - Held that:- The limited prayer of the ld. Counsel for the assessee before us was to remand the matter to the AO to enable the Assessee to produce the balance challans to enable the assessee to claim deduction on actual payment basis. We are of the view that the request made on behalf of the assessee is reasonable and accordingly we set aside this issue to the file of AO for fresh consideration. The assessee is at liberty to file necessary challans to show that actual payment were made during the previous year and to claim deduction on such sum. Applicability of MAT provisions - Held that:- The Hon'ble ITAT, Mumbai in Maharashtra State Electricity Board vs JCIT (2001 (8) TMI 310 - ITAT MUMBAI) took the view that provisions of Sec.115JB of the Act are not applicable to electricity generation companies governed by the provisions of Electricity Act. The Hon'ble Kerala High Court in Kerala State Electricity Board vs Dy. CIT (2010 (11) TMI 127 - Kerala High Court ), has also taken the same view. Addition on account of amortisation of premium paid for purchase of securities - CIT(A) deleted the addition - Held that:- The assessee and categorized as HTM were purchased at a price which was higher than its redeemable value. The difference between the actual cost of these investments and the face value of such investments were spread over to the life of the investments and proportionate deduction was claimed by the assessee under the head 'Amortization of HTM'. The further claim of the Assessee was that all the securities held by the Assessee were held as 'stock-in- trade' by the Assessee. The face value of the securities held in HTM category is alone shown in the books as cost and the premium is not claimed as cost of the securities, as the premium is claimed by way of amortization of premium over the life of the security. The revenue can have grievance only where the cost price of the investment as recorded in the investment trading account includes premium paid at the time of acquisition and also the same premium is separately claimed in the profit and loss account again as a deduction. The plea of the Assessee that there is no such double claim for same cost has been found to correct by the CIT(A). The order of the AO is silent on this aspect. The Assessing Officer disallowed the claim of the assessee on the assumption that full purchase consideration of all the securities was included in the said investment trading account and amortization amount is charged separately in the Profit and Loss Account again and he therefore held that the claim of the Assessee cannot be allowed in computation of total income. This factual assumption of the AO is wrong as found by the CIT(A) which has not been disputed before us. - Decided against revenue Fresh claim of deduction u/s.80G in respect of donations allowed by CIT(A)- Held that:- CIT(A) held that the deduction had been claimed by the Assessee at 100% not u/s.80G of the Act but as other expenses in the profit and loss account and therefore the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (2006 (3) TMI 75 - SUPREME Court ) will not apply to the case of the Assessee. The CIT(A) found that the deduction claimed was otherwise allowable and to the extent it was allowable, the AO was directed to allow the claim for deduction. In the grounds of appeal, the revenue does not dispute the fact that the deduction claimed by the Assessee is allowable as found by the CIT(A). We are of the view that the CIT(A) as first appellate authority is entitled to allow the deduction claimed and the restriction laid down in the decision in the case of Goetze (India) Ltd., is applicable only to making claim before AO and not before the appellate authorities under the Act.- Decided against revenue Provision of section 115JB of the Act are not applicable in the nationalised bank - Decided against revenue Deduction in respect of club membership fees - Held that:- CIT(A) was justified in deleting the addition made by the AO and allowing the expenses incurred by the Assessee as revenue expenditure as the membership is a corporate membership and not in the name of any individual and that the membership is to be allowed till the persons are in job and it will shift in the name of next executive on the superannuation of the earlier executive and was paid for renewal of membership for five years and has not been paid as initial capital membership fee.- Decided against revenue Issues Involved:1. Deduction for provision for bad and doubtful debts under Section 36(1)(viia).2. Disallowance under Section 14A read with Rule 8D.3. Disallowance under Section 40(a)(ia) for non-deposit of TDS.4. Applicability of Section 115JB (Minimum Alternate Tax) to banking companies.5. Amortization of premium paid for purchase of securities.6. Deduction under Section 80G for donations.7. Deduction of club membership fees.Issue-wise Detailed Analysis:1. Deduction for provision for bad and doubtful debts under Section 36(1)(viia):The Assessee, a nationalized bank, claimed a deduction of Rs. 544,78,26,226 for bad and doubtful debts under Section 36(1)(viia). The AO restricted the deduction to Rs. 268,76,31,809, the amount actually provided in the accounts. The CIT(A) upheld the AO's decision, relying on the Punjab and Haryana High Court's decision in State Bank of Patiala v. CIT. The Tribunal followed its own previous decisions and upheld the CIT(A)'s order, dismissing the Assessee's appeal.2. Disallowance under Section 14A read with Rule 8D:The Assessee offered a disallowance of Rs. 46,20,484 under Section 14A. The AO, applying Rule 8D, computed a higher disallowance of Rs. 54,50,26,415. The CIT(A) upheld the AO's application of Rule 8D. The Tribunal, however, held that Rule 8D should be applied as a last resort and that the AO should not blindly apply it without cogent reasons. The Tribunal directed that the Assessee's computation of disallowance be accepted, deleting the disallowance under Rule 8D(2)(ii) and (iii).3. Disallowance under Section 40(a)(ia) for non-deposit of TDS:The Assessee claimed a deduction of Rs. 3,17,32,734 for TDS deposited during the previous year. The AO disallowed this amount due to the Assessee's failure to furnish necessary evidence. The CIT(A) allowed the deduction for Rs. 96,38,368, for which evidence was provided, but disallowed Rs. 2,20,94,366. The Tribunal remanded the issue to the AO for fresh consideration, allowing the Assessee to furnish the necessary challans.4. Applicability of Section 115JB (Minimum Alternate Tax) to banking companies:The Assessee contended that Section 115JB does not apply to banking companies. The CIT(A) and AO disagreed, applying Section 115JB. The Tribunal, following its own and other judicial precedents, held that Section 115JB does not apply to banking companies, allowing the Assessee's appeal on this ground.5. Amortization of premium paid for purchase of securities:The AO disallowed Rs. 108,45,17,830 claimed as amortization of premium on securities, assuming it was already included in the investment trading account. The CIT(A) found this assumption incorrect and allowed the deduction, noting that the premium was not included in the investment trading account but amortized separately. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.6. Deduction under Section 80G for donations:The AO disallowed Rs. 7,38,900 for donations not claimed in the return. The CIT(A) allowed the deduction, holding that the Assessee's claim was allowable and that the restriction in Goetze (India) Ltd. v. CIT applied only to claims before the AO, not appellate authorities. The Tribunal upheld the CIT(A)'s decision.7. Deduction of club membership fees:The AO disallowed Rs. 6,78,655 for club membership fees, considering it a non-business expense. The CIT(A) allowed the deduction, finding it a corporate membership and revenue expenditure. The Tribunal, citing judicial precedents, upheld the CIT(A)'s decision, dismissing the Revenue's appeal.Conclusion:The Assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal provided detailed reasoning for each issue, emphasizing the need for proper application of legal principles and factual accuracy in tax assessments.