2019 (9) TMI 231 - AT - Income Tax

Appeal partly allowed: broken-period interest allowed, HTM investment depreciation, ATM 60% upheld, s.36(1)(vii),(viii) and s.115JB clarified

ITAT Chennai partly allowed the appeal. Broken-period interest paid on purchase of securities was allowed where corresponding broken-period interest was ... Broken period interest paid on purchase of Securities, which were held as investments - HELD THAT:-The issue raised in this ground was squarely covered by the decision of Co-ordinate Bench of this Tribunal in assessee’s own case for assessment year 2011-12 [2016 (3) TMI 1361 - ITAT CHENNAI] as held held that when interest received by an assessee, from transferees for broken period is included under the head ‘business income’, amounts paid by the assessee to the transferors for broken periods could not have been disallowed. Depreciation of investment on securities at the time of shifting from available for sale to held to maturity - HELD THAT:- As in assessee’s own case for assessment year 2011-12 [2016 (3) TMI 1361 - ITAT CHENNAI] direct the AO to allow depreciation / fall in value of investment in Government Securities including those classified under HTM category. No doubt the value in opening stock in the next year would correspondingly be adjusted. This issue is decided in favour of the assessee Deduction of bad debts written off (technical write off) - HELD THAT:- As in assessee’s own case for assessment year 2011-12 [2016 (3) TMI 1361 - ITAT CHENNAI] besides debiting the P&L a/c and creating a provision for bad and doubtful debts, the assessee bank had simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure of loans and advances/debtors was shown as net of the provision - assessee is entitled to benefit of deduction under s. 36(1)(vii) - Contention that it is imperative for the assessee-bank to close the individual account of each debtor in its books and a mere reduction in the “loans and advances account” or debtors to the extent of the provision for bad and doubtful debt is not sufficient, is not sustainable Depreciation on ATM - 60% OR 15% - HELD THAT:- As in assessee’s own case for assessment year 2011-12 [2016 (3) TMI 1361 - ITAT CHENNAI] allowing depreciation @ 60% Adjustments as done in computing Minimum Alternate Tax (MAT) u/s.115JB - HELD THAT:- As decided in own case the provisions of sec.115JB of the Act cannot be applied to the Banks. Income from foreign branches - to be included in the total income and only double taxation relief as contemplated as per the agreement is allowable - HELD THAT:- As decided in own case the income of the assessee at Singapore and Colombo would be included in the return of income of the assessee in India and whatever taxes paid by the branches in foreign countries, credit of such taxes shall only be given. Accordingly, the ground raised by the assessee is dismissed Addition u/s 14A r.w.r. 8D - HELD THAT:- this issue is now squarely covered by the decisions of Hon”ble Jurisdictional High Court in the case of Chettinad Logistics [2017 (4) TMI 298 - MADRAS HIGH COURT] and Joint Investment (P) Ltd Vs.C.I.T [2015 (3) TMI 155 - DELHI HIGH COURT] respectfully following the same, the Assessing Officer is directed to restrict the disallowance u/s.14A read with Rule 8D to the extent of the exempted income earned. Interpretation of provisions of Rule 6ABA for the purpose of Section 36(1)(viia) in so far as computing the deduction only the outstanding rural advances ought to be considered and not the incremental advances made by rural branches - HELD THAT:- Issue is now squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of Karur Vysya Bank [2019 (3) TMI 1002 - ITAT CHENNAI] the Assessing Officer is directed to recompute the deduction u/s.36(1)(viia) of the Act for considering only the outstanding rural advances and not incremental advances made by the Rural Branches. The Ground No.5 of assessee is partly allowed. Benefit of MAT Credit entitlement on the amalgamation of IndFund Management Ltd., with the assessee’s bank - HELD THAT:- As fairly agreed by both the sides that the issue raised in this ground was squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of Suraj Agro Infrastructure Vs. DCIT [2012 (6) TMI 890 - ITAT CHENNAI] Assessing Officer is directed to grant the assessee the benefit of MAT credit in respect of amalgamation of IndFund Management Ltd., with the assessee’s bank. Computation of deduction u/s.36(1)(viii) - As submitted that the assessee had been following the method of computing 20% book profit of the eligible business of development of infrastructure facilities by applying the formula business income multiplied by the interest from eligible business and divided by total interest income - HELD THAT:- A perusal of the provisions of section 36(1)(viii) of the Act shows that the words used therein are “an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head “Profits and gains of business or Profession” subject to other conditions specified therein. The interest earned in respect of the said eligible business is specifically available. Once this is available, the total expenditure incurred by the assessee is also available, and obviously, the total income of assessee is also available. When these figures are very much available, then expenditure incurred on pro-rata basis for the purpose of earning the said interest income in respect of the eligible business can easily be quantified. The same is to be reduced from the said interest expenditure earned and that would give the profits derived from the eligible business, out of which 20% deduction would be the eligible deduction u/s.36(1)(viii) of the Act subject to the compliance of the other conditions mentioned therein being the creation of special reserve and carrying of the same to the Reserve Account. In this circumstance, the issue raised in ground-7 is restored to the file of Assessing Officer to re-compute the deduction u/s.36(1)(viii) Issues Involved:1. Broken period interest paid on purchase of securities.2. Depreciation of investment on securities at the time of shifting from available for sale to held to maturity.3. Deduction of bad debts written off (technical write-off).4. Depreciation on ATM at 60% as against the eligible depreciation at 15%.5. Adjustments in computing Minimum Alternate Tax (MAT) under Section 115JB.6. Inclusion of income from foreign branches in total income and double taxation relief.7. Disallowance under Section 14A read with Rule 8D.8. Computation of deduction under Section 36(1)(viia) for advances made to rural branches.9. Computation of deduction under Section 36(1)(viii).10. MAT credit entitlement on the amalgamation of IndFund Management Ltd. with the assessee bank.Detailed Analysis:1. Broken Period Interest Paid on Purchase of Securities:The Tribunal dismissed the Revenue's appeal, agreeing that the issue of broken period interest paid on the purchase of securities, held as investments, was covered by the decision in the assessee's own case for the assessment year 2011-12. The Tribunal had previously held that such interest should be allowed as revenue expenditure based on the precedent set by the Hon’ble Mumbai High Court and the Hon’ble Apex Court.2. Depreciation of Investment on Securities at the Time of Shifting from Available for Sale to Held to Maturity:The Tribunal dismissed the Revenue's appeal, holding that the issue was covered by the decision in the assessee's own case for the assessment year 2011-12. The Tribunal had previously ruled that depreciation on securities at the time of shifting from AFS to HTM should be allowed, following the precedent set by the Co-ordinate Bench and the Hon’ble Jurisdictional High Court.3. Deduction of Bad Debts Written Off (Technical Write-Off):The Tribunal dismissed the Revenue's appeal, agreeing that the issue was covered by the decision in the assessee's own case for the assessment year 2011-12. The Tribunal had previously allowed the deduction for bad debts written off, referencing the decision of the Hon’ble Supreme Court in Vijaya Bank v. CIT.4. Depreciation on ATM at 60% as Against the Eligible Depreciation at 15%:The Tribunal dismissed the Revenue's appeal, holding that the issue was covered by the decision in the assessee's own case for the assessment year 2011-12. The Tribunal had previously ruled that ATMs are substantially in the nature of computers and are eligible for 60% depreciation.5. Adjustments in Computing Minimum Alternate Tax (MAT) Under Section 115JB:The Tribunal dismissed the Revenue's appeal, agreeing that the provisions of Section 115JB are not applicable to the assessee bank, as it is not a company under the provisions of the Companies Act, 1956. The Tribunal followed the precedent set in the assessee's own case for the assessment years 2004-05 to 2006-07.6. Inclusion of Income from Foreign Branches in Total Income and Double Taxation Relief:The Tribunal dismissed the assessee's appeal, holding that the income from foreign branches should be included in the total income, and only double taxation relief as per the agreement is allowable. This decision was based on the precedent set in the assessee's own case for the assessment year 2011-12.7. Disallowance Under Section 14A Read with Rule 8D:The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to restrict the disallowance under Section 14A read with Rule 8D to the extent of the exempted income earned. This decision was influenced by the decisions of the Hon’ble Jurisdictional High Court and the Hon’ble Supreme Court.8. Computation of Deduction Under Section 36(1)(viia) for Advances Made to Rural Branches:The Tribunal dismissed the assessee's appeal, holding that the deduction under Section 36(1)(viia) should be based on the aggregate average advances made by the rural branches, not just the incremental advances. This decision followed the precedent set in the assessee's own case for the assessment year 2011-12.9. Computation of Deduction Under Section 36(1)(viii):The Tribunal restored the issue to the file of the Assessing Officer to re-compute the deduction under Section 36(1)(viii) by applying the correct principle of computing 20% of the profit derived from the eligible business. The Tribunal emphasized the need to reduce pro-rata expenditure in respect of earning the said interest from eligible business.10. MAT Credit Entitlement on the Amalgamation of IndFund Management Ltd. with the Assessee Bank:The Tribunal allowed the assessee's appeal, directing the Assessing Officer to grant the benefit of MAT credit in respect of the amalgamation of IndFund Management Ltd. with the assessee bank. This decision was based on the precedent set by the Co-ordinate Bench in the case of Suraj Agro Infrastructure Vs. DCIT.Conclusion:The appeals filed by the Revenue for the assessment years 2012-13, 2013-14, and 2014-15 were dismissed, while the appeals filed by the assessee for the same assessment years were partly allowed for statistical purposes. The Tribunal's decisions were largely influenced by precedents set in the assessee's own cases and other relevant judicial decisions.