2020 (3) TMI 687 - AT - Income Tax

Assessee wins deduction appeal, advertisement expenses upheld, adjustments made

Sadhana Sahakari Bank Ltd. Versus The Asst. Commissioner of Income Tax, Circle – 14, Pune

Sadhana Sahakari Bank Ltd. Versus The Asst. Commissioner of Income Tax, Circle – 14, Pune - TMI Issues Involved:1. Applicability of deduction under section 36(1)(viia) for provision of bad and doubtful debts without rural branches/advances.2. Disallowance of advertisement expenses under section 37(1) of the ITA, 1961.3. Disallowance under section 14A of the ITA, 1961 read with Rule 8D of the Income-tax Rules, 1962.Issue 1: Applicability of deduction under section 36(1)(viia) for provision of bad and doubtful debts without rural branches/advances:The primary contention revolved around the deduction of provision for bad and doubtful debts under section 36(1)(viia) when the assessee did not possess rural branches or rural advances. The Assessing Officer disallowed the deduction citing the judgment in the case of Catholic Syrian Bank Ltd. Vs. CIT. The CIT(A) upheld this decision, relying on the same judgment and a Co-ordinate Bench decision. However, the Tribunal, referencing a favorable decision in a similar case, ruled that the assessee was entitled to the deduction under section 36(1)(viia) even without rural branches/advances. The Tribunal emphasized adopting an interpretation favoring the assessee when multiple views exist, ultimately allowing the deduction.Issue 2: Disallowance of advertisement expenses under section 37(1) of the ITA, 1961:The Assessing Officer disallowed advertisement expenses under section 37(1), deeming them unrelated to the business purpose. The CIT(A) concurred with this disallowance, noting the nature of the expenditures and lack of business justification. The Tribunal, after reviewing the details, upheld the decisions of the lower authorities, emphasizing that expenses related to birthday/victory day celebrations of politicians did not serve a business purpose. Therefore, the disallowance under section 37(1) was deemed appropriate, and the assessee's appeal on this ground was dismissed.Issue 3: Disallowance under section 14A of the ITA, 1961 read with Rule 8D of the Income-tax Rules, 1962:Regarding the disallowance under section 14A read with Rule 8D, the Assessing Officer disallowed a specific amount, which the assessee did not contest. However, a portion of the disallowance under Rule 8D(2)(ii) was disputed by the assessee, arguing that the investments were made from interest-free reserves. The Tribunal, guided by a relevant High Court judgment, agreed with the assessee's stance, concluding that the disallowance under Rule 8D(2)(ii) was unwarranted. Consequently, the Tribunal partially allowed the assessee's appeal on this ground, directing the Assessing Officer to make the necessary adjustments.In conclusion, the Tribunal partly allowed all three appeals of the assessee, ruling in favor of the assessee on the deduction issue under section 36(1)(viia) without rural branches/advances, while upholding the disallowances of advertisement expenses under section 37(1) and making adjustments to the disallowance under section 14A read with Rule 8D.