2020 (3) TMI 713 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Tax Disallowances

The Tribunal ruled in favor of the assessee, holding that no disallowance under Section 14A is permissible for banks engaged in banking business. The ... Disallowance made u/s. 14A - assessee has not incurred any expenditure for earning tax free income - HELD THAT:- As relying on MAXOPP INVESTMENT LTD. [2018 (3) TMI 805 - SUPREME COURT] and STATE BANK OF PATIALA [2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT] No disallowance u/s. 14A is permissible in terms of Rule 8D where the assessee’s are engaged in banking business. Since, the assessee is engaged in the business of banking, therefore, following the above decisions we hold that no disallowance can be made u/s. 14A and hence allow the assessee’s appeal. The corresponding grounds of the assessee are allowed. Disallowance of claim u/s. 36(1(vii) - method of computation adopted by the assessee for claiming the deduction u/s. 36(1)(viia) - CIT(A) enhancing the disallowance of the assessee’s claim u/s. 36(1)(vii) by substituting the computation of income from eligible business without pointing out any defects in method adopted by the assessee - HELD THAT:- A O while finalising the assessment did not agree with the method of computation adopted by the assessee for claiming the deduction u/s. 36(1)(viia) and he adopted a different method of computation. On appeal, the Ld. CIT(A) held that by adopting the different method, the AO arrived at the same figure of ₹ 90.08 crores as an allowable amount. Therefore, he held that the asseesee’s appeal is purely academic having no tax impact. He also held that the computation of average aggregate advances made by the assessee bank’s “Rural Branches” have not been properly computed in as much as some of the branches claimed as “Rural Branch” do not clearly fall within the definition of “Rural Branch” given in Explanation (ia) to section 36(1)(viia) - it was found that even after the advances made to such non “Rural Branches” are excluded from the average advances made by the “Rural Branches” claimed by the assessee, the claim of the assessee at ₹ 19,08,77,607/- would still be admissible. CIT(A) has not decided the issue on merits. Aggrieved against that decision, the assessee is on appeal before us. In the facts and circumstances, since the matter has been not dealt by the Ld. CIT(A), we remit this issue back to the Ld. CIT(A). The assessee shall lay all relevant material on which it relies in support of its contentions before the Ld. CIT(A) and shall comply with his requirements in accordance with law - CIT (A) after giving effective opportunity to the assessee /A O , as the case may be, decide the issue in accordance with law. Thus, the corresponding grounds of the assessee as well as Revenue are treated as partly allowed. Provision on leave encashment - HELD THAT:- CIT(A) apart from relying on the Supreme Court order in the case of M/s. Exide Industries Ltd. [2008 (9) TMI 921 - SC ORDER] held that the assessee’s original claim was correct in as much as it had on its own disallowed the provision for leave encashment on retirement to the extent of ₹ 6,81,00,000/- and had claimed deduction on actual payment basis. Therefore, the Ld. CIT(A) held that there is no merit in the assessee’s claim of additional sum - Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and hence the corresponding grounds of the assessee are dismissed. Disallowance on stale draft account - 'Depositor Education and Awareness Fund Scheme, 2014”of the RBI guideline - HELD THAT:- AR correctly supported the order of the Ld. CIT(A) and relied on this tribunal decision in its case in THE KARUR VYSYA BANK LTD. VERSUS ADDL. COMMISSIONER OF INCOME TAX (VICE-VERSA) [2019 (3) TMI 1002 - ITAT CHENNAI] - Decided against revenue. Disallowance of ex-gratia payment - HELD THAT:- As relying on KARUR VYSYA BANK LTD. VERSUS ADDL. COMMISSIONER OF INCOME TAX (VICE-VERSA) [2019 (3) TMI 1002 - ITAT CHENNAI] we do not find merit in the Revenue’s appeal, therefore, the corresponding grounds are dismissed . Disallowance on interest accrued on NPAs - HELD THAT:- As relying on M/S. VASISTH CHAY VYAPAR LTD. [2018 (3) TMI 56 - SUPREME COURT] and THE KARUR VYSYA BANK LTD. [2017 (4) TMI 566 - ITAT CHENNAI] held that interest income cannot be said to have been accrued to the assessee on the NPA accounts. Accordingly, we direct the AO to delete the addition Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Deduction under Section 36(1)(vii) of the Income Tax Act.3. Deduction under Section 36(1)(viia) of the Income Tax Act.4. Provision for leave encashment.5. Disallowance on stale draft account.6. Disallowance of ex-gratia payment.7. Disallowance on interest accrued on Non-Performing Assets (NPAs).Issue-wise Detailed Analysis:1. Disallowance under Section 14A:The assessee argued that no disallowance under Section 14A is permissible since the securities held by the bank are considered stock-in-trade, and no expenditure was incurred to earn tax-free income. The CIT(A) enhanced the disallowance based on the proportion of investments yielding exempt income. The Tribunal, referencing prior decisions and the Supreme Court ruling in Maxopp Investment Ltd., concluded that no disallowance under Section 14A is permissible for banks engaged in banking business, thereby allowing the assessee's appeal.2. Deduction under Section 36(1)(vii):The CIT(A) found discrepancies in the method adopted by the assessee for computing the deduction under Section 36(1)(vii). The assessee used different methods for different assessment years, leading to inflated claims. The Tribunal remitted the issue back to the Assessing Officer (AO) for fresh examination, directing the AO to conduct appropriate inquiries and offer the assessee an effective opportunity to present its case.3. Deduction under Section 36(1)(viia):The CIT(A) did not adjudicate the assessee's ground relating to the deduction under Section 36(1)(viia), citing no tax effect. The Tribunal remitted the issue back to the CIT(A) for a decision on merits, instructing the CIT(A) to consider all relevant materials and provide effective opportunities to both the assessee and the AO.4. Provision for Leave Encashment:The assessee's claim for provision on leave encashment was dismissed by the CIT(A), who relied on the Supreme Court's stay on the Calcutta High Court decision in Exide Industries Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the provision is not admissible under Section 43B(f) and the assessee's original claim was correct.5. Disallowance on Stale Draft Account:The CIT(A) deleted the disallowance on the stale draft account, citing the RBI guidelines under 'The Depositor Education and Awareness Fund Scheme, 2014.' The Tribunal upheld this decision, referencing its previous ruling in the assessee's case, which followed the Karnataka High Court's decision in Karnataka Vikas Grameena Bank.6. Disallowance of Ex-gratia Payment:The CIT(A) allowed the deduction for ex-gratia payments, following the Tribunal's earlier decision in the assessee's case. The Tribunal upheld this decision, finding no merit in the Revenue's appeal.7. Disallowance on Interest Accrued on NPAs:The CIT(A) deleted the disallowance on interest accrued on NPAs, referencing the RBI guidelines. The Tribunal upheld this decision, citing the Supreme Court's ruling in Vasisth Chay Vyapar Ltd., which confirmed that interest income on NPAs cannot be considered accrued.Conclusion:The Tribunal's judgment provided a comprehensive analysis of each issue, often remitting matters back to the AO or CIT(A) for further examination in accordance with the law. The Tribunal's decisions were largely in favor of the assessee, particularly regarding disallowances under Section 14A and deductions under Sections 36(1)(vii) and 36(1)(viia).