2020 (10) TMI 980 - AT - Income Tax

Tribunal decision: Revenue appeal partly allowed for statistical purposes

Dy. Commissioner of Income Tax Circle-2 (2) (1) Mumbai Versus State Bank of India Financial Reporting & Taxation Department

Dy. Commissioner of Income Tax Circle-2 (2) (1) Mumbai Versus State Bank of India Financial Reporting & Taxation Department - TMI Issues Involved:1. Recovery of bad debts written off.2. Taxability of income of foreign branches.3. Adjustment of refund granted by the revenue.Issue-wise Detailed Analysis:1. Recovery of Bad Debts Written Off:The primary issue was whether the recovery of bad debts written off should be taxed under Section 41(4) of the Income Tax Act, 1961. The assessee bank recovered bad debts amounting to Rs. 42,63,46,635/- during the F.Y. 1995-96, relevant to A.Y. 1996-97, without claiming any deduction under Section 36(1)(vii) in the past. The Assessing Officer (AO) argued that the recovery should be taxable under Section 41(4) since the bad debts were initially set off against the provision for bad and doubtful debts under Section 36(1)(viia). However, the Tribunal found that the bad debts written off did not exceed the credit balance in the provision for bad and doubtful debts and were not claimed as a deduction under Section 36(1)(vii) in earlier years. Therefore, Section 41(4) was not applicable. The Tribunal upheld the CIT(A)'s decision, referencing the Bangalore Tribunal's decision in the case of State Bank of Mysore and the Tribunal's own decision in the assessee’s case for A.Y. 2008-09. The argument for remitting the issue back to the AO for verification was dismissed, and the ground raised by the revenue was dismissed.2. Taxability of Income of Foreign Branches:The second issue concerned the taxability of income from the assessee's foreign branches. The assessee argued that the income of its foreign branches should not be taxed in India based on various judicial pronouncements and Double Taxation Avoidance Agreements (DTAA). The AO, however, relied on the Tribunal's decision in the case of Bank of Baroda and held that such income should be taxable in India. The CIT(A) granted relief to the assessee, relying on the Tribunal's decision in the case of Bank of India, which was subsequently upheld by the Jurisdictional High Court. The Tribunal noted that the AO needed to verify whether the assessee provided evidence of taxes paid in foreign countries for the income of its foreign branches. The Tribunal remanded the issue back to the AO for verification of the details of branches in countries with and without DTAA and the taxes paid by these branches. The ground raised by the revenue was allowed for statistical purposes.3. Adjustment of Refund Granted by the Revenue:The third issue was about the adjustment of the refund granted by the revenue. The CIT(A) directed the AO to adjust the refund first towards the interest amount refundable and then towards the tax amount refundable, referencing the Supreme Court's decision in the case of CIT vs. HEG Limited and the Delhi High Court's decision in the case of India Trade Promotion Organisation vs. CIT. The Tribunal noted that this issue had been settled in favor of the assessee by previous Tribunal decisions, including the case of State Bank of Indore and Bank of Baroda. The Tribunal upheld the CIT(A)'s decision, dismissing the ground raised by the revenue.General Ground:The fifth ground raised by the revenue was general in nature and did not require specific adjudication.Conclusion:The appeal of the revenue was partly allowed for statistical purposes, with specific directions for verification on the taxability of income from foreign branches and upholding the CIT(A)'s decisions on the recovery of bad debts and adjustment of refunds. The order was pronounced on 21/10/2020.