2021 (7) TMI 212 - AT - Income Tax

Tax Appeals: Revised Claims Allowed, Section 14A Disallowance Vacated, Appellate Authority Upheld

The Saraswat Co-operative Bank Ltd. Versus Income tax Officer-1 (3) (1), Mumbai, DCIT-1 (3) (2), Mumbai

The Saraswat Co-operative Bank Ltd. Versus Income tax Officer-1 (3) (1), Mumbai, DCIT-1 (3) (2), Mumbai - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Deduction under Section 36(1)(vii) read with Section 36(1)(viia) of the Act.3. Deduction under Section 36(1)(viii) of the Act.4. Claim for deduction of education cess paid on income tax.Issue-Wise Detailed Analysis:1. Disallowance under Section 14A of the Act:The assessee, a multi-state co-operative bank, had offered a suo motto disallowance under Section 14A read with Rule 8D of Rs. 50.64 lakhs in its return of income for A.Y. 2013-14. The Assessing Officer (A.O) recalculated the disallowance to Rs. 1,86,62,836/- by including an investment of Rs. 20 crores in its subsidiary, which the assessee had excluded. The CIT(A) agreed with the assessee that significant interest-free funds were available, thus no interest disallowance was warranted. However, the CIT(A) restricted the disallowance to Rs. 50.64 lakhs, stating that any reduction beyond this amount required a revised return. The Tribunal, referencing the Supreme Court judgment in Goetze India Ltd. and the Bombay High Court's judgment in Pruthvi Brokers & Shareholders, held that appellate authorities could entertain new claims based on facts on record and vacated the entire disallowance of interest expenditure under Section 14A r.w. Rule 8D(2)(ii).2. Deduction under Section 36(1)(vii) read with Section 36(1)(viia) of the Act:The assessee claimed a deduction of Rs. 27.66 crores under Section 36(1)(vii) for bad debts written off, which was initially restricted to the excess over the 'closing balance' of the provision for bad and doubtful debts. The CIT(A) admitted the additional ground but denied the claim, stating it was not raised in the original or revised return. The Tribunal, relying on the CBDT Circular No. 17/2008 and the judgments of the Bombay High Court and Gujarat High Court, directed the A.O to allow the revised claim, emphasizing that appellate authorities could consider new claims based on facts on record.3. Deduction under Section 36(1)(viii) of the Act:The A.O disallowed the assessee's claim of Rs. 7.50 crores under Section 36(1)(viii) as no reserve was created during the year. The CIT(A) allowed the claim, referencing the Tribunal's decision in the assessee's favor for previous years. For A.Y. 2014-15, the CIT(A) allowed the claim but erroneously mentioned the amount as Rs. 10 lakhs instead of Rs. 10 crores. The Tribunal directed the CIT(A) to rectify this mistake.4. Claim for Deduction of Education Cess Paid on Income Tax:The assessee claimed a deduction for education cess paid on income tax amounting to Rs. 2,90,37,888/- for A.Y. 2013-14 and Rs. 1,62,86,196/- for A.Y. 2014-15. The Tribunal admitted the additional ground, referencing the Bombay High Court's judgment in Sesa Goa Ltd., which held that education cess is not disallowable under Section 40(a)(ii) of the Act. The Tribunal restored the issue to the A.O for consequential effect.Conclusion:The Tribunal allowed the appeals for both A.Y. 2013-14 and A.Y. 2014-15, directing the A.O to give effect to the revised claims and rectify errors as per the Tribunal's observations. The judgments emphasized the appellate authorities' powers to entertain new claims based on the facts available on record, even if not raised in the original or revised returns.