TaxTMI 
TaxTMI 
2013 (9) TMI 273
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....ncome for A.Y. 2002-03 declaring income of Rs. 208,83,29,510/-. On 28.02.2003, it revised the return of income by declaring total income of Rs. 208,95,81,108/-. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 30.03.2005 and the total income was determined at Rs. 363,22,37,200/-. Aggrieved by the order of Assessing Officer (AO), Assessee carried the matter before CIT(A). CIT(A) vide order dated 18.11.2005 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A) both the Assessee as well as Revenue are in appeal before us. 4. Ground no. 1 is general in nature and therefore not adjudicated and dismissed. 5. Ground no. 2 and sub grounds are with respect to the claim of bad debts. 6. During the course of assessment proceedings, AO noticed that Assessee has claimed deduction under Section 36(1)(vii) at Rs. 131,55,63,089/- and deduction under Section 36(1)(viia)(a) at Rs. 8,24,00,000/-. The computation of deduction of the aforesaid deduction by the Assessee was as under: (a) Deduction u/s 36(1)(vii) Gross Bad debts written off during the previous year Rs. 138.29 crores. Less: O....
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....nced by the appellant alongwith various judicial decisions. The legal position emerges on the basis of various case laws cited above is as follows:- a) As per the decision of Kerala High Court in the case of South Indian Bank, 262 ITR 579 the scope of the proviso to cl. (vii) of s.36(1) has to be ascertained from cumulative reading of provisions of cls. (vii), (viia) of s.36(1) and cl.(v) of s.36(2) of the Act. It would appear to us that the object of introducing the proviso was to avoid a double benefit to the scheduled bank. The legislature, it appears, thought that such double benefits in respect of rural advances should no be allowed and, therefore, they have inserted a proviso to I. (vii) and simultaneously inserted cl. (v) of s. 36(2). It is only for the said purpose, the proviso and cl. (v) were introduced simultaneously by the Amendment Act, 1985, w.e.f. 1st April, 1985. According to us, the scope of the proviso to cl. (vii) of s. 36(1) of the Act is only to deny the deduction to the extent of bad debt written off in the books with respect to which provision made under c. (viia) of the Act. To make it clear, if the bad debt written off relates to debts other than for ....
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....udgment, the actual had debt written off would be limited to the excess amount of write off over the amount standing to the credit of the provision account created under cl. (viia) to sec. 36(1) allowed under cl.(viia) to section 36(1). Thus, it is clear from the decision of Cochin ITAT special bench that it is the provision made and allowed u/s Sec 36 (1) (viia) which has to be considered for restricting the deduction u/s 36 (1) (vii). The AO. has understood it and instead of restricting the disallowance of bad debt u/s 36 (1) (vii) by this provisions made and allowed U/s 36 (I) (viia) amounting to Rs. 8.24 cr. he has restricted it and disallowed by an amount of Rs. 59.03 Cr.plus 31.603 Cr. This is not correct and cannot be upheld. 4.4 Thus, it is clear that the provision made and allowed u/s. 36(1)(viia) is although independent allowance, it will restrict the disallowance u/s. 36(1)(vii) by application of proviso to sec. 36(1)(vii), which restricts to the credit balance of the provision made and allowed in assessment for doubtful debts u/s. 36(1)(viia). Now, the only dispute remains is that of restricting the disallowance u/s. 36(l)(vii) by applying the proviso to this sec.....
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.... u/s. 36(1)(vii)(a) for current previous year cannot be taken into account for the purpose of computing the deduction u/s. 36(l)(vii) is not correct. . As this deduction u/s. 36(1)(vii)(a) proviso is based on loss and doubtful assets as at the close of previous year, the closing balance of provision 36(1)(vii) a) for current previous year has to be taken into account for applying the proviso to section 36(1)(viii). This is the only possible view of section 36(1)(vii) proviso, where deduction u/s.36(1)(viia) proviso is claimed and the decision of Hon. Bombay ITAT in the case of Oman International Bank is not applicable in appellant's case. Therefore, in my view, the correct deduction allowable to the appellant is as under: Deduction allowable u/s.36(1)(vii): Gross bad debt actually written off during Previous year : Rs.138.29 Cr. Less: Closing balance in the provision for bad & doubtful debts u/s.36(1)(viia) as on 31.3.02. : Rs. 8.24 Cr. Balance allowable : Rs.130.05 Cr. Hence, the allowable deduction u/s.36(12)(vii) is Rs.130.05 cr. As against the claim made by the appellant Rs.131.59 cr. Therefore, the disallowance comes to Rs.1.54 cr. Which is....
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....bad and doubtful debts. On the other hand, the assessee contents that such diminution be limited to the opening balance of such account. 16.We notice that in this respect the provision is silent. We may therefore record that the interpretation adopted by the Tribunal in the impugned judgment would ordinarily give rise to a question of law particularly when it is pointed out that there is no previous decision of any High Court on the subject. However, the issue has been made sufficiently clear by the CBDT Circular No.17/2008 dated 26-11-2008. In the said circular, this very issue has been examined and clarified in the following manner:- "2. In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & 1 Profession , deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below....
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....sessee in certain specified circumstances. so long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. (Refer to UCO Bank v. CIT(1999) 4 SCC 599). " 18. In case of UCO Bank vs. Commissioner of Income Tax reported in 237 ITR 889 the Supreme Court in connection with effect of circulars issued by the Board under section 119 of the Act observed: " Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board, thus, has powers inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in the manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power i....
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....ssessee cannot claim that the investments were held by it permanently for 8 long years. He also noted that Assessee had opening balance of tax free investment of Rs. 401 Crore, had entered into purchase and sale of investment worth hundreds of crores in the tax free investment, the total transactions in shares and bonds and debentures including taxable and tax free instruments was to the tune of Rs. 6,818 Crore He accordingly concluded that the Assessee was trading heavily in tax free instruments. He further noticed that Assessee has considered only the interest cost of funds for the purpose of disallowance. He was of the view that since the bank was carrying on different activities which earned taxable as well as tax free income the business of the Assessee cannot be termed as indivisible business and therefore allocation of expenses in proportion basis needs to be done taking into account the total funds, interest bearing and non interest bearing funds with the assessee. He thereafter worked out disallowance u/s 14A as under: Total Tax-free Investments at 31/3/2002 (Rs. 414 crores + 14.92 crores) Rs. 428.92 crores Proportion of total funds to interest bearing funds 91....
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....stries V. DCIT, 93 TTJ 161. As pt this decision, the investment decisions are very strategic decisions in which top management is involved and, therefore, proportionate management expenses are required to be deducted while computing the exempted income. On similar logic, the other operating expenses are also to be deducted. The appellant has already disallowed Rs. 6.23 Cr. out of interest expenditure. The disallowance out of operating expenses comes to Rs. 5.11 Cr. which is justified. Hence, the disallowance is confirmed to the extent of Rs. 5.11 Cr. and the balance amount of Rs. 25.34 Cr. is deleted. 17. Aggrieved by the order of CIT(A), the Assessee and Revenue, both are in appeal before us. 18. Before us, the learned A.R. placed at page 61 of the paper book the chart showing opening position of interest free funds vis-a-vis tax free investment for various years starting from 31st March, 1995 to 31st March, 2003. From the aforesaid chart, he pointed that the interest free funds available with the Assessee in the form of Capital, Reserves and interest free demand deposits aggregated to Rs. 1766 Crore as against which the tax free investment at the end of the year was Rs. 414....
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....d out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee, he disallowed Rs. 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore. We further find that on identical facts for A.Y. 2003-04, (ITA No 2571/Ahd/2006), the Co-ordinate Bench of Tribunal had restricted the disallowance to that made by the Assessee by holding as under: 33. We have heard the rival contentions and perused the material on record. The undisputed facts are that during the year the assessee has earned interest of Rs 17.45 crore on tax free bond and debentures as against which the assessee had suo moto disallowed Rs 5.53 crore being the interest expenses u/s 14A as against which the AO has worked out the disallowance of Rs 32.76 crore. After giving the credit of disallowance of Rs 5.53 crore made by the Assessee, the AO disallowed Rs 27.23 crore u/s 14A. As on 31 March 2003, the interest free funds available with the assessee was to the tu....
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.... placed reliance the decision of Hon. Calcutta High Court and the decision of Supreme Court. We find that this ground was not taken by the assessee before A.O. and CIT(A). AO had proceeded on the basis of the suo-moto disallowance made by the Assessee. Thus the AO or CIT(A) did not had any opportunity to examine the aforesaid contention and therefore there is no finding on it either by the A.O. and CIT(A). In view of these facts, we are of the view that the matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes. Ground no 4 and its sub grounds are wrt to depreciation on windmills. 21 During the course of assessment proceedings, AO noticed that Assessee have entered into tripartite operating lease agre....
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....sion thereon were filed during the appellate proceedings and the same have been considered in the appellate proceedings Hence, the appellant has been given proper opportunities. ii) The appellant has contended that the statement recorded u/s. 133A of the Act has no evidentiary value. Although the statement recorded u/s. 133A has no evidenciary value, as much as statement recorded u/s. 132(4) of the I.T Act, yet the statement recorded u/s. 133A provides information and evidence to bring out the truth and the same has to be considered in finding out the fact and truth. iii) The A.O. has passed the order on the basis of facts gathered and after appreciating the facts and evidence collected. The objections and submissions made by the appellant are duly considered by him. The other submissions given during the appellate proceedings have further been considered in appellate proceedings. iv) From the contents of the tripartite agreement dated 22.09.2000, the statement of Shri V.R. Raghunathan and papers found in survey which are discussed in detail by the Assessing Officer in the asst. order and in brief reproduced in para 7.1 above, it is evident that actually M/s. Wescare India....
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....ny and bank. In the said lease agreement there was a stipulation that after the expiry of the lease period the machinery was to be returned to the Bank. The dispute was not under the Income tax Act and therefore not applicable. The decision of the ITAT in the case of Birla Chemicals and Traders (P) Ltd. is also not relevant for the issue at hand. Therefore, in view of the discussions made above and the finding brought out on record by the A.O. and discussed in details in the asst. order, which are produced above in earlier paras, it is evident that this was not a lease transaction, but only finance transaction. Hence, the depreciation is not allowable. As per the decision of Hon. Supreme Court in the case of McDowell & CO. Vs. CIT., 154 ITR 148, to ascertain the real nature of transaction, the viel has to be lifted. As per the decision of Hon. Karnataka High Court in the case of Avasarala Automation Ltd. Vs. JCIT 266 ITR 178, it has been held that while it is permissible for an assessee to have the tax planning, it is not permissible to prepare documents and to give the colour of real transactions on the basis of said documents, which would enable the assessee to evade the pa....
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....ether the Assessee is entitled to depreciation vehicles finance by it which is neither owned nor used by the Assessee by virtue of the business" the Hon. Supreme Court held as under: "The provision on depreciation in the Income-tax Act, 1961, reads that the asset must be "owned, wholly or partly, by the assessee and used for the purposes of the business". Therefore, it imposes a twin requirement of "ownership" and "usage for business" for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the "purpose, of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. The definitions of "ownership" essentially make ownership a function of legal right or title against the rest of the world. However, it is "nomen genera-lissimum", and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. As long as the assessee has a right to retain the legal title a....
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.... to ascertain the genuineness of the transaction entered by the assessee with its lessee, which was done by the CIT(A) in each case. 31. In any case, the issue of SLB transaction and in particular the issue of ownership of asset, also has been laid to rest by the Hon'ble Apex Court in the case of ICDS Ltd. Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers". The Hon. supreme Court of India, concluded, extracted from para 28, "From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question" (para28, page28). 32. Coming to the issue of finance lease, wherein the CIT(A) sustained the disallowance because the usage of the equipment lease out could not be substantiated. On going through the decision of the jurisdictional High Court of Bombay, we find that the issue now is at rest, in so far as the lessor is concerned, because, while dealing the case of the lessor, i.e. the assessee in the instant case, the asset has left its corridors for bei....
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....ght to have held that the assessee was not entitled for any exemption u/s. 10 (33) of the IT Act. 28. Before us, both the parties submitted that Ground No 1 & 2 are connected with Ground No 2 of Assessee's appeal in ITA No. 152/A/2006and the submissions made by them while arguing the ground in Assessee's appeal are equally applicable to the present grounds. 29. We have heard the rival submissions and perused the material on record. Since ground no. 1 and 2 of the present Revenue's appeal are connected with ground no. 2.1 and 2.3 of Assessee's appeal in ITA No. 152/Ahd/2006 and since Ground No 2 of Assessee's appeal in ITA No 152/Ahd/2006 hereinabove has been has been discussed and decided in favour of Assessee, we therefore for similar reasons dismiss these grounds of the Revenue. Ground no. 3 is with respect to disallowance of Rs. 8.6 Crore write off in respect of investment. 30. During the course of assessment proceedings, AO noticed that investments worth Rs. 8.64 Crores have been written off and has been claimed as bad debts written off. On perusing the submissions made by the Assessee, AO noticed that Assessee in addition to sanctioning loan had also invested in no....
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....that giving of loans was a part of business and the deployment of funds in debentures constitutes one of the modes of advancing loans in the ordinary course of business and the investments in debentures was as per the provisions of section 6 of Banking Regulation Act, 1949. The learned A.R. further submitted that the income from debentures has been offered for tax and is treated as business income. He thus supported the order of CIT(A). 33. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that giving of loans whether in the form of loan or non convertible debentures is the part of the business and relying on the decision of Supreme Court in the case of Kedarnath Jute Manufacturing Company Limited vs. CIT 82 ITR 363 held it to be covered under section 36(1)(vii). He also relied on the Board Circular. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of the aforesaid facts we find no infirmity in the order of CIT(A) and thus this ground of the Revenue is dismissed. Ground no. 4 to 6 are in relation to disallowance under 14A. 34. Before us,....
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....lar reasons stated herein while deciding the appeal in ITA No 152/Ahd/2006 for AY 2002-03, decide the issue in favour of the Assessee. Thus this ground of the Assessee is also allowed. The other grounds were not seriously pressed and therefore not adjudicated. 40. In the result this appeal of the Assessee is partly allowed. ITA No: 4387/Ahd/2007 (Assessee's appeal) and ITA No 237/Ahd/2008 (Revenue's appeal) for AY 2003-04. 41. These two appeals, one by the Assessee and the other by the Revenue, arise out of the order of CIT(A) dated 5.10.2007 wherein the dispute is with respect to penalty u/s 271(1)(c). 42. This appeal of Assessee is against the order of AO dated 5.10.2007 for AY 2003- 04 whereby penalty was levied u/s 271(1)(c) at 300% (Rs 17,21,81,835/-) by AO. Assessee is aggrieved by the levy of penalty whereas Revenue is aggrieved by the order of CIT(A) dated 25.1.2007 whereby he reduced the penalty at 100% (Rs. 5,73,93,945). Since the issue is common, both the appeals are considered together for disposal for the sake of convenience. 43. In this appeal, Assessee has raised various grounds but they all relate to levy of penalty under Section 271(1)(c) amounting t....
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.... legal proposition on understanding or interpretations where two views were possible. He further submitted that the Assessee had disclosed and made all particulars and facts material to the computation of its income accurately the claim made in the return was bonafide and based on honest and bonafide understanding of law and judicial precedent. The learned A.R. further submitted that the Assessee has discharged its burden of satisfactorily explanation of its claim. He further submitted that no penalty was leviable as the Assessee was neither guilty of contumacious conduct nor any element of mens rea was present. He further submitted that mere difference of opinion as primarily law based debatable complex question of interpretation cannot be a ground for sustaining penalty. He further relied on the decision of the Apex Court in the case of Reliance Petroproducts (2010) 322 ITR 158 (SC). He thus urged that the penalty levied be deleted. The learned D.R. on the other hand relied on the order of Assessing Officer. 48. We have heard the rival submissions and perused the material on record. We find that in the present case addition made on account of disallowance of expenses (fraud ex....