TaxTMI 
TaxTMI 
2014 (10) TMI 210
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....ing Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act"). 3. In the appeal preferred by the assessee, the following Grounds have been raised in the Memo of Appeal :- "1. The CIT(A) erred in not allowing depreciation on valuation of securities (scrip-wise) of Rs. 375,89,72,351/- despite decision in UCO Bank - ITR (SC) and Corporation Bank - ITR (Kar) and other relevant case law. The addition is wrong in law based on relevant case law. 2. The CIT (Appeals) erred in not allowing depreciation of Rs. 1,52,07,500/- on items of Plant & Machinery considering them as items of Furniture & Fixtures. 3. The CIT (Appeals) erred in not considering the claim of Rs. 68,06,15,000/- u/s 36(1)(vii) regarding Non-Rural Bad Debits written off." 4. Apart therefrom the assessee has raised 3 Additional Grounds of Appeal vide an application dated 18.02.2011, which read as under :- "1. It may please be held that the correct amount of deduction u/s 36(1)(viia) of the I.T. Act, 1961 works out to Rs. 155,48,95,324/- (subject to change on account of total income ....
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.... raised in the cross-grounds, the following discussion is relevant. The assessee bank has various accounts of investments viz. Government securities, shares, debentures, bonds, etc. It has been treating all the investments as stock-in-trade and income from investments, such as interest, profit / loss on the sale of these investments, etc. were offered to tax as business income in the past years and the same are assessed as such. In the books of account, assessee bank classifies the investments into three categories following the Reserve Bank of India guidelines, viz., Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT). In its books of account, following the RBI guidelines, assessee bank has all along been valuing the HTM investments at cost. In respect of AFS and HFT investments the same are divided into 7 baskets and the valuation was carried out basket-wise and within the basket, any appreciation in value of a security is adjusted against depreciation in the value of another security. If the resultant figure in a basket is net depreciation, the same is debited to Profit & Loss Account. However, if the net figure is an appreciation, the same is ignored and....
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.... for depreciation in investments as per books of account, though it was not claimed by the assessee in the return of income. The CIT(A) has since deleted the said addition and therefore the relief now sought to be claimed by way of Ground of Appeal No.1 is to be taken as Rs. 359,24,58,508/- only. On this aspect, there was no dispute between both the parties and therefore the Ground of Appeal No.1 is to be read as referring to a sum of Rs. 359,24,58,508/- as against Rs. 375,89,72,351/- stated therein. 11. Now, we may touch-upon the grievance in the cross-ground raised by the Revenue. In this context, it is to be noted that during the previous year relevant to the assessment year 2005-06, assessee bank shifted certain securities from AFS to HTM category following the RBI guidelines. As per the RBI guidelines, securities could be shifted from AFS to HTM category at lower of cost or market value on the date of shifting. The resultant depreciation on the date of shifting was debited to Profit & Loss Account and the value of the securities appearing in the books of account was reduced to that extent, following the RBI guidelines. The depreciation arising on shifting of securities from A....
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.... assailed by the Revenue before us. The said explanation of the assessee, in our view, obviates a situation where a double deduction is allowed to the assessee in the context of the two cross-grounds raised before us, namely, Ground of Appeal No.1 of the assessee and the Ground of Appeal No.1 raised by the Revenue in its appeal. 14. Now, we may consider the claim of the assessee of loss on valuation of closing stock of securities at Rs. 359,24,58,508/- on account of the change in the method of valuation of securities undertaken for the first time during the year under consideration. The assessee has valued all the securities, including the HTM securities, as on the last day, i.e. 31.03.2005 at lower of cost or market value. So far as the valuation of AFS and HFT securities is concerned, the Revenue has accepted the stand of the assessee because according to the Revenue such securities represent stock-in-trade of the assessee bank and thus the valuation of such securities at the year end at the lower of cost or market value is acceptable. However, the Revenue has not accepted the changed method of valuation with respect to the HTM securities. The reason advanced for the same is tha....
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....hich are being maintained as per the RBI guidelines. It has also been pointed out that the assessee has not referred to any resolution passed by the Board of Directors of the assessee-bank regarding the change in the method of valuation of the securities. 16. The learned counsel appearing for the assessee has assailed the stand of the Revenue by pointing out that the change in the method of valuation of the securities for the purposes of income-tax is bona-fide and the changed method has been consistently followed by the assessee hereinafter. The learned counsel submitted that in so far as the assessee bank is concerned, it was treating all investments as 'stock-in-trade' even in the past years inasmuch as the income from such investments such as interest, profit on sale of investments, etc. have always been offered to tax as 'business income' and the same was also assessed as such by the income-tax authorities. The only change is with regard to the method of valuation of closing stock of securities made from assessment year 2005-06 onwards, whereby assessee has valued the investments at the lower of cost or market value, which is a universally accepted method of v....
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....ket any appreciation in security is adjusted against the depreciation of other any security. Up to the assessment year 2004-05, the method of valuation of closing stock of securities adopted in the books of account following the RBI guidelines, was also adopted by the assessee for the purposes of income-tax. It is in the instant assessment year of 2005-06 and in subsequent years, that assessee has changed the method of valuation for the purposes of its income-tax computation whereby assessee has valued the closing stock of securities / investments at lower of cost or market value. The resultant effect of such change in the assessment year 2005-06 amounting to Rs. 359,24,58,508/- is not accepted by the Revenue, and hence the impugned addition of Rs. 359,24,58,508/-. 18. Factually speaking, the change in the method of valuation has been partly accepted by the Revenue and we say so for the reason that qua the investments classified as AFS and HFT there is no dispute and, the valuation of such closing stock at lower of cost or market value, has been accepted. The dispute is only with regard to the closing stock of HTM securities, which according to the Assessing Officer, should contin....
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.... the cost or market value. Therefore, the departure from the erstwhile method of valuation of closing stock by the assessee is quite appropriate, and in fact is line with a method approved by the Hon'ble Supreme Court in the case of Chainrup Sampatram (supra). In-fact, the only basis for the Revenue to challenge the bona-fides of the change is that the change has been effected only for the purpose of assessment of taxable income and is not incorporated in the account books. The aforesaid plea of the Revenue, in our view, is quite misplaced because it is well understood that assessee is a banking company and is statutorily mandated to maintain its books of account in terms of the RBI guidelines. On the other hand, the assessment of taxable income has to be based on the principle of law and cannot be guided merely by the treatment meted out to a particular transaction in the account books. In-fact, this aspect of the controversy has also been answered by the Hon'ble Karnataka High Court in the case of Corporation Bank Ltd. (supra) by relying on the judgement of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT, (1971) 82 ITR 363 (SC). Therefore....
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....r dispute for assessment year 2006-07, which is also before us. In response to the aforesaid, the learned counsel for the assessee submitted that because of the change in the valuation method of the investments, assessee had re-worked the entire income relating to the investments/securities by preparing an 'Investment Trading Account'. The learned counsel explained that the assessee was also undertaking sale and purchase of securities and therefore the profit / loss thereon was also liable to be adjusted having regard to the change in valuation of the securities/investments. In this context, a statement showing the 'Investments Trading Account' and the effect of the change in the method of valuation of investments was furnished by way of tabulation in the course of hearing. 23. The learned counsel for the assessee pointed out that an Investment Trading Account for the period ending on 31.03.2005 was submitted to the CIT(A) as a measure to enable the computation of real income of the assessee on account of valuation of investments, sale of investments as per books, depreciation in value of investments as per books, amortization of securities, etc.. The plea of the a....
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....count and / or such other workings which would enable the Assessing Officer to re-work the income of the assessee in accordance with our decision in the earlier paragraphs. The Assessing Officer shall allow the assessee an appropriate opportunity of being heard and thereafter re-work the computation of income as per law and keeping in mind the aforesaid directions. Thus, on Ground of Appeal No.1 assessee succeeds. 25. The Ground of Appeal No.2 raised by the assessee is with regard to the depreciation of Rs. 1,52,07,500/- on items of Plant & Machinery, which according to the assessee have been wrongly considered as items of Furniture & Fixtures. 26. At the time of hearing, it was a common ground between the parties that similar dispute has been adjudicated by the Tribunal in the assessee's own case for assessment year 2004-05 vide ITA No.967/PN/2008 dated 30.05.2014, wherein the operating portion of the order reads as under :- "43. In our considered opinion, the action of the Assessing Officer is quite suspect having regard to the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Cent....
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....dered by the CIT(A). In this connection, a reference has been invited to a copy of the communication addressed to the CIT(A), which is placed in the Paper Book. Before us, it is sought to be canvassed that the said claim is covered by the judgement of the Hon'ble High Court in the case of Catholic Syrian Bank Ltd. vs. CIT, (2012) 343 ITR 270 (SC) and in the case of assessee for assessment years 2002-03, 2003-04 and 2004-05 the Tribunal vide its order dated 30.05.2014 (supra) admitted such an Additional Ground but remitted the same back to the file of the Assessing Officer for adjudication in the light of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). The aforesaid factual matrix has not been disputed by the learned CIT-DR appearing for the Revenue. As a result, following the precedent in the assessee's own case, we deem it fit and proper to direct the Assessing Officer to consider the said claim of the assessee in the light of the judgement of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only ....
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....at Bar in order to determine the controversy on hand. The relevant portion of Section 36(1)(viia) of the Act, as applicable for the assessment year under consideration i.e. A.Y. 2008-09 reads as under : - "[(viia) [in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and onehalf per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : 10. A bare perusal of aforesaid section clearly brings out that the deduction specified therein is in "respect of any provision for bad and doubtful debts made by........" an eligible assessee. The presence of the aforesaid exp....
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....n'ble High Court referred to the provisions of Section 36(1)(viia) of the Act and observed that ".....the deduction allowable under the above provisions is in respect of the provision made" and further went on to hold that ".....making of a provision for bad and doubtful debts equal to the amount mentioned in this section is must for claiming such deduction." In view of the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, in our view, the position sought to be canvassed by the assessee deserves to be repelled. We reproduce hereinafter the relevant portion of the order of the Hon'ble High Court, which reads as under :- "5. Sec.36(1)(viia) of the Act as applicable to the asst. yr. 1985- 86, reads as under : "in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl.(viiia) or a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank, an amount not exceeding ten per cent of the total income (computed before making any ....
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....nt only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this Court. 11. In view of the aforesaid interpretation of Section 36(1)(viia) of the Act by the Hon'ble Punjab & Haryana High Court, the orders of the lower authorities deserve to be upheld inasmuch as the assessee has not made a Provision for bad and doubtful debts in the books of account equal to the amount of deduction sought to be claimed under Section 36(1)(viia) of the Act, and therefore, in our view, the lower authorities were justified in restricting the deduction to Rs. 50,00,000/-, being the amount of Provision actually made in the books of account. 12. The learned counsel for the assessee has cited certain decision in support of his proposition that the claim of deduction under Section 36(1)(viia) of the Act is not linked to making of a Provision in the account books. At the outset, we may observe that the decisions relied upon by the assessee are of various Benches of the Tribunal and not of any High Court. Therefore, the judgement o....
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....he assessee in the present controversy before us. Further, even in the case of Jaysingpur Udgaon Sahakari Bank Ltd. (supra), the Tribunal has merely set-aside the matter for adjudication afresh back to the file of the Assessing Officer and it does not contain any positive finding with respect to the controversy before us. 15. In the result, considering the aforesaid discussion, in our view, the orders of the authorities below on this aspect are liable to be upheld. We hold so." 30. Following the aforesaid precedent, the Additional Ground of Appeal No.1 raised by the assessee is dismissed, as the CIT(A) has rightly restricted the deduction u/s 36(1)(viia) of the Act to the actual amount of provision made in the books of account for bad and doubtful debts. 31. In so far as the Additional Ground of Appeal No.2 is concerned, the same is with respect to the exemption u/s 10(23G) of the Act in relation to interest income earned by the assessee on infrastructural advances. On this aspect the plea of the assessee is that a similar claim has been admitted by the Tribunal in its order dated 30.05.2014 (supra) but the matter was remitted back to the file of the Assessing....
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....sputed the aforesaid factual matrix but pointed out that sub-section (2) of section 115JB of the Act has been amended by the Finance Act, 2012 to include companies which are governed by section 211(2) of the Companies Act, 1956 for the purposes of applicability of section 115JB of the Act. 35. We have carefully considered the rival submissions. Ostensibly, there is no dispute that assessee is a banking company. The Bangalore Bench of the Tribunal in the case of Canara Bank (supra) held that section 115JB of the Act is not applicable to a banking company. In coming to such conclusion, the Bangalore Bench of the Tribunal relied upon the earlier decisions of the Tribunal in the cases of Union Bank of India vs. ACIT (ITA Nos.4702 & 4706/2010 dated 30.06.2011) and Indian Bank vs. Addl. CIT (ITA No.469/Mds/2010 dated 03.08.2011). Similar is the decision of the Hyderabad Bench of the Tribunal in the case of State Bank of Hyderabad (supra). In so far as the objection of the learned CIT-Departmental Representative, based on the amendment made to section 115JB of the Act by the Finance Act, 2012 is concerned, the same is misconceived because the said amendment is applicable from assessment ....
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....s debited to the profit & loss account of Rs. 185,10,72,645/- is allowable expenditure. 4. It may please be held that the securities held by the appellant bank under HTM category constitute its stock in trade and not Capital assets as held by the learned CIT (A). 5. In the facts and circumstances of the case and in law, the learned CIT (A) erred in sustaining the addition of Rs. 1,04,62,090/- made by the Assessing Officer on account of write back of provision made for Non Performing Investments whereas the corresponding provision was already taxed in the earlier assessment years. 6. The appellant submits that the amortization of public issue expenses is allowable expense u/s 35D and same may please be allowed to the appellant. 7. Without prejudice to the above ground, the appellant submits that only the net expenditure after deducting the income earned on the application money be disallowed. 8. In the facts and circumstances of the case and in law, the disallowance of Rs. 139,27,20,607/- made by the learned CIT (A) u/s 36(1)(vii) of the I.T. Act 1961, being bad in law, arbitrary, per....
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.... Income-tax (Appeals) has erred in not directing the Assessing Officer to disallow the excess deduction allowed to the assessee, u/s.36(1)(viia), to the extent of the provision made for urban advances forming part of the total provision. 4. The learned Commissioner of Income-tax(Appeals) grossly erred in failing to appreciate that, as would be evident from the financial accounts of the assessee, the provision made by the assessee in respect of Non Performing Assets (NPA) as per the Reserve Bank of India guidelines tallies with the provision made u/s.36(1)(viia) which in itself would establish that the provision made u/s.36(1)(viia) was inclusive of the provision for non-rural advances which are not admissible in view of the Hon'ble Supreme Court's decision in the case of Catholic Syrian Bank Ltd., 343 ITR 270. 5. In view of the foregoing, the learned Commissioner of Income-tax (Appeals) has erred in routinely accepting the assessee's claim that the provision made by it, u/s.36(1)(viia), pertained to the rural advances whereas the facts emerging from the financial accounts prove to the contrary; and, the learned Commissioner of Inc....
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....nd of Appeal No.1 raised by the assessee is towards exclusion of a sum of Rs. 4,30,01,225/- out of the total income on account of write back of Provision for non-performing investments. 45. The relevant facts in this regard are that during assessment proceedings, assessee stated that out of the Provision for non-performing investments made in earlier years and disallowed, an amount of Rs. 4,30,01,225/- was recovered during the year under consideration. The assessee asserted that such amounts be reduced from the total income as the same were taxed in past. The CIT(A) has noted that the Assessing Officer rejected the plea without any discussion, because this claim was neither made in the original return of income and nor in the revised return of income. The aforesaid claim has been denied by the CIT(A) also on the ground that the same was not made in the returns of income filed before the Assessing Officer. 46. Factually speaking, the claim has been made by the assessee in the course of assessment proceedings before the Assessing Officer. The factual matrix of the claim, as noted by the CIT(A) in para 8.1 of his order shows that the assessee ha....
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....y way of Ground of Appeal Nos.6 and 7, assessee has sought deduction on account of amortization of public issue expenses u/s 35D of the Act amounting to Rs. 2,20,00,000/-. The Assessing Officer and thereafter the CIT(A) denied the claim of the assessee on the ground that the appellant, being a banking company, was not one of the entities eligible for the benefits of section 35D of the Act. The aforesaid position is not contested by the learned Representative for the assessee before us and therefore in-principle, the stand of the income-tax authorities is hereby sustained. 44. However, in the course of hearing an alternative plea has been raised by way of Ground of Appeal No.7. According to the assessee, when the share application monies were received from the public pending allotment, such monies kept with the bank earned some interest income. The claim is that such interest income be reduced from the total cost incurred by the assessee towards the public issue expenses and only the net expenditure be considered for the purposes of denial of assessee's claim for amortization of expenditure u/s 35D of the Act. The learned counsel has relied upon the judgement of the Hon'ble....
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....on u/s 36(1)(viia) of the Act of Rs. 172,49,54,970/- as against Rs. 83,00,00,000/- claimed in the return of income. The CIT(A) has restricted the claim to the actual amount of provision made in the books of account for bad and doubtful debts, as per section 36(1)(viia) of the Act. The Ground of Appeal No.2 to 6 in the Cross-appeal of the Revenue relate to the claim of the assessee u/s 36(1)(viia) of the Act which has been upheld by the CIT(A) to the extent of the Provision for bad and doubtful debts actually made in the account books amounting to Rs. 83,00,00,000/-. Since, the issue raised is similar, the Cross-Grounds are being taken-up together. 49. In this regard, the plea of the assessee is that deduction u/s 36(1)(viia) of the Act is allowable to the extent it was computable in terms of section 36(1)(viia) of the Act and cannot be restricted to the amount of Provision for bad and doubtful debts actually made in the account books. Accordingly, assessee has raised the claim to the extent of Rs. 172,49,54,970/-, which was restricted by the CIT(A) to Rs. 83,00,00,000/- representing the amount of Provision for bad and doubtful debts actually made in the account books. This aspect ....
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....e-up the remaining Grounds in the Cross-appeal of the Revenue for assessment year 2006-07. In so far as the Ground of Appeal No.1 is concerned, it is general in nature and is hereby dismissed. 56. The only other issue remaining in the appeal of Revenue is by way of Grounds of Appeal No.7 and 8, which relates to the action of the CIT(A) in allowing deduction for donations paid by the assessee to Maha Bank Agriculture Research & Development and to Gramin Mahila Va Bal Vikas Mandal amounting to Rs. 75,00,000/- and Rs. 25,00,000/- respectively. The aforesaid amounts were disallowed by the Assessing Officer. The CIT(A) has allowed the claim by making following discussion :- "13.7. A view has already been taken in respect of A.Y. 2009-10 that the contribution made by the appellant to Mahabank Agricultural Research & Rural Development Foundation (MARDEF) is fully allowable. Accordingly, it is held that contribution of Rs. 50 lakhs during the impugned assessment year is to be allowed in full. The other donation which qualifies for business expenditure u/s 37 is the contribution made by the appellant for Rs. 25 lakhs towar....
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.... AFS to HTM is disallowed then the such depreciation for current and all such earlier years may be allowed to the assessee in full on sale/maturity of such securities. 4. It may please be held that the securities held by the appellant bank under HTM category constitute its stock in trade and not Capital assets as held by the learned CIT(A). 5. In the facts and circumstances of the case and in law, the disallowance of Rs. 200,66,59,549/- made by the learned CIT (A) u/s 36(1)(vii) of the I.T. Act 1961, being bad in law, arbitrary, perverse and legally unsustainable. The said claim may please be allowed to the appellant. The learned CIT (A) erred in holding that the appellant had not written off the debts, which is against the facts. 6. In the view of well settled principals of law that there is no estoppel in the tax proceedings, the total disallowance of Rs. 3,56,69,000/- u/s 14A being patently illegal, bad in law, devoid of merits, being arbitrary and legally unsustainable, the same may please be deleted and it may please be held that no disallowance u/s 14A of I. T. Act, 1961 is warranted in the case. ....
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....ble Supreme Court's decision in the case of Catholic Syrian Bank Ltd., 343 ITR 270, the learned Commissioner of Income-tax (Appeals) has erred in not restricting admissible deduction u/s.36(1) (viia) to the extent of the provision made for rural advances only. 3. The learned Commissioner of Income-tax (Appeals) has erred in not directing the Assessing Officer to disallow the excess deduction allowed to the assessee, u/s.36(1)(viia), to the extent of the provision made for urban advances forming part of the total provision. 4. The learned Commissioner of Income-tax(Appeals) grossly erred in failing to appreciate that, as would be evident from the financial accounts of the assessee, the provision made by the assessee in respect of Non Performing Assets (NPA) as per the Reserve Bank of India guidelines tallies with the provision made u/s.36(1)(viia) which in itself would establish that the provision made u/s.36(1)(viia) was inclusive of the provision for non-rural advances which are not admissible in view of the Hon'ble Supreme Court's decision in the case of Catholic Syrian Bank Ltd., 343 ITR 270. 5. In view of t....
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....sessment years 2005-06 and 2006-07 in earlier paras. Thus, our decision in Cross-appeals for assessment years 2005-06 and 2006-07 shall apply mutatis-mutandis in the respective Grounds (except Ground of Appeal No.6 in assessee's appeal) of the Cross-appeals relating to assessment year 2007-08. 63. Now, we may take up the Ground of Appeal No.6 in assessee's appeal, wherein the dispute relates to a disallowance of Rs. 3,56,69,000/- made by invoking section 14A of the Act. In this context, relevant facts are that the assessee had earned interest on tax-free bonds and dividends amounting to Rs. 1,53,08,503/- and Rs. 3,30,31,470/-, which were exempt from tax. Section 14A of the Act prescribes that for the purposes of computing the total income, no deduction shall be allowed in respect of any expenditure incurred by the assessee in relation to an income which does not form part of the total income under the Act. On account of application of section 14A of the Act, assessee suo-motu quantified an amount of Rs. 2,63,45,285/- as expense relatable to the exempted income and such amount was added back to the total income in the return of income filed for the assessment year 2007-08. ....
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....the Assessing Officer was justified in applying Rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act. Further, as per the CIT(A), the assessee was in possession of interest free as well as interest bearing funds which were kept by the assessee in a common pool. Therefore, it was difficult to segregate which part of the funds were utilized for the purposes of making investments and which part was utilized for business transactions. Having regard to the complexity involved in apportioning expenditure relatable to the earning of tax free incomes, the CIT(A) upheld the action of the Assessing Officer to apply Rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act. Not being satisfied with the order of CIT(A), assessee is in further appeal before us. 66. Before us, the learned Counsel for the assessee vehemently pointed out that though assessee-bank had disallowed proportionate expenses in the return of income but during the course of assessment as well as appellate proceedings, it was contended that no expenditure could be disallowed u/s 14A of the Act. It is explained that assessee-bank has interest-free funds in the s....
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....he rival submissions. In the context of the disallowance made u/s 14A of the Act, we find that a similar issue came up before the Tribunal in the assessee's own case for the assessment year 2002-03 in the order of the Tribunal dated 30.05.2014 (supra). The propositions now been canvassed by the assessee have been dealt with by the Tribunal in its order dated 30.05.2014 (supra), wherein, the relevant paras read as under:- "14. We have carefully considered the rival submissions. Firstly, in so far as the plea with regard to the allocation of interest expenditure towards earning of exempt income is concerned, the same in our view, cannot be shut-out merely because it was disallowed suo motu by the assessee in the return of income. On the contrary, the claim is required to be considered and examined on its merits. As noted earlier, section 14A of the Act prescribes that the Assessing Officer shall, while computing the total income, deny deduction in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Ostensibly, in this case ass....
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.... available with it then no part of interest expenditure can be said to have been incurred in relation to earning of such exempt income for the purposes of section 14A of the Act. The aforesaid assertion made by the assessee has not been put to any verification by the CIT(A), because the CIT(A) refused to entertain the Additional Ground of Appeal. Ostensibly, verification of the aforesaid proposition, requires a factual appreciation, and for that purpose we deem it fit and proper to restore the matter to the file of the Assessing Officer with directions to verify the assertions of the assessee and thereafter allow appropriate relief on this count. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter he shall pass an appropriate order on this issue as per law. 15. Now, in so far as the operating expenses allocated by the CIT(A) towards earning of the exempt income amounting to Rs. 3,76,53,360/- are concerned, the same, in our view, does not require any interference. Assessee has asserted before the CIT(A) as well as before us that not much activity was performed in relation to....
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....dgement of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). On this aspect also, we deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the claim of the assessee in the light of the judgement of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra). Herein also the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth its claim and only thereafter, he shall adjudicate the claim of the assessee as per law. Thus, assessee succeeds for statistical purposes on Additional Ground of Appeal No.3." 69. In so far as the assessment year 2007-08 is concerned, the insistence of the Revenue on applying Rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act, in our view is unjustified because Rule 8D of the Rules is applicable w.e.f. assessment year 2008-09, as laid down by the Hon'ble jurisdictional High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra). Of course, for assessment years prior to 2008-09, when Rule 8D of the Rules is not applicable, the Assessing Officer had power to enforce the provisions of section 14A of t....
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....the matter back to the file of the Assessing Officer with directions to verify the assertion of the assessee and thereafter, allow the appropriate relief in so far as it relates to the component of interest expenditure disallowed u/s 14A of the Act. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter he shall pass an appropriate order on this issue as per law. 70. Now, in so far as the disallowance made by the Assessing Officer out of the other expenses amounting to Rs. 34,70,000/- by application of sub-clause (iii) to sub-rule (2) of Rule 8D of the Rules is concerned, our decision is as follows. In the assessment year 2002-03, the Tribunal had upheld the operating expenses allocated by the income tax authorities towards earning of exempt income. In the present year also, we do not find any justification in the assertions of the assessee that no expenses have been incurred to earn the tax-free incomes. In fact, the factum of the Treasury department of the assessee carrying out such activities itself shows that expenses in the nature of salaries, overheads, etc. are being incurred in relation to earning of the ....
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....on 14A of the Act contemplates that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Sub-section (2) of section 14A of the Act prescribes that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed, such prescribed method being contained in rule 8D of the Rules. However, the aforesaid empowerment of the Assessing Officer to invoke application of rule 8D of the Rules is superscribed by a condition contained in sub-section (2) of section 14A of the Act which is to the effect that the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which does not form part of the total income. Therefore, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because assessee....
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....of Direct Taxes circular dated December 28, 2006, state that since the existing provisions of section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a considerable dispute between taxpayers and the Department on the method of determining such expenditure. It was in this background that sub-section (2) was inserted so as to provide a uniform method applicable where the Assessing Officer is not satisfied with the correctness of the claim of the assessee. Sub-section (3) clarifies that the application of the method would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of nontaxable income. 71. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assessee, having regard ....
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....of the Rules would be triggered only if the Assessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. According to the Hon'ble Delhi High Court, sub-section (2) of section 14A of the Act deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-section (3) applies to cases where the assessee asserts that no expenditure has been incurred in relation to such exempt income. Explaining further, as per the Hon'ble High Court in both the cases the recourse to rule 8D of the Rules is possible only if the Assessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. 73. Therefore, it has to be understood that Rule 8D of the Rules can be invoked for the purposes of computing the disallowance u/s 14A of the Act only when the Assessing Officer records a finding that he was not satisfied with the correctness of the claim made by the assessee in respect of expenditure relatable to the income which does not form p....
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....2008-09 vide ITA No.1137/PN/2013 and ITA No.1221/PN/2013 respectively, which are directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 20.03.2013 which, in turn, has arisen from an order dated 27.12.2010 passed by the Assessing Officer u/s 143(3) of the Act. 78. In the appeal preferred by the assessee, the following Grounds have been raised in the Memo of Appeal :- 1. In the view of well settled principals of law that the total disallowance of Rs. 10,00,62,000/- u/s 14A being patently illegal, bad in law, devoid of merits, being arbitrary and legally unsustainable, the same may please be deleted and it may please be held that no disallowance u/s 14A of I. T. Act, 1961 is warranted in the case. 2. The appellant submits that the amortization of public issue expenses of Rs. 2,20,08,000/- is allowable expense u/s 35D and same may please be allowed to the appellant. 3. Without prejudice to ground no 2 the appellant submits that only the net expenditure after adjusting the income earned on the application money need to be disallowed. 4. In the facts and ....
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....e-tax(Appeals) grossly erred in failing to appreciate that, as would be evident from the financial accounts of the assessee, the provision made by the assessee in respect of Non Performing Assets (NPA) as per the Reserve Bank of India guidelines tallies with the provision made u/s.36(1)(viia) which in itself would establish that the provision made u/s.36(1)(viia) was inclusive of the provision for non-rural advances which are not admissible in view of the Hon'ble Supreme Court's decision in the case of Catholic Syrian Bank Ltd., 343 ITR 270. 5. In view of the foregoing, the learned Commissioner of Income-tax (Appeals) has erred in routinely accepting the assessee's claim that the provision made by it, u/s.36(1)(viia), pertained to the rural advances whereas the facts emerging from the financial accounts prove to the contrary; and, the learned Commissioner of Income-tax (Appeals) has also erred in not giving opportunity to the Assessing Officer to examine and rebut the above claim of the assessee as was required under Rule 46A of the Income-tax Rules, 1962. 6. The learned Commissioner of Income-tax (Appeals) has erred in deciding o....
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....rounds have been raised in the Memo of Appeal :- 1. In the view of well settled principals of law that the total disallowance of Rs. 11,84,83,000/- u/s14A being patently illegal, bad in law, devoid of merits, being arbitrary and legally unsustainable, the same may please be deleted and it may please be held that no disallowance u/s 14A of I. T. Act, 1961 is warranted in the case. 2. In the facts and circumstances of the case and in law, the appellant submits that the full amount considered as donation is contribution to the society for the promotion of the business and reputation. Hence full amount may please be allowed as deduction u/s 37. 3. In the facts and circumstances of the case and in law, the disallowance of Rs. 148,66,19,240/- made by the learned CIT (A) u/s 36(1)(vii) of the I.T. Act 1961, being bad in law, arbitrary, perverse and legally unsustainable. The said claim may please be allowed to the appellant. The learned CIT (A) erred in holding that the appellant had not written off the debts, which is contrary to the facts. 4. In the facts and circumstances of the case and in law, the learned....
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....y. 3. The learned Commissioner of Income-tax (Appeals) has erred in not directing the Assessing Officer to disallow the excess deduction allowed to the assessee, u/s.36(1)(viia), to the extent of the provision made for urban advances forming part of the total provision. 4. The learned Commissioner of Income-tax(Appeals) grossly erred in failing to appreciate that, as would be evident from the financial accounts of the assessee, the provision made by the assessee in respect of Non Performing Assets (NPA) as per the Reserve Bank of India guidelines tallies with the provision made u/s.36(1)(viia) which in itself would establish that the provision made u/s.36(1)(viia) was inclusive of the provision for non-rural advances which are not admissible in view of the Hon'ble Supreme Court's decision in the case of Catholic Syrian Bank Ltd., 343 ITR 270. 5. In view of the foregoing, the learned Commissioner of Income-tax (Appeals) has erred in routinely accepting the assessee's claim that the provision made by it, u/s.36(1)(viia), pertained to the rural advances whereas the facts emerging from the financial accounts prove ....