TaxTMI 
TaxTMI 
2013 (3) TMI 694
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.... by Revenue] 2. In assessee's appeal, the following pleadings have been made: "1. CIT (A) erred both in law and on the facts of the case in sustaining the following additions:- Rs. 1 Interest paid at the time of purchase of Securities 21,58,64,295 2 Fall in the market value of Securities 6,70,20,792 3 Expenses attributable to Tax Free Interest 31,32,000 4 Deduction u/s.80M 2,45,17,235 5 Interest paid to SIDBI and NABARD 8,08,418 6 Other expenses 84,33,569 2. He erred in not following the decision of the Appellate Authorities in the appellant's own case and the decision of Madras High Court in the case of CIT Vs. Karur Vysya Bank Limited, in respect of the following:- (a) Interest paid at the time of purchase of Securities (b) Fall in the market value of Securities The SLP filed by the Department in the case of CIT vs. Karur Vysya Bank Limited before the Supreme Court against the order of the Madras High Court was dismissed by the Supreme Court. 3. If for any reasons it is held that the interest paid on purchase of securities is not deductible, the profit/loss of sale of Securities may be reworked and that the resultant deduction may be granted. 4. He also failed....
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....doubtful and loss assets. 3. The CIT(A) failed to note that the assessee fails to prove that the vehicles which are leased out by the assessee are used in the business of running on hire. 4. For these and among other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the assessing officer be restored." 3. Brief facts of both cases are that the assessee is a bank. For the impugned assessment year, it had filed its 'return' on 29.10.2004 declaring income of ₹ 32,89,55,725/-, which was 'summarily' processed. Thereafter, the Assessing Officer finalized 'scrutiny' assessment vide assessment order dated 29.12.2006 computing total income as ₹ 87,09,71,779/- after making following additions: Para No. Additions Amount (Rs.) 1.1 Interest paid at the time of purchase of securities 21,58,64,295 2.1 Depreciation on investments 6,70,20,792 3. Deduction u/s 36 (1) (viia) 22,20,00,000 4.1 Proportionate Expenses on tax Free bonds 31,32,000 4.2 Deduction U/S 80M 2,45,17,235 5. Interest to SIDBI and NABARD 8,08,418 6. Depreciation on building 2,39,745 7. Other expenses 84,33,569 8. Depredation on lease....
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....ines for treating the securities as stock-in-trade/investments, its claim has been wrongly denied by the authorities below. 7. Per contra, the Revenue placed strong reliance on the order of CIT(A). However, no distinction has been pointed qua facts of the instant case vis-àvis those involved in earlier assessment years. 8. We have heard both parties and perused the findings in the assessment order, CIT(A)'s order as well as case law (supra) cited by the assessee. It transpires from the assessment order that the assessment was finalized on 29.12.2006. It is further evident that the Assessing Officer had served notice dated 01.11.2006 to the assessee. On 15.11.2006, the assessee responded for the first time to the notice. Thereafter, the hearing took place on 01.12.2006 and 14.12.2006. As it is inferred from page 2 of the assessment order dated 29.12.2006 requesting by the assessee for some more time. However, the Assessing Officer rejected the same and finalized the assessment making the additions above said on that very day. In appeal, the CIT(A) has upheld Assessing Officer's findings. 9. Further, operative portion of the assessment order qua the ground in hand makes it....
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....not be discarded by the departmental authorities on the ground that the assessee was maintaining the balance-sheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the bank was required to prepare the balance-sheet in the prescribed form and it had no option to change it. For the purpose of income-tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case." In light thereof and in view of the fact that the aforesaid case law came much latter in time than the CBDT circular(supra), we hold that the authorities below have wrongly decided the issue of securities against the assessee. However, mindful of the fact that assessee's adjournment request had been rejected and the Assessing Officer could not verify the facts of the case, we are of the view that the factual issues require to be verified by the Assessing Officer in view of the documents not available on record (supra) which would be pre....
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....e said to have been incurred directly for earning tax free income. The Hon'ble ITAT in the case of appellant's own case restricted this disallowance to the extent of 2% of such income and this has been accepted by the appellant bank itself even for the earlier years on this issue. The appellant bank itself suo moto disallowed 2% of the expenses on tax free income of ₹ 3,37,17,118 in the AY 2007-08. However the appellant bank has omitted to take into account tax free income to the tune of ₹ 11,90,000 in the same assessment year. Therefore the Assessing Officer taking the same principle adopted by the appellant bank itself applied to this income also and made further disallowance to the extent of ₹ 23800. I do not find any mistake in the decision taken by the Assessing Officer and hence the same is confirmed. This is also valid for AY 2004-05 as well." 13. Before us, the assessee half-heartedly argues that since no expenses are incurred, even the expenditure @ 2% could not have been added by the CIT(A). 14. Opposing this, the Revenue relied on the decision of the Hon'ble Jurisdictional High Court in Tax Case (Appeal) No. 2621 of 2006 titled as M/s. Simpson....
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....003 has already been paid. The outstanding amount for the 1st installment was due on May 2004. The appellant bank claims it on mercantile basis and wants the deduction on the ground that they have accrued before the due dates prescribed by the Act. Even in mercantile system, the expenses claimed only the due dates. The due date is falling after the previous year. Therefore the amount has not become due. Hence the Assessing Officer has held that the amount payable for the next year cannot be reduced from the total income from the year under consideration 2004-05. Therefore this is added back following the decision of the Supreme Court in the case of ED Sasun & Co Vs CIT 69 ITR 237. I do not find any reason to interfere in the decision of the Assessing Officer as the appellant cannot claim the expenditure related to assessment year 2005-06 in the year under consideration and therefore the claim of the appellant bank is rejected confirming the addition made by the Assessing Officer at ₹ 8,08,418." 20. Before us, the assessee argues that since it is following mercantile system of accounting, , it is entitled for the deduction in hand as the liability to pay the interest had accr....
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....ficant. However, the Authorised Representative of the appellant could not produce any vouchers or account for the above expenditure maintained at branch level or head office level and no vouchers have been produced either before the Assessing Officer or before the undersigned and therefore the Assessing Officer's decision is confirmed as the addition made is on estimated basis on persons expenditure on the items mentioned by the Assessing Officer in his assessment order, as the appellant failed to maintain any record of such a huge expenditure at ₹ 8,43,35,691. Therefore the addition made by the Assessing Officer by disallowing 10% of the above expenditure is most reasonable and hence confirmed." Therefore, we seized of the instant ground. 26. We have given our thoughtful consideration to the rival contentions raised by both parties and perused the relevant findings of the lower authorities. Undisputedly, the expenditure in question stands accepted by the Assessing Officer as well as CIT(A) @ 90%. While disallowing @ 10%, they hold that possibility of personal expenditure in the instant case could not be ruled out. In these circumstances, we are of the view that the di....
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....oss assets. Accordingly, he rejected assessee's claim of bad debts of ₹ 22,20,00,000/- in the assessment order. 31. In assessee's appeal, the CIT(A) has accepted assessee's contention as stated herein below: "15.2 Now the question for consideration is whether on facts and circumstances of the case, the appellant bank is eligible for deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) which limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Sec. 36(1) of the Act. Under Section u/s 36 (1)(vii) of the Act, the tax payer carrying on business is entitled to a deduction in the computations of taxable profits of the amount of any debt which is established to have become a bad debt during the previous year. However, a mere provision for bad and doubtful debts is not allowed as deduction in the computation of taxable profits in order to promote rural banking and in order to assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances the Finance Act, inserted clause (viia) in sub section (1) ....
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.... on the basis of clause (viia) in respect of a mere provision. To prevent a double deduction the proviso to clause (vii) was inserted which says that in respect of bad debts arising out of rural advances, the deduction on account of actual write of would be limited to the excess of amount written off over the amount of the provision allowed under clause (viia). Thus the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaning less to invoke such provision where there is no threat of double deduction. In the case of rural advances, which are covered by the provisions of clause (viia) there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the circulars issued by the CBDT. Thus the proviso indicates that it is limited in its application to bad debts arising out of rural advances of a bank. It follows that if the amount of bad debts actually written off in the accounts of the bank represents only debts arising out of rural advances, the allowance thereof in the assessments is not affected, controlled or ....
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....g the question in favour of the assessee, we allow the appeals of the assessees and dismiss the appeals preferred by the Revenue. Further, we direct that all matters be remanded to the assessing officer for computation in accordance with law, in light of the law enunciated in this judgment." Taking cue from the same, we are of the view that the CIT(A) has ignored the decision of Hon'ble Apex Court to the extent aforesaid. Therefore, we restore the ground back to the Assessing Officer to re-decide the issue in the light of observations made hereinabove and pass fresh order after affording adequate opportunity of hearing to the assessee. Accordingly, the ground raised by the Revenue is accepted for statistical purpose. 34. This leaves us with other contention raised by the Revenue qua depreciation of leased vehicles claim by the assessee which was disallowed by the Assessing Officer, but accepted by the CIT(A). Brief narration of the facts qua this ground are that in the assessment, the assessee had raised claim of ₹ 1,86,728/- @ 40% regarding depreciation of vehicles leased out to its customers in Nagpur. In support, it had placed reliance on the 'Tribunal', decision in its....
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....see's case for the earlier assessment years stands challenged before the Hon'ble High Court. In, our view, this is not a sufficient ground not to follow the decision on the same issue in case of the same assessee. Therefore, we reject this ground and uphold the findings of the CIT(A). 37. As sequel to our above discussion, assessee's appeal stands partly accepted, whereas, Revenue's appeal is partly accepted for statistical purpose. I.T.A. No. 1402/Mds/2012 [by assessee][AY 2007-08] I.T.A. No. 1590/Mds/2012 [by Revenue] 38. The assessee has raised the following grounds of appeal: "1. CIT (A) erred both in law and on the facts of the case in sustaining the following additions:- S.No. Description Amount Rs. 1. Interest paid at the time of purchase of securities 16909014 2. Depreciation in the value of Securities 386174289 3. Amortization of the value of Securities 109174588 4. Loss on sale of Securities 12501543 5. Entertainment Expenditure 104686 6. Pooja Expenses 373149 7. Surplus on sale of jewellery 169634 8.. Interest on Non Performing Assets 2450000 2. The Appellant submits that for the reasons stated in the Grounds of Appeal for Assessment Year....
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.... on sale of securities. Per assessee, the issue of interest paid at the time of purchase of securities and loss on sale thereof are similar to those raised in the assessment year 2004-05 decided hereinabove and the additions on depreciation and amortization qua the value of securities in question are incidental thereof. 41. The Revenue does not dispute the said factual position. 42. In this view of the matter and mindful of the fact that qua assessee's appeal for the assessment year 2004-05, we have restored the main issue of treatment of securities whether stock-in-trade or investment as well as interest paid and loss of sale thereof, to the file of the Assessing Officer (supra) for verification, etc., we are of the view that in order to maintain consistency, the present four additions shall also be decided afresh by the Assessing Officer. 43. Now, we come to ground No. 3 raised by the assessee. In the course of assessment proceedings for the impugned assessment year, it had claimed entertainment expenditure's deduction involving an amount of ₹ 20,93,720/-. Its clarification in support was that for the purpose of business's promotion and canvassing, the sum had been incu....
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.... assessee claimed ₹ 1,751 and ₹ 3,250 as miscellaneous expenses. These had been classified as pooja expenses and also expenses for bakshish and presentation. The ITO disallowed the claim and the said disallowance was confirmed by the AAC on appeal. On further appeal, the Incometax Appellate Tribunal allowed the appeals in part. In para. 12 of its order, the Tribunal pointed out that these expenses were incurred for the poojas, etc., performed by the workers and that they should form part of the welfare expenses. It also pointed out that, similarly, expenses on bakshish and presentation were found to have been incurred in respect of the workers alone. Hence, the Tribunal did not find any reason for the disallowance of these claims. It is this conclusion of the Tribunal that is now sought to be questioned. Having regard to the finding of the Tribunal that these expenses have been incurred only in respect of the workers, it is clear that the expenses have been rightly held to be ones incurred for the welfare of the workers. The conclusion of the Tribunal is based on the particular facts and, therefore, no question of law arises out of the order of the Tribunal. The petiti....
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....said that the said amount of ₹ 51,155/- representing the surplus in the jewellery account formed part and parcel of the income of the assessee-bank. In that view of the matter, we uphold the view taken by the first appellate authority. Accordingly, this appeal is dismissed." In the light thereof, we also hold that the addition in hand is not liable to be sustained. Accordingly, we delete the addition and accept the ground. 53. Grounds No. 6 & 7 in assessee's appeal impugn the disallowance made by the Assessing Officer and confirmed by the CIT(A) qua interest on non-performing assets on the basis of section 43D of ₹ 24.50 lakhs. While making the said disallowance in the assessment order, the Assessing Officer has proceeded on the following reasoning: "………..Since section 43D taxes the interest income with regard to bad and doubtful debts. on receipt basis. no addition is called for interest on NP As for which are more than 180 days old on accrual basis. but interest on accrual basis have to be offered for tax with regard to NP As which are more than 90 days old NP As but are not bad and doubtful debts under Rule 6EA r.w.s. 43D as these NPAs being l....
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....t of ₹ 2.58 Crore during the year since the only Last quarter NPA would be less than 6 months old, the interest on accrual basis would be around ₹ 1.75 crores on the average NPA addition for the last quarter at the average rate of 10% as shown in the annual return. Thus the Assessing Officer has made an addition u/s 43D at ₹ 1.75 Crores. Since the Authorised Representative of the appellant has neither filed any details of NPAs which are more than 90 days old which are bad and doubtful debt as stipulated under Rules 6EA rws Sec. 43D before the Assessing Officer nor before the undersigned, the disallowance made by the Assessing Officer need to be confirmed as no details are available as mentioned above. The disallowance made by the Assessing Officer on account of Interest on NPAs is confirmed." Therefore, the assessee is in appeal. 55. In the course of hearing, the assessee submits that the CIT(A) has wrongly confirmed the disallowance in question. By placing reliance on the case law of United Commercial Bank Ltd. vs. CIT 237 ITR 189 (SC), CIT v. Bank of America NT and SA 262 ITR 504 (Bom) and CIT v. State Bank of India 262 ITR 662 (Bom), it prays for acceptance o....
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....that of ITAT Hyderabad Bench in State Bank of Hyderabad vs. DCIT in I.T.A. No. 578/Hyd/2010 decided on 07.09.2012 and prays for acceptance of the ground. 61. Opposing this, the Revenue vehemently contends that the CIT(A) has rightly rejected the contentions of the assessee challenging applicability of MAT provision. Accordingly, it prays for upholding CIT(A)'s finding. 62. Admitted facts qua this ground are that in its 'return' filed on 29.10.2006 for the impugned assessment year 2007-08, the assessee had admitted total loss of ₹ 17,58,43,982/-. In these circumstances, it chose to compute its liability under section 115JB of the "Act" of ₹ 69,96,798/-. In the assessment order, the Assessing Officer made addition as under: LVB2007-08 Rs. Total loss returned (-) 4,79,62,805 1 Depreciation in Securities 386174289 2 Amortization 109174588 3 Loss on HTM 12501543 4 Broken period interest 1,69,09,014 5 Disallowance u/s 14A sale 23,800 6 Bad Debt Written off 41,77,31,239 7. Entertainment Expenditure 1,04,686 8 Pooja 3,73,149 9 Surplus on sale of jewellery 1,69,634 10 Interest on NPA 24,50,000 Accordingly, he observed that since the loss disclosed had ....
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....es 87055010 2. Expenses attributable to Tax Free Interest 1138258 3. Entertainment Expenditure 119517 4. Pooja Expenses 356664 5. Ex-gratia payment 5231948 6. Surplus on sale of jewellery 45454 7. Interest on Non Performing Assets 17500000 2. The Appellant submits that for the reasons stated in the Grounds of Appeal for Assessment Year 2004-05 in respect of the following may please be treated as Grounds of Appeal for this year also. (a) Interest paid at the time of purchase of Securities (b) Amortization of the value of Securities (c) Loss on sale of Securities (d) Applicability of the provisions of the MAT in relation to banking companies 3. CIT(A) having held that the depreciation of the value of Securities were not deductible he ought to have deleted the appreciation of the value of Securities ₹ 11.24 crores including the total income. 4. CIT(A) ought to have considered the claim for the deduction towards amortization of value of Securities. 5. Without prejudice to the above, the Appellant submits that, if for any reason, it is felt that the expenses incurred for earning the tax free interest is to be added and that then only a portion of the exp....
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....gth which are not inter-se contested. A perusal of our findings hereinabove for AY 2004-05 and 2007-08 (supra) would reveal that they covers all the aforesaid grounds stated by both parties as well. Accordingly, we held that the respective grounds by the assessee and Revenue reproduced hereinabove would stand decided in view of our findings in appeals pertaining to the assessment years 2004-05 and 2007-08 (supra). 70. This leaves us with ground No. 10 in assessee's appeal relevant to ex-gratia payments to its employees which have been disallowed by the Assessing Officer and the CIT(A). 71. Facts relevant to this ground are that in assessment proceedings, the assessee had raised claim of ₹ 52,31,948/- which was debited in its profit and loss account under the head 'ex-gratia payment'. Per assessee, the said payment as incentive had been made to its employees who are not covered under bonus prescribed under the payment of Bonus Act. In the assessment order, the assessing Officer held that the amounts in question were covered by section 36(1) (v) and section 36(1)(ii) which could not be allowed. Accordingly, he made disallowance and added it in assessee's income. 72. In app....