TaxTMI 
TaxTMI 
2016 (6) TMI 181
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....n the accounts and disallowing Rs. 276,01,94,417 out of Rs. 544,78,26,226 claimed by the Appellant in the return of Income tax for the Assessment Year 2008-09. 2. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the disallowances amounting to Rs. 276,01,94,417 under section 36(1 )(viia) as referred to in Ground No.1 as above in disregard of the decision of Hon'ble Income tax Appellate Tribunal, Bangalore Bench in the case of Syndicate Bank (78 ITD 103) and relying solely on the CBDT's Instruction No.17 of 2008 dated 26.11.2008." 3. The Assessee is a nationalised bank. In the return of income filed for AY 2008-09, the Assessee claimed a sum of Rs. 544,78,26,226 being deduction for provision for bad and doubtful debts under section 36(1 )(viia)(a) of the Income Tax Act, 1961 (Act). Sec.36(1)(viia) (a) provides as follows: Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28- ( viia) in respect of any provision for bad and doubtful debts made by....
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....rural branches. In other words, there is a specific deduction given by the statute irrespective of the quantum provided by the assessee in the accounts towards provision for bad and doubtful debts. The Assessee relied on the decision of the Hon'ble ITA T, Bangalore Bench in Syndicate Bank Vs. Deputy CIT (2001) 78 ITD 103 (BANG) in support of its contention wherein the stand taken by the Assessee as above was accepted by the Tribunal. 6. The CIT(A) upheld the order of the AO by following the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), wherein it was held that the claim for deduction u/s.36(1)(viia)(a) of the Act cannot be greater than the amount debited to the profit and loss account as provision. 7. Aggrieved by the order of the CIT(A), the Assessee has raised ground No.1 & 2 before the Tribunal. At the time of hearing it was agreed by the parties that identical issue was decided against the Assessee by the Tribunal in Assessee's case for AY 2005-06 & 2006-07 in ITA No.2175& 2176/Kol/2009 order dated 16.3.2016 by following the decision in the case of State Bank of Patiala (supra). Following....
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....099 + 45,30,385 = 46,20,484 The above calculation comprised of two parts - one is proportionate amount of disallowance of salary of investment department and the other is 1 % of tax-free income. 10. The AO was of the view that the Assessee has not denied that it had incurred expenditure in earning exempt income and proceeded to compute the disallowance u/s.14A of the Act by applying Rule 8D of the Income Tax Rules, 1961 (Rules). The AO has not in his order explained the reasons why the aforesaid amount of disallowance under section 14A as offered by the Assessee in its revised return of income should not be accepted. The AO has however expressed the view that the calculation of disallowance was clearly made on the basis of estimation. As a consequence, by applying Rule 8D the AO made a disallowance under Section 14A of the Act of Rs. 54,50,26,415. 11. The AO computed the disallowance under Rule 8D(2)(ii) of the Rules by considering the interest paid as shown in schedule-15 of Annual Accounts amounting to Rs. 4498,87,95,000 for the purpose of calculation of the said disallowance. The said calculatiion was made as follows: Interest paid X average value of investment....
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....ome. It was argued that as the Assessee had claimed a sum of Rs. 46,20,484 as expenditure incurred in relation to exempt income, the AO cannot invoke blindly sub- section (2) of section 14A without controverting the claim of the bank. He should first bring on record the reason why the claim of the assessee should not be considered as incorrect. It was submitted that whatever amount was offered by the Assessee as disallowance u/s.14A of the Act was reasonable and realistic estimate. The basis of calculation was clearly conveyed to the AO and the AO has not brought on record any deficiency in the estimate of the amount of disallowance offered by the Assessee and therefore, disallowance of Rs. 54,50,26,415 under section 14A by invoking Rule 8D of the Rules is not sustainable. 15. Reference was made to the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited 328 ITR 81 (Bom) wherein it was held that the provisions of Rule 8D of the Rules apply with effect .from the assessment year 2008-09 provided all the conditions prescribed in section 14A(2) are complied with. The Assessee thus prayed that the amount of Rs. 46,20,484 as of....
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....cord any cogent reason for disregarding and rejecting the estimate including the manner of making estimate of disallowance amounting to Rs. 46,20,484 offered by the Appellant itself in the revised return of Income filed by the Appellant. Ground No.4: Without prejudice to the Additional Ground of appeal as above, that, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in upholding the disallowances under section 14A by invoking Rule 8D amounting to Rs. 4,20,90,323 in total disregard of order of his Learned predecessor in the Appeal No. 1014/ CIT(A) - VII 2009-10/Cir-6/Kol dated 15.11.2010 relating to Assessment Year 2007-08 and order of Jurisdictional ITAT in the case of ITO Vs S.P.S. Securities Pvt. Ltd., Kolkata (ITA No. 123/KoI/2010) and Civil Engineers Enterprises (P) Ltd. Vs DCIT, Kol (ITA No. 859/K01/2010)" 18. Since the additional grounds of appeal is a legal argument in support of ground No.3 and 4 originally raised by the assesse in the grounds of appeal, we permit the assessee to raise the additional ground and modify grounds No.3 & 4 as prayed for by the Assessee. 19. The ld. Counsel for the assessee su....
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....ent Pvt Ltd ( 117 ITD SB 169), the disallowance to be made under section 14 A read with rule 8 D will be restricted to direct expenses incurred in the earning of dividend income. 8. It is also important to bear in mind the fact that, in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) and dealing with a period when rule 8 D was not applicable, Hon'ble Bombay High Court has not only held that "the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A, and for that purpose, the Assessing Officer id duty bound to determine the expenditure which has been incurred in relation to income which does not form part of total income under the Act", but further added, while remitting the matter to the Assessing Officer for computation of disallowance under section 14 A, that the Assessing Officer shall examine whether" any expenditure (direct or indirect)" [ Emphasis by underlining supplied by us] in relation to exempt income is incurred and that disallow the same. As a corollary to the above legal position, so far as disallowance under section 14 A in a situation in which the exempt income yielding asset, such as shares in question, is held as....
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.... are much narrower in scope than the scope of Section 14 A simplictor. With these observations, we confirm the conclusions of the learned CIT(A) and decline to interfere in the matter." 20. The ld. Counsel accordingly submitted that the disallowance under Rule 8D(ii) &(iii) should be deleted as indicated in the decisions referred to above and the Assessee's computation of disallowance accepted. Without prejudice to the above submission it was submitted by him that the basis of disallowance u/s 14A made by the assessee has not been rejected by the AO by adducing cogent reasons and prayed that the disallowance as made by the assessee should be accepted. The ld. DR relied on the conclusions of CIT(A). 21. We have given a very careful consideration to the rival submissions. The provisions of section 14A as originally introduced and as amended from time to time as well as the insertion of Rule 8D was subject-matter of several decisions rendered by various Benches of the ITAT as well as the Hon'ble High Courts. The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd. v. CIT 2011) 203 Taxman 364 (Del) and the Hon'ble Bombay High Court in the case of Godrej....
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....e by the assessee on any other reasonable basis as the AO deems it fit. In such circumstances the correctness of the AO's judgment can be reviewed but it cannot be said that the AO had no jurisdiction to do so and AO ought to resort only to the provision of Rule 8D of the Rules. In other words Rule 8D is not automatic and can be resorted to by the AO only as a measure of last resort. 23. For the reasons given above, we are of the view that the conclusions of the CIT(A) that rule 8D of the rules has to be mandatorily applied in cases relating to AY 2008-09 and subsequent AYs is not correct. We hold accordingly. 24. With regard to the disallowance under Rule 8D(2)(ii) of the Rules on interest expenditure, the Revenue does not dispute the facts with regard to availability of own funds of the Assessee i.e. aggregate of capital and reserve and surplus as on 31.03.2008 amounting to Rs. 5,221.04 crores. The Revenue also does not dispute that the total investment in shares, units of mutual funds and tax free bonds as on 31st March 2008 was only Rs. 885.89 crores (i.e. Rs. 376.19 crores + Rs. 224.12 crores + Rs. 285.58 crores). Thus, the investment in tax free instruments was much....
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.... average value of investment at ½ % of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd., supra, we uphold the order of CIT(A)." The Hon'ble Calcutta High Court in the case of CIT Vs. R.E.I.Agro Ltd., in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 also took identical view. The aforesaid two decisions by the Hon'ble jurisdictional High Court are binding on this Tribunal. Hence, we hold that the action of the AO in directly embarking on Rule 8D(2) of the rules was not proper and hence the disallowance under rule 8D(2)(iii) of the Rules is also directed to be disallowed. The net result would be that the disallowance under Sec.14A of the Act as made by the Assessee before the AO is directed to be accepted. Thus Ground No.3 & 4 as modified is allowed. 26. Ground No.5 raised by the assessee reads as follows :- "5. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the disallowance of the claim of the Appellant made under Section 40 (a)(ia) amounting to Rs. 2,20,94,366 on the basis of deposit of TDS....
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....ot ,produce the balance challans amounting to Rs. 2,20,94,366/-. Therefore, the amount of disallowance is restricted to Rs. 2,20,94,366/- only and the appellant gets relief of Rs. 96,38,366/-. This ground of appeal is partly allowed." 30. Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.5 before the Tribunal. The limited prayer of the ld. Counsel for the assesse before us was to remand the matter to the AO to enable the Assessee to produce the balance challans to enable the assessee to claim deduction on actual payment basis. We are of the view that the request made on behalf of the assessee is reasonable and accordingly we set aside this issue to the file of AO for fresh consideration. The assessee is at liberty to file necessary challans to show that actual payment were made during the previous year and to claim deduction on such sum. 31. Ground Nos. 6 and 7 raised by the assessee read as follows :- "6. That, on facts as well as on law, the Learned Commissioner of Income tax (Appeal) - VI, Kol has erred in confirming the application of provision of Section 115JB of the Income Tax Act to the case of the Appellant in disregard of the ratios l....
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....n the case of banking companies, however, the provisions of Schedule VI of Companies Act, 1956 are not applicable in view of exemption set out under proviso to Section 211 (2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of Section 115 JB cannot thus be applied to the case of a banking company. 33. The AO as well as the CIT(A) however did not agree with the submissions made on behalf of the Assesse. The CIT(Appeals) after making a reference to the legislative history of the provisions of Sec.115JB of the Act was of the view that in the light of the purpose for which provisions of Sec.115JB of the Act were introduced, it cannot be said that the provisions of Sec.115JB of the Act are not applicable to banking companies. The CIT(A) referred to the purpose of introduction of Sec.115JB as explained in CBDT Circular No.794 dated 9.8.2000 which is as follows: "Minimum Alternate Tax on companies 43.1 In recent years, as the number of zero tax companies and companies paying marginal tax had grown, Minimum Alternate Tax was levied under section....
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....ere made before the learned CIT(A). The learned counsel for the Assessee also submitted that the provisions of Sec.115JB of the Act were amended with effect from 01.04.2013 making it obligatory, inter alia, for banks to prepare P & L account in accordance with the Banking Regulation Act is clearly indicative of legislative understanding that upto and including A.Y. 2012-13, section 115JB had no application to banks and insurance companies. It was so held by ITAT, Hyderabad in the case of State Bank of Hyderabad dated 07.09.2013 in ITA No. 578/Hyd/2010 and ITAT Mumbai in the case of ICICI Lombard General Insurance Co. Ltd. dated 10.10.2012 in ITA No.2398/Mum/2009. The learned DR relied on the order of the CIT(A). 16. We have considered the rival submissions of the ld. counsel for the assessee. We find that this issue was considered by the Mumbai Bench of the Tribunal in the case of Krung Thai Bank (supra) and on the above issue held as follows:- "5. Learned counsel for the assessee, however, contends that the provisions of MAT do not apply to the assessee, and , for this reason, very foundation of impugned reassessment proceedings is devoid of legally sustainable m....
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..... The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act . The provisions of Section 115 JB cannot thus be applied to the case of a banking company." 17. We are of the view that in the light of the decision of the Mumbai Bench of the Tribunal, we have to necessarily hold that provisions of section 115JB of the Act are not applicable to the assessee which is a banking company. The decisions relied upon by the ld. counsel for the assessee, clearly support the plea of the assessee in this regard. Consequently, ground No.6 & 7 raised by the assessee are also allowed. In view of the decision on ground No.6 & & the grievance projected in grounds Nos. 8 & 9 do not require adjudication as those grounds are on the manner in which book profits u/s.115JB of the Act were computed. These grounds have become infructuous in view of the conclusion on Gr.No.6 & 7." 35. The decision rendered in the case of Krung Thai Bank referred to above was rendered by Order dated 30.09.2010 in ITA No.3390/2009 passed by ITAT 'G' Bench, Mumbai. The Hon'ble ITAT, Mumbai in Maharashtra State Electricity Board vs....
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....eld For Trading (HFT) and (C) Available For Sale (AFS). As per the guidelines of Reserve Bank of India in respect of HTM category of investment, if the purchase cost of securities is more than the face value such excess called premium, is required to be amortized by debiting the bank's Profit and Loss Account for the period till maturity. It was further pointed out that the AO did not dispute the fact that the accounting treatment for amortization is in conformity with the guidelines of Reserve Bank of India. The AO went by the fact that for the purpose of Income Tax Return all securities of the bank are held as trading stock and full depreciation on securities held as trading stock as marked to market on 31st March 2008 has been allowed as per the investment trading account submitted along with the return of income. It was argued that the AO was under impression that full purchase consideration of all the securities was included in the said investment trading account and amortization amount is charged separately in the Profit and Loss Account held that the claim of the Assessee cannot be allowed in computation of total income of the bank. It was contended that premium paid at ....
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....h security. The At) has wrongly understood that the premium paid on purchase of these securities has already been debited in the investment trading account. In fact this premium is debited in the P&L Account through this amortization process only. Since the premium paid on purchase of securities is an expenditure incurred by the assessee therefore it has t be allowed to the assessee. The assessee has claimed this amortisation of premium as per the accounting guidelines issued by the RBI and such expenditure has been allowed to the assessee in earlier years also regularly. Therefore, there is no reason why it should not be allowed this year also. 'Hence, this disallowance of Rs. 105,54,53,000/- is deleted. " 40. On considering the above submissions, the learned CIT(A) deleted the addition made by the AO, observing as follows: "7. I have carefully considered the observations of the Assessing Officer in the assessment order, submissions of the appellant and the order of my learned predecessor i.e. Commissioner of Income-tax (Appeals)-VI, Kolkata. The Finance Act, 2012 has inserted an Explanation 3 under Sub-section 2 of Section 115JB stating that the assessee being a c....
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....ule of the Banking Regulation Act, 1949 and such expenditure has been allowed to the assessee in earlier years also regularly. Therefore, the addition of Rs. 1 08,45, 17,830/- is deleted. This ground of appeal is allowed." 41. Aggrieved by the order of the CIT(A), the revenue has raised ground No.1 & 2 before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A). 42. We have considered the rival submissions. The assessee while computing its total income claimed deduction under the head amortization of premium on purchase of securities held to maturity. The assessee in the course of its banking business, to meet the statutory liquidity ratio requirements prescribed by the RBI, has to make investments in Central and State Government securities. As per RBI directions such investments are classified into three categories as under : i) Available for sale (AFS) ii) Available for trading (AFT) iii) Held to Maturity (HTM). The assessee pointed out that the investments which were made by the assessee and categorized as HTM were purchased at a p....
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....he assessee included a sum of Rs. 7,38,900/- paid as donation under the head 'other expenditures '. The assessee bank did not clam deduction u/s 80G either in the original return or in the revised re{urn. During the course of hearing. the assessee bank has informed that the donation of Rs. 7,38,900/- comprises of donation to Kalyanam Karoti, Rs. 88,900/- donation to Urivi Vikram Charitable Trust of Rs. 2,50,000/-, donation to Lalaji Memorial Education Society and donation to the West Bengal National University of Juridical Sciences Rs. 2,00,0001-, In respect of donation to Urivi Vikram Charitable Trust, the assessee bank has claimed the amount as 100% deduction under section 35AC of the Income-tax Act as the donee institution is recognized under section 35AC. The submission of the assessee has been carefully considered. In view of the judgement of the Hon 'ble Supreme Court in the case of Goetze (India) Ltd Vs CIT 284 ITR 323 any new claim in respect to any deduction which is not made in the return of income cannot be allowed without filing a revised return. Deduction u/s 35AC or 80G cannot be allowed at this stage as the assessee has not made any such claim either in t....
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....s paid by assessee to clubs is allowable business expenditure observed as under:- "30. In ground No. 4 the assessee had challenged disallowance of a sum of Rs. 16,959 on account of payment made to clubs by way of subscription/membership fee for various employees of the company. 31. We have heard the parties. It was necessary for the assessee to have membership of clubs in the name of its employees for the purpose of his business. In catena of cases various Benches of Tribunal are allowing such expenditure as necessary business expenditure. A reference is available in ITO vs. Bright Bros. Ltd. (1984) 18 TTJ (Bom) 377 and also in HJ Industries vs. ITO (1988) 261TD 259 (Bom). Accordingly the AO is directed to allow the deduction of Rs. 16,959. The assessee's ground stands allowed. " 50. On appeal by the Assessee, the CIT(A) allowed the claim of the Assessee. The CIT(A) held that the membership in question was a corporate membership and the sum in question of Rs. 6,78,655/- was paid to Saturday Club Ltd., for renewal of subscription for four executives for five years. The CIT(A) found that the membership is a corporate membership and not in the name of any indi....