TaxTMI 
TaxTMI 
2016 (3) TMI 1087
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....me of the issues involved in these appeals are common, the same have been heard together and are being disposed of by a single consolidated order. 2. First we take up the cross appeals for A.Y. 2005-06. The issue involved in Grounds No. 1 & 2 of the assessee's appeal relates to the disallowance of Rs. 19,31,16,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Income Tax Act, 1961. 3. The assessee in the present case is a Government of India Undertaking, which is engaged in Banking business. The return of income for the year under consideration was filed by it on 31.10.2005 declaring a loss of Rs. 6,67,27,05,079/- under normal provisions of the Act and the negative book profit of Rs. 3,39,63,29,770/- under section 115JB of the Act. In the said return, dividend income of Rs. 26.10 crores and interest on tax-free Bonds of Rs. 22.74 crores received during the year under consideration was claimed to be exempt by the assessee. The disallowance on account of expenditure incurred in relation to the said exempt incom....
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....the amendment made by the Finance Act, 2007 to section 36(1)(viii) w.e.f. 1st April, 2008 clearly establishes that prior to 1st April, 2008, the Banks were not entitled to deduction under section 36(1)(viii). 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that this issue involved in Grounds No. 3 & 4 of the assessee's appeal is squarely covered in favour of the assessee by the decision of Mumbai Bench of this Tribunal in the case of Union Bank of India -vs.- ACIT rendered vide its order dated 30.06.2011 passed in ITA Nos. 4702 to 4706/MUM./2010, wherein a similar issue has been decided by the Tribunal vide paragraph nos. 9, 10, 11 & 12, which read as under:- "9. We find that as per Explanation (a) to Sec. 36(1)(viii) 'financial corporation' is defined to include a public company and a Government company. We are of the opinion that any entity incorporated under a statute carrying on the business of financing would come under the definition of financial corporation. The definition is not an exhau....
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....ance for the approved purposes mentioned in sec 36(1)(viii). For the purpose of determining the deduction available to the assessee u/s. 36(1)(viii) the issue is remitted back to the file of the A.O. subject to the above direction the appeal of the assessee on this issue is allowed". Respectfully following the decision of the Coordinate Bench of this Tribunal in the case of Union Bank of India (supra), we hold that the assessee in the present case is entitled for deduction under section 36(1)(viii) and accordingly direct the Assessing Officer to allow the claim of the assessee for deduction under section 36(1)(viii) after verifying the quantum thereof in accordance with law. Grounds No. 3 & 4 of the assessee's appeal for A.Y. 2005-06 are accordingly treated as allowed. 8. The issue involved in Ground No. 5 of the assessee's appeal for A.Y. 2005-06 relates to the disallowance of Rs. 2,31,42,83,800/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by restricting the claim of the assessee for deduction under section 36(1)(viia) of the Act for provision for bad and doubtful d....
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....aterial available on record. As agreed by the ld. representatives of both the sides, the preliminary issue involved in this context is whether the provisions of section 115JB are applicable to the assessee-Bank and the same is squarely covered in favour of assessee, inter alia, by the decision of the Hon'ble Kerala High Court in the case of Kerala State Electricity Board -vs.- DCIT reported in 329 ITR 91, Mumbai Bench of ITAT in the case of Maharashtra State Electricity Board -vs.- ACIT reported in 220 ITR 422 and another decision of the Mumbai Bench of ITAT in the case of Union Bank of India -vs.- ACIT (supra). As held by the Mumbai Bench of ITAT in the case of Union Bank of India (supra), provision of section 115JB is not applicable to the Bank as it is not required to prepare its profit & loss account in accordance with Schedule 6B(i) of the Companies Act, 1956 but it prepares its Profit & Loss Account as per the Banking Regulation Act, 1949. Respectfully following the ratio of these judicial pronouncements, we hold that the provision of section 115JB is not applicable in the case of the as....
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....owance made by the Assessing Officer on account of its claim for deduction towards provision for salary arrears was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submission made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said disallowance for the following reasons given in his impugned order:- "I have gone through the submissions of the appellant and also the order of the A.O. According to the Accounting standard 29 issued by the ICAI "provision" is a liability which can be measured only by using a substantial degree of estimation. A "liability" is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. According to paragraph 14 of (AS) 29, a provision should be recognized when: A) An enterprise has a present obligation as a result of past event B) It is probable that an outflow of resources embodying economic benefits will be required to settle the oblig....
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....ary arrears had crystallized, the provision made by the assesese for salary arrears represented unascertained liability which was not allowable as deduction, as rightly held by the Assessing Officer. He contended that the ld. CIT(Appeals), however, overlooked these relevant aspects highlighted by the Assessing Officer and allowed the claim of the assessee by relying on the decisions of the Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) and Rotork Controls India (P) Limited (supra), which are distinguishable on facts. He contended that in both these cases decided by the Hon'ble Supreme Court, the provision was made for the present liability, whereas in the case of the assessee, the liability on account of salary arrears was not pertaining to the year under consideration alone, but the same pertained to A.Y. 2003-04 and 2004-05 also. He has submitted that the decision of Hyderabad Bench of ITAT in the case of Andhra Pradesh Gramin Vikas Bank (ITA Nos. 51 & 88/HYD/2015 dated 10.04.2015), on the other hand, is directly applicable to the facts of the present case and strongl....
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....bsp;made by the assessee for such revision at 13% in the year under consideration was a liability, which could be ascertained with reasonable certainty. 19. In support of the Revenue's case on this issue, the ld. D.R. has relied on the decision of the Hyderabad Bench of this Tribunal in the case of Andhra Pradesh Gramin Vikas Bank. It is, however, observed that the same is distinguishable on facts, inasmuch as, the liability on account of salary arrears in the said case had arisen as a result of proceedings held on 24.07.2010, i.e. much later than the closure of the relevant year under consideration and this being the undisputed position, the Tribunal held that the said liability having neither arisen nor discharged during the relevant year was not allowable as deduction. 20. In the case of IBP Company Limited (supra), the fact situation involved, on the other hand, was similar to the case of the assessee inasmuch as, the Pay Scale and other benefits of the Officers were due for revision w.e.f. 1st August, 1997 and the exercise to revise the same was already in progre....
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....n Ground No. 4 of the Revenue's appeal for A.Y. 2005-06 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.75,00,00,000/- made by the Assessing Officer by way of disallowance of assessee's claim for bad debts written off under section 36(1)(vii) of the Act. 23. In the Profit & Loss Account, a sum of Rs. 75,00,00,000/- was debited by the assessee on account of bad debts written off relating to Non-Rural Branches and the same was claimed as deduction under section 36(1)(vii). In this regard, the Assessing Officer noted that the opening balance in the provision for bad and doubtful debts made by the assessee under section 36(1)(viia) was to the extent of Rs. 584.04 crores. Since the amount of bad debts written off by the assessee and claimed as deduction under section 36(1)(vii) at Rs. 75,00,00,000/- was less than the opening balance of provision made as per section 36(1)(viia), the Assessing Officer held that the assessee was not entitled to any deduction under section 36(1)(vii). On appeal, the ld. CIT(Appeals) allowed the claim of the assessee for deduction o....
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....and confirmed by the ld. CIT(Appeals) on account of the amount transferred from "Contingency Account - General" to the credit of Profit & Loss Account. 27. During the year under consideration, the assessee-Bank had transferred old outstanding balances aggregating to Rs. 104.63 crores from "Contingency Account - General" to the credit of the Profit & Loss Account under the head "other income" as per the decision taken by its Board of Directors. On verification of the same, it was found by the Assessing Officer that the amounts transferred by the assessee from flabby accounts (i.e. bills payable, Debit Note payable, etc.) to the extent of Rs. 43.12 croes and from sundry creditors to the extent of Rs. 1.97 crores were in the nature of cessation of liability as covered by the provisions of section 41(1) of the Act. He, accordingly, invoked the said provision and made addition of Rs. 45.09 crores to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer for the following reasons given in his impugned order:- ....
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....r as well as the ld. CIT(Appeals) have proceeded on the presumption that these amounts might have been debited by the assessee to the Profit & Loss Account in the earlier years. He has urged that an opportunity may, therefore, be given to the assessee to establish that the said amounts had not been claimed by it as deduction in any of the earlier years and the provisions of section 41(1) thus are not applicable. Although the ld. D.R. has strongly opposed to this request of the ld. counsel for the assessee, we consider it fair and reasonable and in the interest of justice to accede to the said request. Accordingly, the impugned order of the ld. CIT(Appeals) on this issue is set aside and the matter is restored to the file of the Assessing Officer for the limited purpose of giving the assessee an opportunity to establish its case that no deduction on account of the amounts in question was claimed by it while computing the total income of any of the earlier years. Ground No. 3 of the assessee's appeal for A.Y. 2006-07 is accordingly treated as allowed for statistical purposes. 29.....