TaxTMI 
TaxTMI 
2018 (5) TMI 1627
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....e Revenue are general in nature and calls no specific adjudication. 3. Ground Nos.2 to 4 raised by the revenue reads as follows:- 2. Whether on facts & circumstances of the case, is the learned CIT(A) correct in allowing deduction of Rs. 177.38 crores U/s.36(1)(viia), even when the provision made in books of accounts by the assessee was only for Rs. 9.11 crores. 3. Whether QQ facts & circumstances of the case, is the learned CIT(A) right in relying on the decision of Catholic Syrian Bank Ltd Vs. CIT - 343 ITR 270 in respect of Sec.36(1)(viia) when the facts and issues involved in both cases are different. 4. The learned CIT(A) has failed to appreciate the fact that deduction U/s. 36(1)(viia) can only be claimed to the extent of provision made in books and subjected to the restrictions mentioned in Sec.36(1)(viia). 4. The assessee is a rural regional bank engaged in the business of banking. In the course of assessment proceedings u/s 143(3) of the Incometax Act, 1961 (Act) for AY 2009-10, the AO noticed that the asssessee had claimed deduction on account of provision for bad and doubtful debts for a sum of Rs. 9,11,50,296/-. The sum of Rs. 9,11....
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....aryana High Court in the case of State Bank of Patiala (supra)and in this regard submitted that the decision of co-ordinate Bench of the Tribunal should be followed in preference to the decision of non jurisdictional High Court decision. In this regard, the ld counsel for the assessee placed reliance on the decision of the Hon'ble Karnataka High Court in the case of Patil Vijayakumar & Others Vs. Union of India 151 ITR 48 (Kar). 8. We have considered the rival submission. The provisions of Section 36(1)(viia)(a) of the Act lays down as follows: ITA Nos.673, 674 & 684/B/14 4 "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 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 one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribe....
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....f the Hon'ble High Court was rendered after the decision in the case of Syndicate Bank 78 ITD 103 (Bang.). The Tribunal held that Judicial discipline demands that the Tribunal should follow the later decision which has considered both the decisions on the issue. The Tribunal following the said decision held deduction on account of Provision for Bad and Doubtful Debts u/s.36(1)(viia) of the Act has to be allowed only to the extent such provision is actually debited in the Profit & Loss Account by the Assessee for the relevant previous year. We therefore respectfully following the decision of the Tribunal in the case of Canara Bank (supra), allow Gr.No.2 to 4 raised by the Revenue and hold that the disallowance made by the AO was proper and the Assessee is entitled to deduction only to the extent PBDD is debited to the P & L A/c. Thus Gr.No.2 to 4 3 raised by the revenue are allowed. 11. As far as the decision of the Hon'ble Karnataka High Court in the case of Patil Vijayakumar (supra) cited by the learned counsel for the Assessee is concerned, We find that the issue in the aforesaid case was as to whether the Income-tax Act 1961 being all India statute, the view expressed by one ....
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....ue are allowed. 12. Ground Nos. 5 and 6 raised by the Revenue in its appeal reads as follows:- "5. Whether on facts & circumstances of the case, is the learned CIT(A) correct in holding that Rs. 778.48 crores as eligible for deduction U/s.36(1)(viii) of the Act. 6. Whether on facts & circumstances of the case, is the learned CIT(A) correct in allowing deduction even though the following advances prima fade are not eligible U/s. 36(1)(viii) for deduction. (a) Advances to Rural Artisans Rs. 8.91 crores (b) Advances to retail trade Rs. 93.71 crores (c) Advances to small business Rs. 25,44 crores (d) Advances to professional & self employed Rs. 43.82 crores (e) Advances to Road Transport Operators Rs. 20.57 crores 13. Before we proceed to discuss these grounds, it is useful to set out the provision of sec. 36(1)(viii) of the Act which allows certain deductions to Banking companies and it reads as follows:- "(viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent. of the profits derived from eligible business computed under the head "Profits and gains of ....
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....rchase of houses in India for residential purposes; (f) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (g) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi) of sub-section (4) of section 80-IA; and (iii) an undertaking referred to in sub-section (10) of section 80-IB; (h) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years." 14. As can be seen from the aforesaid provision, deduction is allowed to specified entity (the assessee is a specified entity) of 20% profits derived from eligible business computed under the head "Profits and gains of business ....
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....rse of assessment proceedings. The Assessee further pointed out that at page 68 of the Annual Accounts of the Assessee, it has given maturity wise Assets and Liabilities Management figures (ALM) which was as follows: (Rs. in crores) Advances - Less 14 days Old 141.58 Advances 15 to 28 days old 13.88 " 29 to 3 months old 41.62 " 3 months to 6 months old 55.49 " 6 months to 1 year old 124.85 " 1 year to 3 years old 1358.12 " 3 years to 5 years old 416.18 " 5 years and above 374.56 2526.28 16. The Assessee pointed out that the AO had taken the long term finance from the table above at Rs. 374.56 Crores by considering the loans given by the Assessee for a period above 5 years was Rs. 374.56 Crores. The Assessee pointed out that the above table showed the remaining term of loans and advances as on 31.03.2009 (Maturity Pattern) and not the tenure of the loans given. The Assessee also submitted that as per RBI, the banks have to give As....
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....iven for a period of more than 5 years, may be outstanding for a period of less than five years as on 31.03.2008 due to repayments being made in accordance with the terms of loans and advances. It appears to be a clear case of misunderstanding of facts on the part of the AO. With respect to the quantum of total income of the assessee, the AO has considered the total income at Rs. 41.88 crores. In this context it would be relevant to reproduce the provisions of section 36(1)(viii) of the Act which reads as under : 36(1)(viii) In respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head " profits and gains of business or profession" (before making any deduction under this clause) carried to such reserve account." From the provision of section 36(1)(viii) of the Act, it is clear that the deduction of 20% should be on the profits pertaining to the eligible business. The AO, in the case on hand, has considered the profits from the eligible business to be at 17% of the book profit instead of considering the total income from the eligi....
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.... to total advance 29.64% Total income as worked out above Rs. 49,09,30,030.00 Profit from eligible business, 29.64% of above Rs. 14,64,93,521.00 20% of above and eligible amount of deduction Rs. 2,92,98,704.00 Reserve created and deduction claimed Rs. 2,91,00,000.00 20. The perusal of the CIT(A) order shows that the relief allowed by the CIT(A) to the assessee is based on the decision of the ITAT, Bangalore Bench in Assessee's own case for assessment year 2007-08 and 2008-09 in ITA Nos. 226 and 227/Bang/2012. The CIT(A) has not given a factual finding as to what should be considered as eligible advances i.e., long term finance provided by the Assessee. We are of the view that since no finding has been given by the CIT(A) as to the basis on which the relief was given by the CIT(A), we deem it fit and proper to set aside the order of the CIT(A) and remand to the AO for fresh consideration the question of proper deduction to be allowed u/s 36(1)((viii) of the Act. The AO will consider the contentions put forth by the assessee and decide the issue afresh affording opportunity being heard to the assessee. 21. Ground Nos.5 and 6 are ....
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....id not agree with the view of the assessee and relying on CBDT's lnstruction No.17/2008 dt.26.12.2008 came to the conclusion that the securities in respect of which the decrease in value was written off in the profit and loss account are held "investments held to maturity" and therefore these cannot be treated as stock-in-trade and consequently cannot be valued in the manner in which stock-in-trade is valued. On appeal, the learned CIT (Appeals) in his order relying on the decisions of the coordinate benches of this Tribunal in the case of :- I. ACIT (LTU) V Vijaya Bank in ITA Nos.253 & 205/Bang/2007 d.24.1.2008 for Assessment Year 2003-04. II. (ii) The Karnataka Bank Ltd. VJCIT in ITA No.50/Bang! 997. III. (in) ING Vysya Bank Ltd V DCIT (2006) 6 SOT 606 (Bang) held that all investments made by the assessee constitute stock in trade for the purpose of income tax and has to be therefore valued in the manner in which stock-in-trade is valued. On further appeal by the revenue the Tribunal upheld the order of the CIT(A). Following are the relevant observation of the ITAT in ITA No.226/Bang/2012 for assessment year 2008-09 held as follows:- "11....
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.... Tribunal in the case of DCIT V Syndicate Bank in ITA Nos.668 & 669/Bang/2010 and 708 & 709/Bang/2010 dt 19 6 2013 We, therefore, respectfully following the decision of the Hon'ble Karnataka High Court in the case of Karnataka Bank Ltd. (supra) hold that the order-of the learned.CIT(Appeals)does not call for any interference and consequently, dismiss grounds No.2 to 4 raised by revenue." 28. Respectfully following the decision referred above, we uphold the order of the CIT(A) and dismiss ground No.4 and 5 5aised by the Revenue. 29. Ground Nos. 6 and 7 raised by the revenue as follows:- "6. Whether on facts & circumstances of the case, is the CIT(A) correct in deleting the addition made on account of stale drafts and pay orders U/s. 41(1). 7. Whether on facts & circumstances of the case, is the CIT(A) correct in not appreciating that stale drafts & pay orders have not been claimed by the persons and the amounts involved remained with the assessee bank and hence taxable as per Section 28(iv) of the l.T. Act." 30. As far as ground Nos. 6 and 7 are concerned, the issue is with regard to whether the AO was justified in making an addition by treating liability ....
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....2 wherein the Bank transferred a sum of Rs. 10,50,47,796 representing amounts collected towards issue of drafts and pay orders to the profit and loss account after following necessary permission from the RBI to do so. The Assessing Officer in that case treated the above amount as income of the bank. The Tribunal, in that case also, after duly considering the decision of the Hon'ble Apex Court in the case of TV Sundaram lyengar & Sons (supra) held, at paragraph 12 of its order as under: "12. In the present case the assessee never wanted the amount to be treated as its income by credit to the profit and loss account. It was, only because of RBI's direction the amount was credited to the profit and loss account. The RBI's directions are also clear that the assessee should not use the amount transferred to General Reserve for any purpose other than meeting any, future claims by the persons entitled to claim the aforesaid amount. The amount was also not available for distribution of dividend. In the fight of the aforesaid facts and circumstances prevailing in the case of the assessee, we are of the view that the decision of the Hon'ble Supreme Court in the case ....
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.... liability of Rs. 58,31,851. 7.3.2 In the case on hand, the fact that the assessee has not credited the amount of Rs. 58,31,851 received for making of Drafts and Pay Orders to its profit and loss account in the period under consideration, is not in dispute. In fact, the said amount admittedly appeared as An outstanding liability towards drafts and pay orders in the Balance Sheet of the assessee as 31 .3 .2007. We therefore find merit in the arguments put forth by the learned Authorised Representative which is further fortified by the decisions rendered by the co-ordinate bench of this Tribunal in the cases of Canara Bank (ITA No390/Bang/20111 dt.8.6.2012) and Vijaya Bank (ITA o.455/Bang/2011 dt.22.4.2012). Following, the aforesaid decisions of the coordinate Bench of the Tribunal (supra) we delete this addition of Rs. 58,31,851 made by the Assessing Officer under section 41(1) of the Act as being unsustainable. 8.0. In the result, the assessee's appeal for Assessment Year 2007-08 is partly allowed." 32. Respectfully following the decision of the Tribunal, we uphold the order of the CIT(A) and dismiss ground Nos.6 and 7 raised by the Revenue. 33. In the r....
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....er sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii)"fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J ; (iv) "work" shall have the same meaning as in Explanation III to section 194C; (v) "rent" shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi ) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;" 35. Under Section 194A of the Act which is a section appearing in Part XVIIB of the Act, the Assessee was obliged to deduct tax at source where interest paid is in excess of Rs. 10,000/- per annum. During the assessment proceedings it was noticed by the AO that the Assessee has paid total ....
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....ave submitted Form No.15G/H obtained from the depositors before the prescribed Authority which is Commissioner of Income Tax, within the prescribed period. Since the Assessee failed to do so, the AO held that disallowance u/s.40(a)(ia) of the Act has to be made. With regard to interest paid to Government/quasi-Government Authority payment of interest to whom the Assessee claimed was not liable to TDS, the AO held that the Assessee failed to furnish evidence to show payments to Government/Quasi Government. The AO therefore disallowed interest expense of Rs. 28,98,43,076 u/s.40(a)(ia) of the Act. With regard to disallowance of interest of Rs. 12,98,57,409 which was payment of interest without TDS, the AO disallowed the claim for deduction of the said sum for violation of provisions of Sec.40(a)(ia) of the Act. 38. On appeal by the Assessee, the CIT(A) upheld both the additions made by the AO. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 39. Before the Tribunal, on the issue of disallowance of a sum of Rs. 28,98,43,706, the learned counsel for the Assessee submitted that once the depositors give Form No.15G/H, the law e....
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....ions:- "9.3. During the course of hearing the Assessee was asked to furnish the respective evidences. Apart from the questionnaire issued u/s.142(1) dated 24.1.2013, the Assessee was asked to furnish the necessary evidences in support of its claim for not invoking provisions of Sec. 40a(ia), during the hearings on 26.02.2013, 06.02.2013, 07.03.2013 and 11.03.2013. However, the assessee could not produce any such evidences Hence the amount which is liable for deduction of TDS amounting to Rs. 28,98,43,076/- but no TDS was done because of stated submissions of form 15G/15H by the recipient or interest claimed to be paid to the Government , now cannot be allowed as deduction. The non submissions of 15G/15H before the Prescribed authority, amounts to, all together, non - deduction of TDS, where it ought to have been done, thus inviting the disallowance of the same u/s 40a (ia) of IT Act. Like so the claim of interest payment stated to be made to Government was not properly supported with the evidences thus inviting the disallowance of the same u/s 40a (ia) of IT Act. 9.4. Thus an amount the Rs. 12,98,57,409 for non-deduction of TDS on theinterest paid exceeding Rs. 10....
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....uction on account of interest paid in the case of the assessee who is the banker should be allowed u/s 28 of the Act on commercial principles as expenses linked with the determination of profits. In this regard, it was submitted by him that in several decisions, courts have taken the view that money borrowed cannot be regarded as capital employed. Reference was made to principles of accountancy in this regard. The ld. counsel for the assessee further submitted that sec. 40(a)(ia) of the Act refers to tax deductible at source under Chapter XVII B of the Act and since no order u/s 201(1) of the Act treating the assessee as 'an assessee in default' under Chapter XVIIB of the Act has been passed, no disallowance u/s 40(a)(ia) of the Act can be made. In other words, according to him any disallowance u/s 40(a)(ia) of the Act without corresponding order treating the assessee as 'an assessee in default' u/s 201(1) of the Act is passed as Sec.40(a)(ia) in Chapter XVIIB are interlinked provisions. 44. The ld DR however, submitted that the interest in question is allowable as revenue expenditure u/s 37(1) of the Act and, therefore, the disallowance u/s 40a(ia) of the Act is applicable. It ....