TaxTMI 
TaxTMI 
2017 (7) TMI 1289
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....erred in confirming disallowance of bad debts written off amounting to Rs. 550,03,05,865/- contrary to law and facts and circumstances of the case. 1.2. The CIT (A) erred in arriving at the balance in the provision for bad and doubtful account referred to in sec 36(1)(viia) by artificially pegging the credit balance in the provision account by the amount allowed u/s 36(1)(viia) in the previous and the current assessment year which is unreasonable and uncalled for. 1.3. The CIT(A) ought not to have ignored the account for provision for bad and doubtful accounts as maintained by the appellant having made entries for debits and 'C credits of actual amount of provision allowed and bad debt written off as required under the provisions of the Act and hence the same cannot be rejected. 1.4. The CIT(A) ought to have appreciated that since there was only a debit balance in the provision for bad and doubtful debts account referred to in 36(1)(viia) as per the details already furnished the entire bad debts written off ought to have been allowed as deduction without any restriction whatsoever." 3. Briefly stated facts are that the assessee claimed deduction of bad debts amount....
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....e the claim of bad debt is less than the provision, the A.0. has rightly disallowed the claim of the appellant. The disallowance is confirmed and appeal on this round is dismissed. Following the decision of my predecessor the ground of appeal is dismissed." Aggrieved, now assessee is in second appeal before Tribunal. 4. At the outset, the learned Counsel for the assessee stated that exactly the identical issue has been allowed by Tribunal in assessee's own case for the AY 2001-02 in ITA No. 1498/Mum/2011 vide order dated 09-04-2014. The Tribunal following the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (2012) 343 ITR 270 (SC) allowed the claim of the assessee by observing in Para 2.5 to 2.7 as under: - "2.5 Having considered the rival submissions and careful perusal of the record we find that on principle the CIT(A) has allowed the claim of the assessee in respect of bad debts written off, however, the quantum of the claim has been restricted in terms of the proviso to section 36(1)(vii). It is to be noted that the proviso to section 36(1)(vii) has been inserted to avoid the double claim in respect of the same amount and the amount ....
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....which had already been allowed u/s 36(1) (viia) (Southern Technologies 320 ITR 577 (SC) & Vijaya Bank 323 ITR 166 (SC) referred). 10. In that case the Apex Court has held that the bank would be entitled to both the deductions, one under Clause (vii) on the basis of actual write off and another on the basis of clause (viia) in respect of mere provision. Further to prevent to double deduction, 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 off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). It follows that deduction u/s 36(1)(viia) is to be allowed only on the amount of provision made for bad and doubtful debts subject to the maximum on the basis of rural advances/ income prescribed under that section. The allowance u/s 36(1)(viia) cannot be in excess of provision for bad debts actually made in the accounts. 11. In view of the very clear principles laid down by the Apex Court in the above judgments, we deem it fit to set aside the issue to the file of the Assessing Officer to decide the issue in the light of the ....
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....ation was required to be paid in deference to a court order and as a matter of business expediency since non-payment would prejudice continuation of banking business in U.K. and therefore is allowable in full. Reliance is placed on the decision of Apex Court in CIT V Udaypur Distillery Co. Ltd. 314 ITR 181. 2.3 The CIT (A) ought not to concluded that the appellant hank was a party to the fraud committed by BCCJ against its creditors and hence the payment of compensation did not arise in the course of carrying on its banking business over-looking the fact that the order of court is in connection with a civil proceeding against the appellant and the payment was only a compensation as by the court order itself. 2.4 Without prejudice to the above, the CIT(A) ought to have allowed in any case the interest paid amounting to Rs. 173.65 lacs and legal charges amounting to Rs. 17.19 Lacs being / expenses incurred for delayed payment of compensation and for defending the suit filed against the appellant." 7. Briefly stated facts are that the AO disallowed the payment made to liquidator's Bank of Credit and Commerce International SA and Bank of Credit and Consumers International (oversea....
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.... also not allowable for the same reasons because they are also related to the fraudulent activity and compensation for that. 16. The A.O. has also disallowed the claim of the assessee on the basis that expenditure does not pertain to the year under consideration, which has also been disputed by the assessee. But once it has been held that it is relating to a fraud, the relevant year will not make any difference. But in any case if at any sage it is found as allowable business expenditure then it can be considered under the year under consideration in view of the decision of Saurashtra Cement and Chemical Industries Ltd. vs. CIT 213 ITR 523 (Gui) and Toyo Engg. India Ltd. vs. JCIT 100 TTJ 373, ITAT, Mumbai, both the judgments are relied upon by the assessee. To this limited extent the ground of appeal of the assessee is treated as allowed for statistical purposes. 17. Another ground on which disallowance has been made is that it relates to a foreign branch, the income of which is not includable in the income of the assessee in view of section 90 and the DTAA. Whereas the assessee has claimed that the more beneficial provisions between DTAA and I.T. Act will apply to the assessee....
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....Act. Hence the above loss should be reduced in computing the total income. He further explained that the AO disallowed the above sum on the ground that it does not relate to the current assessment year since the transactions took place during financial years 1981 to 1986. He submitted that the liability to pay has crystallized arose and became payable only in the current year based on the orders of High Court of Justice, Chancery Division, Companies Court, UK dated 19/03/2004 and 26/03/2004 and therefore cannot be disallowed for the current assessment year. He placed reliance on the decisions in support of its contention of Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd Vs CIT 213 ITR 177 523 (Guj) and ITAT Mumbai Tribunal in the case of Toyo Engineering India Limited Vs JCIT 100 TTJ 373 (ITAT Mum). 8. He further argued that another reason given by the AO for disallowance of the above amount is that it is expenses incurred for fraud and not a normal business expenses. He explained that assessee is engaged in the business of the banking and as per the Banking Regulation Act, one of the main objects of a banking company is to accept deposits ....
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....aw present in India, the banks incur huge losses in respect of loans and advances granted by them in normal course of banking due to fraudulent practices followed by the borrowers, and not utilizing loans for the purpose for which it was sanctioned, large scale diversion of bank loans for personnel use, not having sufficient stock or other securities and utilizing the bank funds for speculative purposes, as a result of which the banks are unable to realize their dues in full. In such circumstances the banks usually write off such debts either as bad debts or trading loss and no questions are raised about the misuse of the banks funds by the borrowers and the losses are allowed in full even though the borrowers had cheated or defrauded the banks in such cases resulting in criminal proceedings against the borrowers. 9. On the other hand before us, the learned Sr. DR argued that on the issue of fraudulent transactions Hon'ble High Court justice Chancellery Division the Commence Court London has recorded this fact that how BCCI and these parties collided and the relevant portion of the judgments reads as under:- '"This application is concerned with six transactions involvi....
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....e conduct of BCCI (by which I refer to the group as a whole) was undoubtedly fraudulent and this is now common ground between the parties to this application. The second allegation is that BOI, by entering into these six transactions under review, knowingly participated in the carrying on of the business of BCCI SA and BCCI Overseas with intent to defraud the creditors of those companies or for a fraudulent purpose. If this allegation (which is denied) is made out, then I have jurisdiction u/s. 213 of the Insolvency Act 1986 to order BOI to pay compensation to the liquidators for the losses to creditors which have been sustained." 10. We have gone through the argument of both the sides and noted that the transactions of the London Branch of the assessee were perfectly legal and no losses were incurred on such transactions. However the assessee was called upon to pay compensation to the liquidators of BCCI for the losses sustained by creditors and bank in respect of the transactions of BCCI for which the assessee was not a party at all. However as the compensation regarding contribution to liquidator under UIC insolvency Act was made to fulfil its statutory liability conseque....
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.... decision of this Court in CIT vs. Piara Singh AIR 1980 SC 1271 which was a case of an assessee carrying on smuggling activity and this Court held that the loss arising out of confiscation of currency notes must be allowed as a business loss. In the order of the Tribunal dated 14.10.1998 there is a finding of fact in paragraph 8 to the effect that the heroin forms part of the stock in trade of the assessee. In view of this finding, the Tribunal allowed the assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lacs as a business loss. We fully agree with the view taken by the Tribunal. The High Court, however, in paragraph 10 of its judgment observed: "The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article Heroin for carrying on his profession. It is an admitted fact that possession of Heroin is an offence under NDPS Act. In this view, the rigour of explanation to Section 37 was fully satisfied and hence the question claiming any deduction for the value of seized article did not arise nor was an assessee entitled to claim any such deduction who was bound i....
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....in the appeal. 12. In view of the above facts of the case, we are of the view that the compensation paid in term of judgment of Hon'ble High Court of Justice Chanclry Division, Companies Court, London is allowable deduction in view of the commercial expediency. Respectfully following Hon'ble Supreme Court, we allow the claim of assessee. This issue of assessee's appeal is allowed. 13. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of lease premium paid in respect of its bank premises amounting to Rs. 1,50,53,817/-. For this assessee has raised following grounds: - "3.1 The CIT (A) erred in disallowing as capital expenditure the amortized lease premium paid in respect of its bank premises amounting to Rs. 1,50,53,817/- 3.2 The CIT(A) ought to have appreciated that the said sum being annual amortization of premium paid on leasehold properties for which the appellant had paid the entire premium of Rs. 124,43,05,430/- in a prior year. Since the appellant was not allowed deduction inspect of the initial sum the CIT(A) ought to have allowed at least the proportionate amount of Rs. 1,50,53,817/- claimed....
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....ssessee. The AO has treated the lease premium paid by the assessee as capital expenditure and decision relating to that of the A.O. has been confirmed by me in earlier ground and similarly confirmed by my predecessor in the appeal for AY. 03-04 and, therefore, the lease premium has been held as capital expenditure and therefore acquisition of capital asset. Accordingly, stamp duty paid is part of the acquisition of land on lease which has been held as capital expenditure. Therefore, the expenses on stamp-duty are also held as capital expenditure. The assessee has relied on the decision of Hon'ble Bombay High Court in the case of Richardson Hindustan Ltd (supra) but in that case the Hon'ble High Court has held the lease as business and revenue expenditure. Similarly, in the case of Gopal Associates (supra) the lease was taken for a period of 7 years only and, therefore, that is not a comparable case with the facts of the case of assessee where the lease is taken for a much larger period and on which building has been constructed for residential purposes. Therefore, the cases relied by the assessee are distinguishable on facts. Hence, the claim of the assessee is rejected." ....
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....ent is in the nature of commission or brokerage even then it would have to be allowed as deduction as held by this Court in the decisions relied on by Shri Dastur." 19. In view of the above, decision of Hon'ble Bombay High Court wherein it is held that expenditure incurred by the assessee by way of stamp duty etc., in connection with lease agreement was covered by its own decision in the case of CIT vs. Cinceita (P.) Ltd. (1982) 137 ITR 652 (Bom), respectfully, following the same we allow the appeal of the assessee on this issue. 20. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of expenditure relatable to exempt income under section 14A of the Act. For this assessee has raised following ground No. 5.1 to 5.3: - 5.1 The CIT (A) erred in confirming the disallowance u/s 14A on an estimated basis at 0.5% of average investments yielding tax free income without appreciating the fact that the appellant had not incurred any expenditure to earn the said income. 5.2 The CIT (A) ought to have noted no disallowance on estimated basis could be done under section 14A .Reliance is placed on the decision of Hon'ble IT....
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.... of earning of dividend income and tax free interest. The Coordinate Bench of this Tribunal in the case of DCIT Vs. HDFC Bank Ltd. (supra) in para 7.1 and 7.2 has considered an identical issue as under:- 7.1 In the case in hand, the CIT(A) considered the facts and pointed out that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed the exact detail of the operating expenses and therefore, no option was left but to estimate the disallowance. 7.2 Even otherwise, the overall administration of the bank looks after all the department including the treasury department; therefore, in the absence of the exact expenditure incurred in relation to the activity relating to tax free investment and earning the income not forming part of the total income, in our considered opinion, the CIT(A) is justified in restricting the said ....
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....the respondent based on the decision of Hon'ble ITAT in appellant's own case. The respondent submits that this issue has been decided in favour of the assessee by Supreme Court of India in CIT Vs PV.AL.Kulandagan Chettiar, reported in 267 ITR 654 which upheld the decision of ITAT Chennai in the case of PV.AL.Kulandagan Chettiar Vs ITO (3 ITD 426). The ITAT had held that "So the argument that the agreement must be so interpreted as to retain the taxation powers with the Government of India in order to prevent fiscal evasion has only to be rejected. The agreement is mainly for avoidance of double taxation. That means the income shall not be taxed at the same time in both the countries in India and Malaysia. So, if we interpret the agreement to mean that the Indian Government and the Malaysian Government both still retain even after the execution of the agreement the power to tax at the same time the same income it will only frustrate the object with which the agreement is executed". The ITAT had therefore concluded, "As regards business profits paragraph I of Article 7 provides that the profits of an enterprise of a contracting state shall be taxable only in that contracting state. W....