AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1572
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....e assessee per its appeal are as under:- "1. For that on the facts and in the circumstances of the case, the CIT(Appeals) was grossly unjustified in upholding the disallowance for provision for bad & doubtful debts amounting to Rs. 320,17,00,000/- on the ground that the deduction under Section 36(1)(viia) needs to be restricted to actual provision made in the books. 2. For that on the facts and in the circumstances of the case, the CIT(Appeals) was grossly unjustified in law and on facts in upholding disallowance of Rs. 2,36,68,517/- by invoking Rule 8D(2)(iii) of the IT Rules without establishing any proximate cause between the expenditure incurred and earning of tax free income. 3. For that on the facts and in the circumstances of the case, the CIT(Appeals) grossly erred in considering the shares & securities held as 'stock-in-trade' to be 'investment' for the purposes of computing disallowance under Sec. 14A read with Rule 8D(2)(iii). 4. For that on the facts and circumstances of the case, the disallowance made u/s. 14A be deleted and/or reduced. 5. For that on the facts and in the circumstances of the case, the CIT(Appeals) was grossly unjustified in disallowing p....
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....of the case and without prejudice to Ground No. 6, 7 & 8, ld. CIT(Appeals) failed to consider that the provision for credit linked notes, provision for unstructured loans were in the nature of provision for losses created in the ordinary course of banking business and not provisions made towards diminution in value of assets. 13. For that on the facts and circumstances of the case, the AO be directed to re-compute the set off and carry forward of the unabsorbed business losses and depreciation brought forward from the earlier years. 14. For that on the facts and circumstances of the case, the interest levied u/s. 234B & 234D serves to be deleted and/or reduced. 15. For that the appellant reserves the right to add to, alter or amplify the above grounds of appeal." 3. First issue raised by assessee in this appeal in Ground No.1 is that Ld. CIT(A) erred in confirming the action of Assessing Officer by disallowing the provision of bad and doubtful debts amounting to Rs.320,17,00,000/- on account of provision of Sec. 36(1)(viia) of the Act. The facts in brief are that assessee in the present case is a Public Sector Bank. During the year assessee has created the provision of ....
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.... of Rs. 5,08,78,809/- but no expenditure pertaining to tax free income was disallowed in the computation of total income of assessee. Accordingly, AO sought clarification from the assessee for not making the disallowance u/s. 14A of the Act. In compliance thereto it was submitted that the assessee was dealing in shares and the income earned thereon is offered to tax. The dividend income which is exempted from tax is incidental to the main business of assessee. However, AO has disregarded the contention of assessee by holding that merely because the assessee is dealing in shares it cannot be said that no expenditure has been incurred in relation to earn of tax free income and accordingly AO has made disallowance u/s. 14A of the Act for an amount of Rs. 32,80,34,625/- and added to the total income of assessee. 8. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who partly allowed the appeal of assessee by observing as under:- "17. I have considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. In respect of the aforesaid ground of appeal the appellant has also submitted that in the Assessment Year 2007-08 the Assessing....
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....stock can be valued at cost or market price whichever is lower. What is taxable under the Act is the really accrued or arisen income. On the basis of the method of accountancy regularly employed by the assessee, the real income is pointed out in the IT return submitted by the assessee. This cannot be ignored by holding that in a balance sheet which is required to be statutorily maintained in a particular form, market value of the shares and securities is not mentioned or is mentioned in brackets. Hence, for the purpose of income-tax whichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance sheet required to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the ITO as well as the assessee to point out the true and proper income while submitting the IT return. In the present case, Central Government, in exercise of the powers conferred by s. 53 of the Banking Regulation Act, and on the recommendation of the RBI permitted the assessee not to disclose the market value of its investment in the balance ....
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....uing its stocks-in-trade (investments) because the bank was required to prepare 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. Where the assessee-bank had been valuing its stock-in-trade (investments) "at cost" in the balance sheet but it had been valuing the same investments "at cost or market value, whichever is lower", for income-tax purposes for over 30 years, the same could not be discarded by the Revenue on the ground that assessee was maintaining balance sheet in the statutory form on the basis of the cost of the investments. For valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower; a method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation." The various courts have held that no disallowanc....
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....ee. AO is directed accordingly. 10. Next issue raised by assessee in ground No.5 is that Ld. CIT(A) erred in confirming the action of AO for disallowing the provision of leave encashment amounting to Rs. 27. 13 crores u/s. 43B of the Act. Ld. Counsel for the assessee argued for provision for leave encashment that this issue is pending before Hon'ble Supreme Court in the case of Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 (Cal) and fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court vide order 08-05-2009 by following observations:- "Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statue Book but at the same time it would be entitled to make a claim in its returns." ....
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....t on account of provision credited for bad and doubtful debts etc. As we have already held that the provisions of MAT are not applicable to the assessee, therefore, this issue does not require any adjudication. 16. Next issue raised by assessee in Ground No.13 for giving the direction to AO for re-computation of the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years. In terms of above ground of assessee's appeal we direct the AO to recompute the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years after giving effect to this appeal. 17. Last ground of assessee's appeal is consequential in nature and does not require any adjudication. 18. In the result, assessee's appeal is partly allowed. Coming to Revenue's appeal in ITA No.911/Kol/2013 for AY 09-10. 19. At the very outset, we observe a very smallness delay in the filing of its appeal by Revenue which though stands suitably explained as per accompanying affidavit by the concerned official of the Revenue. The appeal was accordingly admitted, and the hearing proceeded with. 20. First issue raised by Revenue in Gr....
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....d unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue. Merely because the assessee is also having dividend income, the provisions of s 14A of the Act are not applicable to the expenses incurred by the assessee in the course of its business when there was no material brought to show that the assessee had incurred expenditure for earning dividend income which is exempted from taxation" Respectfully following the decisions of Hon'ble High Courts, in our considered view, we uphold the order of Ld. CIT(A) and ground raised by Revenue is dismissed. 22. Next issue raised by Revenue in Ground No.2 is that Ld. CIT(A) erred in allowing the claim of assessee which was during the course of assessment was disallowed on the g....
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.... of Rs. 42,40,70,571/- is not taxable in India and is allowed as dd. These grounds are allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 25. At the outset, it was observed that the issue is squarely covered in favour of assessee and against the Revenue by the decisions of Hon'ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. 252 CTR 151 (Bom); Hon'ble Delhi High Court in the case of CIT vs. Jai Parabolic Springs Ltd. 306 ITR 42 (Del) and Hon'ble jurisdictional High Court in the case of Mayank Poddar HUF vs. CWT 262 ITR 633 (Cal). The relevant extract of the judgment CIT vs. Jai Parabolic Springs Ltd. 306 ITR 42 (Del) is reproduced below : "The principal ground taken by the Revenue in this appeal is that if no claim for deduction of the amount was made in the return of income then deduction would not be allowed. Sec. 254 says that the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. Further, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in ....