TaxTMI 
TaxTMI 
2020 (6) TMI 310
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....04, CIT(A) XII/DC(3)(1)/IT- 19/02-03 dated 25.02.2004, CIT(A)XXVII/DC 3(1)/IT-86/03-04 dated 24.03.2005, CIT(A)XXVIII/ACIT 3(1)/IT 32/07-08 dated 19.06.2008, CIT(A)-XIII/Addl. CIT 3(1)/418/08-09 dated 31.03.2009, CIT(A)-XIII/Addl. CIT 3(1)/415/08-09 dated 31.03.2009, CIT(A)-XIII/Addl.CIT-3(1)/414/08-09 dated 31.03.2009, CIT(A)-LTU/ACIT LTU/419/08-09 dated 05.01.2010, CIT(A)-LTU/ACIT-LTU/132/2009-10 dated 15.10.2010, CIT(A)-LTU/Addl. CIT-LTU/57/2010-11 dated 23.12.2011, CIT(A)-LTU/ACIT-LTU/209/2011-12 dated 02.01.2014, CIT(A)-LTU/Addl. CIT-LTU/58/12-13 dated 30.06.2014. The Assessments were framed by the Jt. Commissioner of Income Tax, Addl. CIT, LTU Range-19, Dy. Commissioner of Income Tax, Circle 3(1), Mumbai (in short ACIT/ DCIT/JCIT/ AO) for the A.Ys. 1997-98, 1999-00, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 vide order dated 16.02.2001, 11.03.2002, 29.01.2003, 17.02.2004, 31.12.2004, 25.02.2005, 25.02.2005, 30.11.2007, 31.12.2008, 31.12.2009, 24.12.2010, 16.12.2011, 21.01.2013 under section 143(3) of the Income-tax Act, 1961 (hereinafter 'the Act'). 2. The first common issue in these cross appeals in ITA Nos. 3371, 337....
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....fact, there is a convergence between the two sides to the effect that the facts and circumstances of the dispute stand on an identical footing as was considered by the Tribunal in the earlier years, notably in Assessment Years 1994-95 to 1996-97 by way of a combined order dated 29.10.2014 (supra). We have perused the said decision and find that the Tribunal referred to various decisions, inter-alia, the judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd.Vs CIT [2013] 350 ITR 527 (SC), wherein Hon'ble Court held that even in cases of "financial leases', the depreciation allowance contemplated under Section 32(1) of the Act is allowable to the lessor. It has not been shown by the Ld. CIT-DR that any of such precedents in assessee's own case has been altered by any higher authority. Therefore, so far as this aspect of the matter is concerned, we do not find any hesitation in directing the Assessing Officer to allow the claim of depreciation on lease of assets where it involves "financial lease'. 6. Further, a perusal of the order of Tribunal dated 29.10.2014 (supra) shows that certain transactions of lease though not classified by the Assessing Officer as "....
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....t common issue in these cross appeals being ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005 and 5962/Mum/2008 filed by the assessee for AYs 1998-99 to 2002-03 respectively and ITA Nos. 5591/Mum/2008, 3759 to 3761/Mum/2009, 2612/Mum/2010 and 29/Mum/2011 filed by the Revenue for AYs 2002-03 to 2007-08 respectively is against the order of CIT(A) partly disallowing the expenditure claimed under Section 36(1)(iii) of the Act. The assessee is in appeal against partly sustaining the disallowance whereas the revenue is in appeal for partly allowing the relief to the assessee. Both assessee as well as Revenue have raised identical grounds in their appeals except for the quantum. Hence, we will take the facts from Assessment year 2002-03 and will decide the issue. The Grounds raised by assessee and Revenue in Assessment year 2002-03 is as under: - Grounds raised by assessee :- "2. Disallowance of expenditure claimed u/s 36(1)(iii) 2.1 The CIT(A) erred in partly allowing the claim of the appellant in respect of the interest payable on borrowed capital u/s 36(1)(iii) of the Act. The Honorable Tribunal may hold that the interest expenditure claimed by the appellant,....
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....his background, we have heard the rival submissions. At the time of hearing, apart from canvassing that the utilisation of funds by the assessee for acquiring the securities of Central and State Government as well as shares and securities of other financial institutions is an activity undertaken in the course of business, the Learned Representative pointed to the position taken by the Assessing Officer in different assessment years on this very aspect. It is pointed out by the Learned Representative that so far as past assessments are concerned, similar investments were made by the assessee and there has been no disallowance under Section 36(1)(iii) of the Act. Further, it is pointed out that so far as interest relatable to the investments in State Financial Corporation is concerned, from Assessment Year 2003- 04 upto Assessment Year 2008-09, the disallowance made by the Assessing Officer was deleted by the CIT(A) and the Department has not contested the same in further appeal before the Tribunal except for Assessment Year 2007-08. It is further pointed out that from Assessment Year 2009-10 onwards to Assessment Year 2012-13, there has been no disallowance under Section 36(1)(iii) ....
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....nancial institution which may be notified by the Central Government in this behalf, by way of refinance of any loans or advances granted to industrial concerns or group of industrial concerns by such bank or institution which are for the purpose of, or in connection with, the export of capital goods, commodities or merchandise from India or the execution of any turnkey project outside India by any industrial concern as aforesaid or by any person in India, and, in any case, are repayable- (i) within a period not exceeding twelve years in the case of persons outside India, and (ii) within a period not exceeding fifteen years in the other cases; (b) subject to such conditions as may be prescribed, accepting, discounting, or re-discounting bills of exchange and 7[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern]; 6[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern;" (c) subscribing to or purchasing stocks, shares, bonds or debentures of the Indust....
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....r the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf; which may be approved by the Board in this behalf; (g) guaranteeing the obligations of any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf arising out of, or in connection with, underwriting the issue of stocks, shares, bonds or debentures of any industrial concern; (ga) granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder; (gb) providing consultancy and merchant banking services in or outside India; (gc) acting as the trustee for the holders of debentures or other securities; (gd) acquiring, with the approval of the Central Government, the undertaking, including the business, assets and liabilities of any institution the principal object of which is the promotion or development of industry in India, or the grant of financial assistance for such....
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.... are unable to subscribe to the stand of the income- tax authorities that the investments made for financing or refinancing of State Financial Corporations is not an activity undertaken in the course of assessee's business; in our view the interest expenditure relatable to such investments cannot be disallowed in terms of Sec. 36(1)(iii) of the Act having regard to the fact that such activity is in the tune of assessee's business objects. 14. The only other aspect which is left for determination is interest relatable to investments made in securities of Central and State Governments amounting to Rs. 170 crores. On this aspect, it has been emphasized that in the earlier years, no such disallowance was made by the Assessing Officer. The rival stands on this aspect remain the same as it pertained to the interest relatable to investments made in State Financial Corporations. It was a common point between the parties that the assessing authority has not differentiated between the two items and the disallowance has been made on a consolidated basis in all the years, therefore, the assessing authority has disallowed the expenditure for similar reasoning as advanced for disallowin....
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.... and will decide the issue. The Grounds raised by assessee in AY 2002-03 is as under: - "3. Investment in Shares : 3.1 The learned CIT(A) erred in treating income by way of capital gains on sale of shares as business income the assessee holding that appellant's investments in shares of joint stock companies should be treated as business assets and not capital assets of the appellant's business. 3.2 The learned CIT(A)'s action of enhancing the income without giving opportunity to the appellant to explain its case as statutorily required under section 250(2) of the Act is illegal and bad in law. 3.3 The learned CIT(A) did not have jurisdiction to decide on this issue as it did not arise out of grounds of appeal before him and his action on this issue is without any authority under the law." 12. The ld Counsel of the assessee submitted that issue raised by the assessee is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee own case in ITA No. 3626/Mum/2001 in Assessment year 1997-98 vide order dated 21.6.2019 and, therefore, the ground raised by the assessee may kindly be allowed. The ld DR fairly agreed....
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....97-98, that "the ground was not pressed...........". He ought to have decided the issue on merits. The learned CIT(A) ought to have allowed the claim u/s 10(23G) on gross basis as claimed in the grounds of appeal." 15. After hearing the rival contentions, we observe that the issue is fully covered by the decision of the coordinate bench in Assessment year 1997-98, the operative part whereof is extracted as under:- "27. We have considered the submission of the parties and gone through the orders of authorities below. We have noted that in the return of income, the assessee claimed income exempt under section 10(23G) of Rs. 8,36,34,794/-. The assessee claimed exemption under section 10(23G) on gross basis. During the course of assessment, the assessee furnished revised working, thereby reduced the claim under section 10(23G) to Rs. 1,86,27,921/-. Before the ld. CIT(A), the assessee raised additional ground of appeal regarding restructuring the assessee's claim under section 10(23G) in respect of infrastructure business to Rs. 1,86,27,921/- as against Rs. 8,36,34,794/- claimed in the return of income. The ld. CIT(A) in para-114 of his order recorded that this grou....
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....e A.O. to allow the deduction on gross basis, ofcource after deducting the direct expenses attributable to earning such income. In the result, the assessee also succeeded on this ground." 16. As the facts and circumstances during these assessment years under consideration are identical to those as in assessment year 1997- 98, we, therefore, respectfully following the decision of our co-ordinate bench in the assessee's own case as stated above, allow the ground raised by the assessee in all the assessment years as stated above. The Assessing Officer is directed accordingly. 17. The next common issue is with respect to staff welfare expenses under Section 40A(9) of the Act. The assessee is in appeal against the disallowance of the expenses in AYs 1998-99 to 2001-02 vide ITA Nos. 3371, 3372, 3373/Mum/2004 and 4744/M/2005 respectively and the Revenue is in appeal against the allowance of the expenses by the CIT(A) in AYs 2002-03 to 2007-08 vide ITA Nos. 5591/Mum/2008, 3759 to 3761/Mum/2009, 2612/Mum/2010 and 29/Mum/2011 respectively. Assessee and the Revenue have raised the following identical grounds in their appeals for assessment year 2001-02 and 2007-08 respectively except....
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....of his predecessor in assessment year 1995-96 wherein similar expenses were disallowed without application of mind. The ld. AR contended before the Bench that any expenditure incurred by the assessee in connection with the welfare of employees or by way of contribution to the fund for promotion of welfare is allowable expenditure as has been held by the Hon'ble Bombay High court in the case of PCIT vs State Bank of India in ITA No. 718 of 2017 vide order dated 18.06.2019. The ld. AR submitted that an identical issue has been decided by the Hon'ble Jurisdictional High Court and, therefore, the order of CIT(A) may kindly be reversed and the Assessing Officer be directed to allow the expenditure. 21. The ld. DR, on the other hand, relied on the orders of the authorities below by submitting that Section 40A(9) of the Act specifically provides for disallowance of an contribution made to funds which might promote staff welfare and thus prayed the Bench to dismiss the ground raised by the assessee. 22. After hearing both the parties and perusing the material on record, we find that undisputedly assessee has incurred the expenses to the tune of Rs. 1,78,72,827/- towards four ....
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....ivities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under section 28. However, the Department rejected the assessee's claim on the ground that a club known as Trombay Club was incorporated by the assessee for social, cultural and recreational activities of its members who were required to pay subscription fees. Hence, the Assessing Officer as also the Commissioner of Income-tax(Appeals) came to the conclusion that the said amount constituted contribution to the club and, therefore, under section 40A(9), the claim for deduction was disallowed. Being aggrieved, the assessee went in appeal to the Tribunal which took the view that the aforestated amount represented reimbursement of expenses incurred by a society and, therefore, it did not constitute contribution under section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal. Findings on question No. 2 Bharat Petroleum Corporation is a Central Government underta....
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....Revenue is dismissed. 23. The next common issue in these appeals of assessee in ITA Nos. 3371, 3372, 3373/Mum/2004, 4744/Mum/2005 and 5962/Mum/2008 for AYs 1998-99 to 2002-03 respectively is against the order of CIT(A) holding that it is only the net dividend which is to be exempt u/s 10(33) of the Act. Similarly the assessee has raised identical grounds in its appeals except for the quantum. Hence, we will take the facts from Assessment year 1998-99 and will decide the issue accordingly. The Grounds raised by assessee in Assessment year 1998-99 is as under: - "4. Claim of exemption u/s 10(33) : 4.1 The learned CIT(A) committed a gross error of law and facts in not accepting the claim of appellant u/s 10(33) of the Act, in the manner in which it was claimed. The appellant submits that its claim u/s 10(33) should be accepted in totality. The learned CIT(A) committed a gross error of law and fact in directing the Assessing Officer to disallow the interest expenditure in relation to investment in shares. Moreover, the learned CIT(A)'s directions relating to section 36(1)(iii) are themselves contrary to law and unwarranted." 24. Facts in brief are that ....
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....d confirmed." 26. We have considered the rival contentions and perused the material on record. We observe that in this case clearly the assessee's own funds are far more than the investments in shares and securities and, therefore, it can be presumed that the investments in shares and securities is made out of own and interest free funds available with the assessee. The case of assessee is squarely covered by the following decisions :- i) CIT vs HDFC Bank Ltd., 366 ITR 505 (Bom.) ii) CIT vs Reliance Utilities & Power Ltd., 313 ITR 340 (Bom.) Since the issue is squarely covered by the decisions of the Hon'ble Bombay High Court, we, therefore, are inclined to set aside the order of CIT(A) on this issue and direct the Assessing Officer to delete the disallowance. Since we have allowed the relief to the assessee on the plea that own funds are more than amount of investments, therefore, the other pleas raised by the assessee need not be adjudicated. 27. The next common issue in these appeals of assessee in ITA Nos. 3373/M/2004, 4744/M/2005, 5962/M/2008, 3907/M/2009 and 3908/M/2009 for AYs 2000-01 to 2004-05 respectively is against the order of CIT(A) uphol....
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....ed any tax on accrual basis. According to the Assessing Officer, provisions of Section 43D of the Act are very clear and as the interest in relation to bad and doubtful debts/sticky loans is to be taxed in the year in which it is credited to the Profit & Loss Account or at the time of actual receipt, whichever is earlier, he added the same to the income of assessee. 29. The CIT(A) confirmed the addition made by the Assessing Officer following the orders of his predecessor in assessee's case for assessment year 2003-04 by holding as under :- "6.1 The A.O has discussed this issue from page 46 to 52 of the assessment order. The facts in brief were that the appellant's income was exempt from tax during the period prior to 1/4/1991. From 1/4/91 the appellant's income was made taxable under the I.T. Act. During the period before 1/4/1991 the appellant had some sticky loans on which the interest was worked out and credited in interest suspense account. During the period after 1/4/91, some of the interest amount on such sticky loans, which was earlier credited by appellant in interest suspense account, was received by the appellant in the period after 1/4/91. As per pr....
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....me income cannot be taxed twice; first in the year of accrual and thereafter on receipt basis. In the present case, income has accrued in earlier year and, according to the assessee, since assessee was not liable for taxation in the earlier years, therefore, it was not offered to tax. Undisputedly, income has accrued in the earlier years and since the provisions of Section 43D of the Act does not have any retrospective application, hence income prior to 1.4.1991 cannot be taxed. We find merit in the contentions of the assessee on this issue. Moreover, the case of assessee is squarely covered by the decision of Hon'ble Supreme Court of India in the case of State Bank of Travancore (supra), accordingly we direct the Assessing Officer to delete the addition on this count by setting aside the order of CIT(A). 31. Ground no. 1 in appeal of assessee bearing ITA No. 3907/M/2009 for AY 2003-04 is against the order of CIT(A) upholding the disallowance of deduction by Assessing Officer in respect of dividend income under Section 80M of the Act. 32. At the outset, the ld. AR submitted that the issue is squarely covered in assessee's own case in ITA No. 3626/Mum/2001 for assessment y....
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....u/s. 36(1)(iii)." 20. We have noted that on similar disallowances in appeal for A.Y. 1995-96 in ITA No. 3369/M/2004, the co-ordinate bench of Tribunal by following the decision in assessee's own case for A.Y. 1992-93 in ITA No. 3249/Bom/1995 dated 24.12.2002, restricted the disallowances to 1% of dividend income. Therefore, respectfully following the decision of Tribunal, we direct the Assessing Officer to restrict the disallowance under section 80M to 1% of the dividend income. In the result, the assessee succeeded on this ground of appeal." 34. As the facts and circumstances during the assessment year under consideration are identical to those as in assessment year 1997-98, respectfully following the decision of our co-ordinate bench in the assessee's own case above, the Assessing Officer is directed to restrict the disallowance under Section 80M of the Act to 1% of the dividend income. Thus, assessee succeeds on this ground of appeal as stated above. 35. Ground no. 3 in appeal of Revenue bearing ITA No. 3761/M/2009 for AY 2005-06 is against the order of CIT(A) confirming the disallowance of claim of bad debt by Assessing Officer under Section 36(1)(vii) of the Act....
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....ctly claimed the unrecoverable loans and advances as bad debts in the return of income. 8.3(b) The second question is as to whether the bad debt claimed by the appellant were allowable or not. The deduction of bad debt is allowable u/s 36(1)(vii) of the Act. There was a fundamental change in the provisions of Sec. 36(1)(vii) w.e.f. 1.4.89. Prior to amendment, the assesses was required to establish firstly that the unrecovered amount was a debt and secondly the assessee was required to establish that the debt became a bad debt. After amendment, the position was changed considerably. After amendment the assessee was not required to prove that the debt became bad debt. It was the assessee's own decision in the facts and circumstances to decide as to whether the debt has become bad or not. The only requirement after amendment are that the unrecoverable amount should be a debt, the assessee has considered and decided to consider the same as bad debt and the bad debt is written off as irrecoverable in the accounts of assessee. Thus, every claim of bad debt is required to be looked into from these three parameters. During appellate proceedings, the appellant explained to the ....
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.... condition of writing off is fulfilled. The Special Bench of ITAT Mumbai in case of Oman International Bank 100 ITD 285 has held that amendment made w.e.f. 01.4.89 has liberalized the requirement of claiming deduction of bad debt by altogether doing away with the condition precedent of satisfaction of A.O that the debt has become bad. The Amended provision provide that a claim of bad debt is to be allowed in the year in which such bad debt has been written off as irrecoverable in the accounts of assessee. Amendment has done away with the requirement of establishing that the debt has become bad. This is also clear from the circular No.551 dated 23.1.1990. Rules regarding the deductibility of bad debt provided in amended section 36(1)(vii) is a statutory rule by itself. Therefore, there is no need for insisting for any other proof. Once that statutory rule is satisfied, no further obligation remains to be discharged by the assessee. The hon'ble Bombay High Court in case of Star Chemicals (2008) 11 DTR (Bom) 311 approved Mumbai Spl. Bench decision holding that once assessee has written off the debt as bad debt, requirement of Section 36(1)(vii) is satisfied. In my considered view,....
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....d by the assessee in assessment year 2004-05 wherein the Tribunal has held as under :- "5. Now coming to the merits. Since the assessee is a banking company the provisions of section 115JB was not applicable to a banking company, hence no income is assessable u/s.115JB. The said section has been extended to other assessee's like banks, insurance companies, etc. also as per the amendment made by Finance Act, 2012. In the following cases, it has been held that "Section 115JB is not applicable to Banks and other companies whose accounts are not made as per section 211 of the Companies Act". 1. Canara Bank vs. CIT (LTU), ITAT Bangalore [ITA No. 305/Bang/2011] 2. Dena Bank vs. ACIT (2)(3), ITAT Mumbai [ITA No. 4325/M/2011 & 1600/M/2012] 3. Krug Thai Bank PCL vs. JDIT (International Taxation) ITAT Mumbai [(2011) 16 taxmann.com] 4. Union Bank of India vs. ACIT, ITAT Mumbai [ITA No.4702 to 4706/Mum/2010] 5. Indusind Bank Ltd. vs. Addl. CIT, ITAT Mumbai [ITA No. 2921/Mum/2012] 6. In view of the above, we do not find any merit for the addition made u/s.115JB of the Act." 41. As the facts and circumstances during the assessment....
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....ted as in the nature of interest and hence admissible. However, we find that the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. vs CIT, 196 ITR 406 (Bom) has decided the issue against the assessee. We, therefore, respectfully following the decision of the jurisdictional High Court in the case of Ferro Alloys Corporation Ltd. (supra), reverse the order of CIT(A). Accordingly, the ground raised by the Revenue is allowed. 46. The next ground in the appeal of Revenue in ITA No. 29/Mum/2011 for assessment year 2007-08 is against the order of CIT(A) allowing deduction u/s 36(1)(viii) of the Act on account of special reserve. 47. Facts in brief are that the Assessing Officer did not allow relief to the assessee in respect of Special Reserve created under Section 36(1)(viii) of the Act. Assessee claimed deduction of Rs. 9,78,49,676/- under Section 36(1)(viii) of the Act though Special Reserve created for this purpose was Rs. 50 crores. The said deduction was computed on net long term income arrived at after disallowing expenses in this regard. The Assessing Officer enhanced the returned income by making disallowance of various expenses and consequently, the As....
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....viia) of the Income Tax Act to the appellant." 51. Facts in brief are that assessee has filed additional ground praying before the Bench to issue directions to the Assessing Officer to grant deduction to assessee under Section 36(1)(viia) of the Act in respect of provision for bad and doubtful debts in view of the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs CIT, Thrissur, 343 ITR 270 (SC) in which the Hon'ble Supreme Court has held that debt written off by urban branches of banks need not be adjusted against the provision for bad and doubtful debts in respect of rural branches under Section 36(1)(viia) of the Act. Accordingly, the ld. AR prayed before the Bench that assessee is entitled to claim both bad debts under Section 36(1)(vii) and provision for bad and doubtful debts under Section 36(1)(viia) of the Act. The ld. AR submitted that in the current assessment year, assessee had created provision for bad and doubtful debts in the books of account, however, same was not claimed as deduction under Section 36(1)(vii) of the Act towards provision for bad and doubtful debts in respect of rural branches. The ld. AR submitted that after the ....