TaxTMI 
TaxTMI 
2022 (1) TMI 583
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act was higher than the tax payable u/s 115JB of the Act, the AO assessed total income under normal provisions of the Act. The assessee filed appeal challenging the assessment order by filing appeal before Ld CIT(A) and it was partly allowed. Aggrieved by the order passed by Ld CIT(A), both the parties have filed these appeals on the issues decided against each of them. 3. The assessee has filed additional ground of appeal besides original ground. In the additional ground, the assessee is seeking deduction of education cess and secondary & higher education cess as allowable expenditure. It is stated that it is a pure legal issue and all facts relating thereto are available on record. Accordingly, we admit the additional ground. The grounds and additional ground urged by the assessee give rise to the following issues:- (a) Disallowance of bad debts claimed u/s 36(1)(vii) of the Act. (b) Disallowance of payments made to VISA International u/s 40(a)(ia) of the Act. (c) Additions made while computing book profit u/s 115JB of the Act. (d) Plea for deduction of Education cess and Secondary & Higher education cess as allowable expenditure. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not actual write off. Before the AO, the assessee had placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT (2010)(320 ITR 166 (SC)) to reiterate that it is entitled for deduction u/s 36(1)(vii) of the Act. The AO expressed the view that the issue considered by Hon'ble Supreme Court in the case of Vijaya Bank (supra) related to category of "Loss Assets" , which is required to be provided @ 100% of the outstanding amount. He further expressed the view that the Hon'ble Supreme Court did not consider the question viz., Whether the provision for non-performing assets created by the assessee bank by debiting P & L a/c and crediting the provision account amounts to bad debts written off as per sec. 36(1)(vii) of the Income tax Act? Accordingly, the AO held that the assessee cannot place reliance on the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank (supra). Accordingly the AO held that the amount of Rs. 192.02 crores was mere prudential write off and hence not allowable as deduction. He also held that it is a clear case of double deduction, i.e., once u/s 36(1)(viia) and again u/s 36(1)(vii) of the Act. Accordingly h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provision allowed u/s 36(1)(viia) of the Act. However, the Ld CIT(A) expressed the view that the PBDD allowed u/s 36(1)(viia) of the Act is applicable to both Rural and non-Rural debts. Accordingly, he held that the entire amount of bad debts written off (both rural and non-rural) should be first adjusted against the provision allowed u/s 36(1)(viia) of the Act and only the excess should be allowed as deduction. He expressed the view that the decision by Hon'ble Supreme Court in the case of Catholic Syrian Bank (2012)(343 ITR 270)(SC) was rendered under the assumption that the banks would maintain separate PBDD a/c in respect of rural branches and nonrural branches and therefore it is possible to distinguish PBDD as one in respect of rural branches and non-rural branches. The Ld CIT(A) expressed the view that the claim of the bank that the provisions of sec. 36(1)(viia) are distinct and independent of sec. 36(1)(vii) is based on the old circular no. 258 dated 14.6.1979 issued in connection with old law. Accordingly the Ld CIT(A) held that the provision allowed u/s 36(1)(viia) of the Act is for single account since introduction in 1985 for all types of advances including rural ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e facts of the present case in the context of aforesaid statutory provision, it will be evident that assessee, though, has written off in the books of account an amount of Rs. 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this regard in paras 26 & 27 of the judgment is extracted hereunder for convenience. "26. The Special Bench....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rural advances, the same cannot be applied for disallowing deduction claimed on account of write off of bad and doubtful debts relating to nonrural/ urban advances. As far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/ urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A)." 5.4 Following the above said decision, we hold that the view expressed by Ld CIT(A) is not lega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so to sec. 40(a)(ia) of the Act. Further CBDT notification no.56/2012 dated 31.12.2012 provides exemption from TDS provisions for payments made to NPCI. The AO did not accept the explanations of the assessee and accordingly disallowed the amount of Rs. 17,27,78,331/-. 6.2 The Ld CIT(A) deleted the disallowance of payments made NPCI and Cash Tree network by following the decision rendered by Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd (2016)(285 CTR (SC) 63) and also the decision rendered in the assessee's own case by ITAT in ITA No.1264 & 1352 (B)/2013 for AY 2011-12. The Ld CIT(A), however, confirmed the addition of VISA charges of Rs. 15,01,663/-. Hence both the parties are in appeal before us. 6.3 We notice that identical issues have been considered by the coordinate bench in the assessee's own case in ITA No.89/PAN/2017 & CO No.07/PAN/2017 relating to AY 2012-13 and the Tribunal, vide its order dated 06.02.2020 has decided the issue as under:- "13. The next issue relates to disallowance made u/s 40(a)(ia) of the Act. The AO noticed that the assessee has claimed a sum of Rs. 75.46 crores as other expenses details of which are given below:-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Financial Switch and Cash Tree Consortium for use of ATM of other banks by its customers and whether failure to do so attracts the disallowance under section 40(a)(ia) of the Act. These charges are known as cash management service charges which does not attract the TDS provisions in the light of the Central Board of Direct Taxes Notification No, 56 of 2012 dated December 31, 2012 : Notification No. S. 0. .3069(E) [No. 56/2012 (F. No. 275/53/2012- ff(B)], dated December 31, 2012' [Superseded by Notification No. S. 0. 2143(E) (No. 47/2016 (F. No. 275/53/2012-11(B), dated June 17, 2016] In exercise of the powers conferred by sub-section (iF) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter X1711 of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely (1) bank guarantee commission; (ii) cash management service charges (iii) depository charges on maintenance of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. Accordingly we restore this issue to the file of AO for computing disallowance for the purpose of clause (f) from the profit and loss account. 8. The last issue relates to the claim of deduction of education cess and Secondary & Higher education cess paid during the year as deduction. The assessee has raised this claim by way of additional ground. The Ld A.R submitted that the claim of the assessee is allowable as per the decision rendered by Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd (ITA No.52/2018 dated 31.7.2017). The Ld A.R also submitted that the Hon'ble Bombay High Court has expressed the view in the case of Sesa Goa Ltd that the education cess, secondary and higher education cess is allowable as deduction. 8.1. Accordingly, following the above said decision, we restore this issue to the file of AO to examine the claim of the assessee in accordance with the decision rendered in the cases cited supra. 9. We shall now take up the appeal filed by the revenue. The first issue contested by the revenue relates to the disallowance made u/s 14A of the Act. The assessee had earned exempt income of Rs. 3,41,60,914/- and did not make ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hence, as per decision rendered by Hon'ble Karnataka High Court inthe case of Micro Labs Ltd., 383 ITR 490, no disallowance of interest expenditure u/s 14A is called for. He also noticed that the Hon'ble Karnataka High Court has held in the case of Karnataka State Industrial and Infrastructure Development Corporation Ltd., 65 Taxmann.com 295 that no disallowance u/s 14A can be made if the AO has not recorded non satisfaction. The ld CIT(A) took the view that the AO has not recorded non satisfaction in the assessment order and accordingly deleted the disallowance made u/s 14A of the Act. 6. The ld DR submitted that the AO has made the disallowance u/s 14A of the Act after due application of mind and after recording satisfaction. He further submitted that the assessee has not disallowed any expenditure u/s 14A of the Act, even though it has earned exempt income. 7. On the contrary, the ld AR submitted that this issue has been decided in favour of the assessee by the co-ordinate bench in the assessee's own case for asst. year 2008-09 wherein the Tribunal had deleted the disallowance by following the decision rendered in the case of Canara Bank (2015) 228 Taxmann.com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....faction has to be found out from the discussions made by him in the assessment order. The discussions made by the AO in the assessment order, which are extracted above, in our view, show that the AO was not satisfied with the contentions of the assessee and hence the same satisfies the requirement of recording of dissatisfaction by the assessing officer. We notice that the co-ordinate benches in the earlier year in the assessee's own case as well as in the case of Canara Bank had upheld the deletion of disallowance made u/s 14A of the Act only on the reasoning that the AO has not recorded dissatisfaction. However, in the instant year, we are of the view that the assessing officer has recorded dissatisfaction. Accordingly, the decision rendered by the co-ordinate bench for asst. year 2008-09 is distinguishable. 10. The Hon'ble Supreme Court has settled the issue relating to disallowance to be made u/s 14A of the Act in the case of Maxopp Investments Ltd., Vs. CIT (Civil Appeal No.104-109 of 2015 dated 12/2/2018). The following observations made by the Hon'ble Supreme Court in para 39 of the order are relevant here. "39) In those cases, where shares are held as stoc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income. 11. In the instant case the assessee has claimed that the investments are held as stock in trade and hence earning of dividend income is incidental to its business activity. However as noticed earlier, the said theory of dominant intention should not be applied as per the decision rendered by the Hon'ble Supreme Court in the case of Maxopp Investments (supra) and hence disallowance u/s 14A is called for even in respect of investments held as stock in trade, when the exempt income is earned by the assessee. 12. We noticed that the AO has disallowed interest expenditure also under Rule 8D(2)(ii). It is the submission of the assessee that the interest free funds available with it is more than the value of investments. Hence, as per the decision rendered by Hon'ble jurisdictional high court in the case of Micro Labs Ltd. (Supra), interest disallowance is not called for. However, this contention of the assessee requires verification at the end of the AO. Since the assessee has earned dividend income, the disallowance u/s 14A is, in any way, called for. In view of the foregoing discussions, we are of the view that this issue requires fresh examination at the en....