TaxTMI 
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2022 (4) TMI 147
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....Assessee) ITA No. 2173/Del/2017 (G.No.1) (Department) ITA No. 2174/Del/2017 (G.No.1) (Department) ITA No. 1823/Del/2017 (G.No.1) (Department) ITA No. 1812/Del/2018 (G.No.1) (Department) Disallowance u/s 14A: 2. This issue is related to disallowance of Rs. 5.46 crores u/s 14A applying Rule 8D(2)(iii). 3. According to the assessee bank has sufficient non-interest bearing funds like share capital, reserves, current account balances for making any investment in tax free securities. Further, all expenses of the bank are for carrying on the banking business. Even the investments in the case of bank are held as stock-in- trade and part of business of the bank. Thus, no expenses can be disallowed u/s 14A. 4. It was argued that the AO has applied Rule 8D without recording any satisfaction for rejecting the assessee's claim and embarking upon Rule 8D nor there is any finding of any expenses incurred for earning of any tax free income. 5. The ld. CIT(A) has given part relief by upholding the disallowance as per last limb of Rule 8D namely Rule 8D(2)(iii). 6. The assessee is a Nationalized Bank and the issue is squarely covered in its favour by the order of the Co-ordinate Benc....
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....e considered to be business income. That is why Section 14A would not be attracted to such income." 8. The Co-ordinate Bench Delhi Tribunal in the case of Punjab & Sind Bank & Anr. vs. Assistant Commissioner of Income Tax & Anr. In ITA No.781/Del/2018, 1208/Del/2018 Jul 12, 2021(2021) 62 CCH 0324 (Del Trib.), had taken the similar view and deleted the disallowance u/s 14A of the Income Tax Act. 9. Therefore, this ground of the assessee is hereby allowed, the Revenue's appeal is hereby dismissed and the disallowance made u/s 14A is hereby deleted. ITA No. 1581/Del/2017 [G.No.2(a) (b)] (Assessee) ITA No. 1582/Del/2017 (G.No.2) (Assessee) ITA No. 1583/Del/2017 (G.No.2) (Assessee) ITA No. 1199/Del/2018 (G.No.3) (Assessee) ITA No. 2174/Del/2017 (G.No.3) (Department) Software Expenses: 10. This issue is pertaining to addition of Rs. 16,15,97,772/- being software expenses alleging it to be capital in nature as against the claim of the assessee that the same should be allowed as revenue expenditure. 11. This issue is covered in favour of the assessee in its own case by the Hon'ble Delhi High Court for Assessment Years 2008-09 to 2011-12 in ITA No.129/2018, 451/2017, 56/201....
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....seeking relief for deduction of Rs. 843,95,06,510/- u/s 36(1)(viia) of the Act. The ld. CIT(A) allowed the claim of the assessee u/s 36(1)(viia) following the order for AY 2011 -12 but restricted it to the amount of Rs. 729,44,85,300/- being provision for bad and doubtful debts and disallowed Rs. 114.51 cr. on the ground that reserve for bad and doubtful debts cannot be considered as provision. Reference is invited to page 13, para 8 upto page 19, para 8.4.3. 17. This issue is covered by the order of the Co-ordinate Bench of ITAT in assessee's own case for the A.Y. 2011-12 in ITA No.644/Del/2014 and ITA No.5969/Del/2014 vide order dated 25.10.2017. The operative part of the order is reproduced as under: "12 We find that the computation made in terms of section 36(1)(viia) gives the total amount of deduction at Rs. 637,56,78,375/-, which fact has not been disputed also. However, the Id. CIT(A) restricted the addition to the tune of Rs. 488.39 crore on the ground that the total amount of provision for bad and doubtful debts in respect of rural branches is only to this extent and, hence, deduction cannot exceed it. We are not agreeable with the view canvassed by the Id. CIT(A) in v....
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....e Co-ordinate Bench of ITAT in the assessee's own case for the A.Y. 2011-12 in ITA No.6443/Del/2014 and ITA No.5969/Del/2014. The relevant part of the order is reproduced as under: "15. The assessee has raised an additional ground reading as under: "1. The appellant by this additional ground is claiming relief of Rs. 30,73,30,286 being the amortized premium on HTM securities which may kindly be allowed" 16. This being a legal ground taken up before the Tribunal for the first time is hereby admitted for disposal on merits. The Id. AR contended that mortised premium on HTM securities be allowed as deduction. It was fairly admitted that the amount was offered for taxation and no deduction was claimed either before the Assessing Officer or before the CIT(A). He submitted that the additional claim has been raised because of the favourable judgment of the Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). Since this issue was not raised before the authorities below, we are of the considered opinion that the ends of justice would meet adequately if the Assessing Officer is directed to consider the assessee's claim in the light of the judicial precedents ....
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....ntative. In view of these facts we set aside the impugned order and restore the matter to the file of the Assessing Officer for deciding this point in accordance with the above noted method." Therefore, respectfully following the order of the Tribunal we decide the issue in favour of the assessee and against the Revenue and confirm the order of the Commissioner of Income-tax (Appeals) on this issue." 23. The above judgment of the Hon'ble Bombay High Court has been followed by the Hon'ble Karnataka High Court in the case of CIT vs. ING Vysya Bank Limited (2020) 422 ITR 116. The Hon'ble Karnataka High Court decided on two issues- one was whether the provision of section 115JB of the Income Tax Act would apply to a banking company and the second was whether the amortization of investment under HTM category done as per RBI guidelines was allowable expenditure u/s 37(1) of the Act. 24. At page 20 of the paper book is the question of law as under: "In addition, in ITA No. 18/2014, an additional substantial question of law arises, viz., whether the Tribunal committed an error of law in allowing the claim of the assessee on the issue of amortization of investment "held to maturity"....
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....s given this finding at relevant page no. 8 and 9 of his order para 5. Since the issue is covered in favour of assessee, the appeal of revenue on this ground is hereby dismissed. 31. On the same issue, the ld. CIT(A) for the AY 15-16 has disallowed the claim of depreciation on the ground that the AO has made additions by invoking provisions of Section 32 Explanation 1 and thus confirmed the disallowance. It is respectfully submitted that the facts in all the year are same namely that the additions are temporary wooden structures, internal partitions, cabin formation, flooring and ceiling wiring etc. for computer, false ceiling, glass windows, interiors etc. as noted by the AO. These are not in the nature of construction of any structures or renovation or extension or improvement to the building. 32. Therefore, this issue stands covered by earlier orders as explained above and assessee's appeal vide ground No. 2 of ITA No. 1199/Del/2018 for the A.Y. 15-16 is allowed. ITA No. 1823/Del/2017 (G.No.2) (Department) ITA No. 2173/Del/2017 (G.No.2) (Department) ITA No. 2174/Del/2017 (G.No.2) (Department) Interest on Overdue Deposit: 33. This issue is covered in favour of the asse....
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....by the AO considering the clarificatory amendment made by the Parliament vide Finance Act, 2013 by way of insertion of Explanation to section 37(1)(vii) of the Act which was held to have retrospective effect. The Id. CIT(A) deleted the addition by noticing that the amendment relied on by the AO was effective from the A.Y. 2014-15 and, hence, could not be retrospectively applied. 10. We have heard the rival submissions and perused the relevant material on record. The Hon'ble Supreme Court in Catholic Syrian Bank vs. CIT (2012) 248 CTR 1 (SC), has observed that the provisions of section 36(1)(viia) apply only to rural advances and the provisions of section 36(1)(vii) apply on other advances. It has been held that both these provisions are distinct and independent items of deduction and operate in their respective fields. It is relevant to note that Explanation 2 has been inserted by the Finance act, 2013 w.e.f. 01.04.2014 diluting he position laid down in Catholic Syrian Bank (supra). Such an insertion has been made prospectively and hence cannot be applied retrospectively to the year under consideration. The Mumbai Bench of the Tribunal in the case of IDBI Bank Ltd. vs. CIT (ITA ....
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.... 36(1 )(vii) wherein Explanation-2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014-15 which [CIT(A)'s order at page 67] is again reproduced: "11.7 In order to clarify the scope and applicability of provision of clause (vii), (via) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (via) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub¬section (1) of section 36 shall be limited to the amount by which such bad debts exceeds the credit balance in the provisions for bad and doubtful debts account made under clause (viia) of sub-section (1) of section 36 without any distinction between rural advances and other advances." 44. From the above, it was noticed that the deduction u/s 36(1)(vii) will be limited only in those cases where such bad debt exceeds ....
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....amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under s. 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above. " 47. Therefore, in assessee's case also, it is an actual write off in view of the decision of the Hon'ble Supreme Court, this issue is fully covered in favor of assessee. The appeal of the assessee is hereby allowed on this ground. ITA No. 1581/Del/2017 (G.No.5) (Assessee) ITA No. 1582/Del/2017 (G.No.3) (Assessee) ITA No. 1583/Del/2017 (G.No.3) (Assessee) ITA No. 1199/Del/2018 (G.No.6) (Assessee) MAT Provisions: 48. Vide this ground the assessee bank contended that being a Nationalized Bank under the Banking Company (Acquisition & Transfer of Undertaking Act, 1980) the provisions of section 115JB are not at all applicable to the appellant bank. The AO in his order has directly embarked about computation of book profit under 115JB. 49. The ....
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.... fall within the charging section. It was a case of charging a partnership firm for transfer of a capital asset in the nature of goodwill. The Supreme Court was of the opinion that it would not be possible to envisage a cost of acquisition of goodwill. Since computation of capital gain cannot be done without ascertaining the cost of acquisition, it was held that no capital gain tax can be levied." 53. Concluded at page 12 para 21 as under: "27. In the result, we hold that sub-section 115JB as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. We answer the question No. 2 in favour of the assessee and against the revenue. In view of this, question of correctness of the order of rectification passed by the Assessing Officer becomes unimportant. Question No. 1 is therefore not answered. All the appeals are dismissed." 54. For the AY 2013-14 and onwards, vide ground no. ground no. 3 of ITA no. 1582/Del/2Q17 (AY 13-14), ITA no. 1583/Del/2017 (AY 14-15) and ground no. 6 of ITA no. 1199/Del/2018 (AY 15-16), the assessee has contended that provisions of section 115JB (MAT) will not apply as the assessee is a Nationalized Bank....
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....r calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year." 56. Thus, the understanding of the above amendment to section 115JB is where a company which are not required u/s 211 (129) of the Companies Act to prepare their P&L account in accordance with Schedule - VI of the Companies Act, 1956 profit & loss account prepared in accordance with the provisions of their Regulatory Acts shall be taken as a basis for computing the book profit u/s 115JB. 57. The assessee's contentions for non-applicability of 115JB provisions are: "i) It is a case of Nationalized Bank, under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980. ii) Assessee is not a company incorporated under the Companies Act, 1956, nor recognized under section 3 of the Companies Act. iii) The second proviso to sub-section (1) of section 129 (earlier provision 211) of the Companies Act, 2013 is not applicable to th....
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....for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which [section 10 (other than the provisions contained in clause (38) thereof) or [****] section 11 or section 12 apply; or] (g) the amount of depreciation,] (h) the amount of deferred tax and the provision therefor; (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,-]]] (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this s....
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....ofits, as increased by the amounts, if any, from items (a) to (j) and reduced by the items from (i) to (viii). Therefore there are specified adjustments which can only be made to the net profits as per profit & loss account. Since this is a section wherein the assessee is taxed by a deeming fiction, it has to be strictly construed and no adjustments are possible other than what is mentioned in the Explanation. 63. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) (copy enclosed) has on page 280 held as under: "Therefore, we are of the opinion, the Assessing officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section ....
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....Karnataka High Court in the case of CIT vs. Yokogawa India Ltd. reported in [2012] 204 Taxman 305 has taken similar view and has held as under: "In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, item (c) of the Explanation is not attracted to the facts of the case. Item (c) in section 115JA and 115JB (1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in item (c) of the Explanation. It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (1). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realizing the fatality of the said argument, it is contended now that item (i) cannot amount to satisfactio....
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....lanation to section 115JA or 115JB is not at all attracted. In that context even if amendment which Is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, there is not merit in this appeal." 69. The same view was taken by Co-ordinate Bench of ITAT Mumbai in the case of Bank of India Vs. ACIT in ITA No. 1767/Mum/2019 and 2048/Mum/2019 dated 11.12.2020. The relevant portion of the order is as under: "37. In the course of arguments before us learned counsel for the assessee has simply placed his reliance on the judgment of Hon'ble Gujarat High Court in the case of CIT Vs Vodafone Essar Gujarat Limited [(2017) 85 taxmann.com. 32 (Guj)] but has not even dealt with the specific issues, as discussed above by he learned CIT(A). Be that as it may, one thing that is clear is that the Assessing Officer has not, at any stage, even verified whether he assessee has reduced the corresponding amount, of the provision of Rs. 5359,64,38,015, from the loans and advances on the asset side of the balance sheet, because if that be so, in terms of Vodafone Essar (supra) judgment of Hon'ble Gujarat High ....
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....espect of provisions made for bad and doubtful debts. The Income Tax Act has considered this peculiarity in the case of banking industry and has allowed deduction on the basis of provision whereas under normal circumstances, any provision made in the books is not allowed as deduction. The fact that the provisions of Section 115JB are now allowing the profit & loss account to be prepared in accordance with the regulatory act under which the bank operates, all provisions as mandated by RBI and duly recorded in the books should be allowed. Also when in the Income Tax Act itself the deduction is allowed to the assessee, it cannot be held that the computation under book profit provisions contemplated addition of such claim under the garb of provision for diminution in the value of assets. 72. Therefore also the addition made by the AO on this ground is directed to be deleted as it is not an adjustment contemplated u/s 115JB of the Act. ITA No. 1823/Del/2017 (G.No.5) (Department) ITA No. 2173/Del/2017 (G.No.6) (Department) ITA No. 2174/Del/2017 (G.No.8) (Department) ITA No. 1199/Del/2018 (G.No.9) (Assessee) HTM Investment: 73. The assessee submitted that loss on amortization ....
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....t will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. Therefore provision for bonus made is an ascertained liability and cannot be added in the net profit for arriving book profits. ITA No. 1823/Del/2017 (G.No.6) (Department) ITA No. 2173/Del/2017 (G.No.7) (Department) ITA No. 2174/Del/2017 (G.No.9) (Department) ITA No. 1812/Del/2018 (G.No.3) (Department) Leave Encashment, LTC & Gratuity: 80. In respect of Leave encashment & LFC and Gratuity, the assessee submitted that the above provisions are made on actuarial valuation basis therefore the same are in the nature of ascertained liability and does not fall under any of the items from (a) to (j) of the above explanation to section 115JB. Therefore there is no question of making any addition to the book profits. Hence, the addition made on account of above items deserves to be deleted. 81. The assessee is placing reliance on the following case laws of Hon'ble Supreme Court and Hon'ble Delhi High Court which laid down the principle that the incurring of liability is the ground for allowability of deduction quantification ....
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....ent opinion and held that the provision for accrued leave salary was a contingent liability and therefore was not a permissible deduction. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that the provision made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, was entitled to deduction out of the gross receipts of the accounting year during which the provision is made for the liability. The liability was not a contingent liability." 2. DCIT vs. INOX Leisure Ltd. [2013] 351 ITR 314 (Guj) "That though the actual payment of gratuity might be made at a later point of time upon the periodical release of the employees from service, it was a provision been made on the actuarial basis, and could not be stated to be an unascertained liability so as to be added back in terms of clause (c) to Explanation 1 to section 115 JB of the Income-tax Act, 1961." 3. CIT vs. Hewlett Packard India (P) Ltd. [2009] 314 ITR 5....
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.... way of addition to the net profit. 87. In assessee's case the amount is debited in the Profit & Loss account and the same is not covered by any clause of addition of the Explanation to section 115JB. ITA No. 1582/Del/2017 (G.No.7) (Assessee) ITA No. 1583/Del/2017 (G.No.7) (Assessee) ITA No. 1823/Del/2017 (G.No.7) (Department) ITA No. 2173/Del/2017 (G.No.9) (Department) ITA No. 2174/Del/2017 (G.No.11) (Department) ITA No. 1812/Del/2018 (G.No.5) (Department) Disallowance u/s 14A: 88. The AO has made disallowance u/s 14A read with Rule 8D. The disallowance was based on a mathematical formula without there being any expenses identified by the AO which are incurred for earning of exempt income and debited to the profit & loss account. Therefore under the normal provisions itself, the disallowance deserves to be deleted as the appellant has cases in its favour in its own assessments. Hence there is no question of adding the above amounts in the calculation of book profit. 89. In this connection appellant is relying on the decision of the Coordinate bench of ITAT Delhi in the case of Quippo Telecom Infrastructure Ltd. vs. ACIT in ITA no. 4931/Del/2010 dated 29.07.2011. ....